Today's Business Press

It's like the $700 billion bailout never happened. That's the New York Times' take on a wild day on Wall Street that saw the Dow Jones industrial average drop nearly 445 points, or 5.6 percent, the Nasdaq 5 percent, and the S&P 500-stock index fall 6.7 percent, "breach[ing] its low from the last bear market and land[ing] back where it was in the spring of 1997, marking a 52% decline from its peak," writes the Wall Street Journal. Fresh fears about a global recession combined with a backlash against the Treasury Department's recent decision not to buy troubled mortgage-backed debt seem to have sparked yesterday's "new bout of fear" that saw investors stampede away from equities and to the safety of Treasury bonds (now trading at their highest level in 35 years).

Citigroup stock fell another 26 percent Thursday, its worst one-day percentage decline ever, as U.S. banks bore the brunt of the sell-off; it seems investors are more suspicious than ever of what toxic mortgages the financial sector remains lumbered with. Despite the assurance of Saudi Prince Alwaleed Bin Talal that he intends to increase his stake by $350 million, to 5 percent, from less than 4 percent, the bank has lost half its value in just four days, reports the NYT. So despite boasting a "very strong capital and liquidity position" in the words of one company spokesperson, Citi is being forced to consider "auctioning off pieces of the financial giant or even selling the company outright," the WSJ reports. Crazy. Citi isn't suffering alone. JPMorgan Chase saw its share prices tumble 18 percent, while Bank of America fell 14 percent, its lowest level since 1996. And while we're taking historical notes, shares in Goldman Sachs were trading below the $53 price, a low not seen since the day it first sold shares to the public in 1999.

As the banks tank so does the price of oil. Crude futures dipped below $50 a barrel for the first time since 2005 yesterday as traders anticipated a slowing of demand in the coagulating global economy. Frantic OPEC ministers will gather soon to rubber-stamp a cut in production, but even that is unlikely to stop a falloff that "is a testimony to the world’s dire economic straits," writes the NYT. With some analysts predicting a return to $30 a barrel, the paper posits: "The pillars that had pushed up the price of oil and other commodities seem to be crumbling all at once: the American consumer is in full retreat; the Chinese economy is sputtering; financial markets are collapsing; developing countries are trimming their energy subsidies."

Cheap oil (and resulting gas prices at the pump) is about the only silver lining the chief execs of the Big Three automakers can see at present. They returned to Detroit empty-handed and tailpipes between their legs, having been told by Democrats in Congress not to come back until they have a "detailed plan on how they would spend $25 billion in government aid," the Detroit News reports. The earliest that can happen is Dec. 2, and this further delay in securing a bailout "startled industry analysts, who said General Motors, the largest and weakest of the firms, may not be able to hang on much longer without federal aid," the Washington Post writes. Though Democrats still seem disinclined to let the Big Three fall into bankruptcy, even they fear a $25 billion bailout might just be a first installment, writes Business Week.

Finally, here's a little bit of charity to warm your heart, courtesy of Fannie Mae and Freddie Mac. The nationalized mortgage financiers announced Thursday they will suspend evictions and foreclosures during the upcoming holiday season as part of their pledge to increasingly impatient lawmakers to stem the tide of people losing their homes, the Washington Post writes. The grace period will extend from Nov. 26 to Jan. 9. After that, "seriously" delinquent homeowners are back on the street.

Sound the alarms! Consumer prices are in a freefall, stoking fears the economy is on the precipice of deflation. The Labor Department on Wednesday reported the prices of consumer goods fell by 1 percent in October, the biggest one-month drop in 61 years. As the New York Times points out, no, falling prices are not a good thing for an already shrinking global economy. "While most consumers might welcome the idea that things are getting cheaper, deflation is an economists’ nightmare," the NYT writes. For starters, declining prices would greatly minimize the impact of the Federal Reserve's previous rate cuts. Unresponsive monetary policy is what sunk Japan in the 1990s, the so-called "lost decade," pundits are quick to point out.  What is the Fed to do? Cut again. According to the Financial Times, "the US central bank may cut interest rates again by as much as 50 basis points from the ­current level of 1 percent in December." Analysts at JPMorganChase predict the Fed will go even lower—down to zero by early next year. It's not just the United States that is seeing a rapid decline in prices. Prices are also falling across Europe and in Japan, the NYT reports.

Deflation fears sank U.S. markets on Wednesday to their lowest levels since the current financial crisis began. According to the Wall Street Journal, investors ditched equities and bonds. "The stock market's fall to a 5½-year low was led by the credit markets, where prices of corporate and real-estate bonds fell to their lowest levels in more than 20 years," the newspaper writes.

Things look equally bleak overseas this morning. Asian stock markets fell on average by 6 percent Thursday to plumb five-year lows, Reuters reports, adding that oil fell below $53 a barrel. European markets opened down as well on Thursday, the BBC reports.  Part of the fears in Asia came from a surprise report out of Tokyo this morning. "Japan unexpectedly posted a 63.9 billion yen [$671 million] trade deficit in October, reinforcing concerns that falling exports will push the country deeper into recession," the FT writes. Economists had been banking on a trade surplus. The outlook is looking only marginally better for struggling Iceland. Overnight it announced its Nordic neighbors Finland, Sweden, Denmark, and Norway will pitch in and lend Iceland $2.5 billion.

Viewing the struggles of the world's largest economies, a new theory is emerging from global business leaders: It will be the emerging economies that get us out of this mess. These emergent powers, including China, India, and Brazil, make up 30 percent of the world's GDP. Josep Piqué, chairman of European airline Vueling, told the NYT that "the emerging countries are the solution to the overall global slump."

"Like seeing a guy show up at the soup kitchen in high-hat and tuxedo." That's how one lawmaker described the chief executives of the Big Three automakers' "tone deaf" decision to fly by corporate jets to D.C. in search of a bailout, the Washington Post writes. By the time a deeply skeptical House financial services committee had finished grilling GM's Richard Wagoner, Ford's Alan Mulally, and Chrysler's Robert Nardelli, it was clear the Big Three could go home empty-handed, writes the Los Angeles Times. Coupled with the Senate's decision to cancel a vote on providing auto loans, it is clear that "[m]any members of Congress worry that Detroit has not changed its big-spending, gas-guzzling habits, and that company executives will be back in a few months asking for billions of dollars more to stay afloat," writes the LAT. If Detroit falls, the South could rise writes the WSJ, noting, "Foreign makers have been lured to South Carolina, Alabama and other Southern states over the past decade by generous tax benefits and laws that make it easier to build a largely nonunion work force." That labor "flexibility" has allowed the likes of BMW and Toyota to quickly downsize when necessary in a way the Big Three could only dream of doing.

While retailers on both sides of the Atlantic grapple with the prospect of dire Christmas sales (even the vaunted online retail sector is cut-throat this year), at least one set of consumer companies already is looking to the New Year. The Seattle Post-Intelligencer reports that a "group of companies including Starbucks, Nike and Sun Microsystems has banded together to urge Congress to regulate greenhouse gas emissions and promote investment in renewable energy." The coalition, Business for Innovative Climate and Energy Policy, advocates "stimulating renewable energy, promoting energy efficiency and green jobs, requiring 100 percent auction of carbon allowances, and limiting new coal-fired power plants to those that capture and store carbon emissions," MarketWatch reports.

And finally, rewind to a previous financial crisis: the technology and dot-com collapse of 2000. That's when fund manager Alberto W. Vilar allegedly starting swindling a total of $20 million from his clients—including $5 million from Lily Cates, the mother of actress Phoebe Cates—to keep his operation at Amerindo Investment Advisors afloat. Vilar and his partner Gary A. Tanaka were convicted on a series of fraud charges yesterday in federal court in Manhattan, the NYT writes. For Vilar, the verdict marks a staggering fall. "The investor and music lover accustomed to opulent living, front-row opera seats and the gratitude of arts impresarios, now faces a more humble prospect: prison," the newspaper writes.

Just $25 billion more (OK, maybe a bit more) in cheap government loans—that's all the Big Three automakers need to retool and avoid collapse, the CEOs of Ford, General Motors, and Chrysler pitched to Congress on Tuesday. "From the response they got, it will be a tough sell," BusinessWeek reckons. The New York Times concurs, writing that "after four hours of testimony, it appeared they had not persuaded enough lawmakers to move quickly on a bailout." The Democratic leadership, the newspaper adds, has not succeeded in mustering enough support to tap the $700 billion bailout fund to rescue the troubled carmakers. It's just as well, opines the Wall Street Journal, contending that "the money is a tool of Congressional industrial policy to turn GM, Ford and Chrysler into agents of the Sierra Club and other green lobbies." The WSJ's suggestion? For starters, ease "onerous" fleet mileage standards that "force the companies to make cars domestically that are unprofitable." This, the newspaper concludes, would probably save Chrysler from bankruptcy.

Meanwhile, auto bailout fever is spreading abroad. Foreign automakers are watching the proceedings in Washington with great interest, telling lawmakers back home that if Detroit gets a bailout, they'll need one, too. This is precisely the rationale in Beijing, where China’s car industry "is quietly pressing ... for government help as it copes with a jarring slowdown," the NYT writes. European automakers are fishing for state aid too, taking advantage of the EU's dithering on whether such help would constitute a breach of competition rules, according to the WSJ.

Meanwhile, the business prospects for the leading carmakers worsen by the day. Ford's marketing chief yesterday described November auto sales as "just terrible." And, it emerged yesterday, the resale value of American cars—as measured by the Kelley Blue Book people—continues to lag behind European and Asian car models (not a good sign for the Big Three).

If Detroit loses its fight for bailout bucks, it won't be alone. Treasury Secretary Henry Paulson told the House financial services committee on Tuesday that neither Detroit nor homeowners facing foreclosure deserve access to the dwindling $700 billion bailout reserve. "The primary purpose of the bill was to protect our financial system from collapse," Paulson lectured House Democrats urging homeowner relief. "The rescue package was not intended to be an economic stimulus or an economic recovery package." The fault lines are widening, indeed, between Paulson and House Democrats, who accused the Treasury secretary of misleading them on the original intent of the aid and of not knowing what to do next, the Washington Post reports. "There's a lack of confidence, it seems to me, both in this body and in the general population," Rep. Paul E. Kanjorski, D-Pa., lashed out at Paulson during the hearing. "Do we have a plan? Where are we going?" Paulson seemed cool under fire though, repeatedly stating the package is for stabilizing the financial system, not "a panacea for all our economic difficulties."

"You cannot be serious!" To paraphrase, that's New York Attorney General Andrew M. Cuomo's reaction to suggestions that AIG—recent beneficiary of $150 billion in rescue loans—might hand out executive bonuses this year. It "seems hard to believe that A.I.G. could pay significant bonuses or give raises to its executives after the company has quite literally been bailed out by the American taxpayer," Cuomo wrote to CEO Edward M. Libby, the NYT's Dealbook reports. Cuomo also pointed out that Goldman Sachs, UBS, and Barclays have all waived bonuses for this year.

Shares in Hewlett-Packard soared 14 percent yesterday, BusinessWeek reports, as the granddaddy of Silicon Valley beat the street and surprised analysts by reporting an upbeat outlook for 2009. While tech giants such as Cisco, Sun Microsystems, and Intel all languish, HP delivered a fourth quarter profit of $1.03 a share, benefiting from what CEO Mark Hurd described as "its global reach, diverse customer base, broad portfolio, and numerous cost initiatives." Even more surprising news from Silicon Valley comes from the WSJ, which reports Google and Procter & Gamble have started swapping employees in an "odd couple" pact to leverage the next generation of online advertising. P&G needs to learn more about online consumer habits as its market moves increasingly to the Net while Google "craves a bigger slice of P&G's $8.7 billion annual ad pie as its own revenue growth slows."

Lastly, if you get home early for Christmas this year, you may need to thank President Bush. The White House on Tuesday gave the green light for commercial airlines to use military air space across the country during the holiday season to ease midair congestion, the NYT writes. The move may not be necessary. The Air Transport Association is predicting for the upcoming Thanksgiving weekend that the number of air passengers will be down 10 percent from last year.

Yahoo co-founder and CEO Jerry Yang will step down as soon as the company finds a replacement, the Wall Street Journal, CNN Money, Business Week, and the New York Times all report this morning. The central narrative of Yang's "rocky reign" in his second stint as CEO was "his refusal to sell the Internet company to Microsoft Corp. for $47.5 billion—more than triple Yahoo's current market value," observes CNN Money. No prizes then for guessing what might be Yahoo's new strategy for escaping the torpor that has gripped the company for more than a year now. "This clears the path for a likely Microsoft deal," Collins Stewart analyst Sandeep Aggarwal tells Business Week. The news was first broken by the WSJ's Boomtown blog, which wastes no time in assessing possible pretenders to the Yahoo crown. Odds on favorite? Current News Corp. President and COO Peter Chernin. One former Internet CEO not being tipped but nevertheless in the news is Mark Cuban. The Dallas Mavericks owner has been charged with insider trading in relation to the sale of 600,000 shares of Internet search company Mamma.com back in 2004. He plans to fight the case.

Yang's imminent departure overshadowed the mind-boggling announcement from Citigroup that it intends "to axe 52,000 jobs, or one in seven employees, and slash costs by about $10bn," as the Financial Times reported. The cull of nearly 14 percent of Citi's global work force represents "one the largest single rounds of layoffs on record, not just for the financial industry but for any industry," notes the NYT. You'd assume Citi's fortunes would make any company think twice about entering the banking sector, but U.S. life insurers are in fact racing to buy tiny banks, reports the WSJ. The reason? "Turn themselves into savings-and-loan holding companies, and thus qualify for infusions from the government under the $700 billion Troubled Asset Relief Program." Their rationale becomes clear when you hear that Treasury Secretary Hank Paulson has no intention of using "what remains of the $700 billion Wall Street rescue fund to launch substantial new programs" ... say, for the insurance industry.

The NYT looks ahead to the arduous lobbying road trip facing the Big Three auto makers as they head to Washington in search of a bailout. With many politicians opposed to supporting the car companies and Detroit being treated as a dirty word, the NYT looks at how both the companies and the auto unions lost their clout. It asks: "How did the famous 1953 quotation from the former General Motors President Charles E. Wilson—that what was good for our country was good for G.M., and vice versa—become a dated notion to so many people?" Perhaps new data from Ford tallying just how many people around the nation will lose their jobs if it goes under might sway opinion. The analysis, obtained by the WSJ, shows that "25 states could lose 3,000 Ford-related jobs or more if the auto maker were to disappear." Things are so bad for Ford that it will cut its stake in Mazda to 13 percent from 33.4 percent in a move that would "provide Ford some desperately needed cash," CNN Money reports via AP.

Somali pirates, not content with snatching a ship full of tanks, have gone and hijacked a Saudi Arabian supertanker, the BBC reports. The Sirius Star, "the biggest tanker ever to be hijacked," has a cargo of 2 million barrels, a quarter of Saudi Arabia's daily output, worth more than $100 million. Up until now, piracy was low on the list of oil traders' concerns when factoring in the future price of crude. But "as much as half of the world's daily crude consumption is transported to market aboard ships," the WSJ writes. With the oil industry relying "heavily on shipping lanes through the Gulf of Aden, which lies between Yemen and Somalia," pirates now have the power to move oil markets. (The price of crude oil jumped $3 a barrel on the news yesterday before declining again.) The long-term concern is whether attacks could "force a rise in insurance costs for shipping companies," notes the NYT.

Finally, sticking with the shipping news, the Guardian reports that the global recession is hitting the luxury yacht market pretty hard. That means bargains are to be had: Consider the 164-foot Alibella, "which boasts a helipad and marble fixtures and fittings finished with gold trim," and is now available for just $30 million, an $11.9 million reduction off the sticker price.

More bad news to start the week: the U.S. economy will shrink further over the next two quarters, with the unemployment rate expected to peak at 7.5 percent, Reuters reports, citing a new poll. The survey, taken by the National Association of Business Economists, says real GDP will fall by 2.6 percent in the current quarter and by 1.3 percent in the first quarter of next year. The poll paints a gloomier picture than the official government estimates that GDP will shrink at just 0.3 percent, Reuters points out. And the economists say with near unanimity that the U.S. has been in a recession for a while, perhaps since the end of 2007. Other economists polled say it began in early 2008.

One place economists agree recession has already set in is Japan, the world's second-largest economy. The Japanese government this morning admitted GDP contracted at an annual rate of 0.4 percent from July to September, putting Japan officially in recession for the first time since 2001, the Washington Post writes from Tokyo. "Japan's economy minister warned that the situation could worsen: Collapsing sales of Japanese goods in the United States and Europe amid the global downturn threaten to make the country's export-dependent economy even weaker in coming months," the newspaper adds. The outlook appears equally bleak in Britain, another G7 power. The U.K. recession will almost certainly be worse than first expected, driving nearly 3 million people out of their jobs as the economy contracts by 0.8 percent in 2008 and by 1.7 percent in 2009, the Wall Street Journal writes, citing the latest survey by the Confederation of British Industry. As a result, the CBI expects the Bank of England in the next year to cut benchmark interest rates by a further 1.5 percent.

With so much talk of global recession in the air, what, if anything, did this weekend's historic G20 meeting accomplish? Depending on which paper you pick up, the landmark summit will either succeed in opening the door to a globally coordinated stimulus plan or will simply pour gasoline on the fire. The Financial Times is in the optimistic camp, saying G20 world leaders presented a united front in pledging "to shore up global growth, avoid protectionism and move quickly on regulatory reform." The paper added, "People at the talks said the statement would give fresh momentum to national stimulus packages." The WSJ is less convinced, wondering if world leaders "in their haste to prevent a future crisis, may inadvertently worsen the current one." Why so pessimistic? The newspaper points out that the summit zeroed in on the root cause of the current financial crisis—high-risk lending and investing—and policy-makers are now considering a crackdown on the practice, a move that would further freeze up credit markets. "This is a big signal to everybody to clamp down on their banks to tighten lending standards," Simon Johnson, a former chief economist at the International Monetary Fund, told the WSJ. "The last thing you want to do in a global credit crunch is go around and basically tell people to tighten, tighten, tighten."

Months of negative press finally seem to have had an effect on U.S. fat-cat mentality. The NYT and WSJ report that Goldman Sachs will award no year-end bonuses to its top seven executives, "easing political pressure" on one of the firms benefiting from the bank bailout and putting "heavy pressure on Goldman Sachs's competitors, including Morgan Stanley, to take similar action." JPMorgan Chase, meanwhile, is "poised to slash thousands of jobs," according to an admittedly anonymous single-sourced report in the Daily Telegraph. It writes: "'Banks are being forced to right-size their businesses as they face the fact that clients are going to be doing a lot less business over the next 12 months,' said one source close to JP Morgan."

It took the nadir of an industry to bring it into step with management, but it appears that the United Automobile Workers is ready to back the Big Three to the hilt in the quest for an auto industry bailout. The NYT writes how UAW head Ron Gettelfinger has been briefed by GM on its dismal cash position and firmly believes that GM going bankrupt also would doom Ford and Chrysler, and with them the livelihood of his 139,000 members. "The future of the U.A.W. will be determined over the next two weeks," Gary N. Chaison, a professor of labor relations at Clark University tells the NYT, adding: "If GM goes bankrupt or doesn't get a bailout, it's just going to be a shadow of what it was 50 years ago." Even as Democratic lawmakers craft an aid package for the Big Three, auto part makers—who depend on Detroit—are "requesting access to the government's $700 billion financial-industry rescue fund," the WSJ reports. But what if the auto industry doesn't make the cut and all three domestic producers go under? Foreign automobile manufacturers would fill the void, experts tell the NYT, and "they are established enough to take control of the industry and its vast supplier network more quickly than is widely understood." Says Center for Automotive Research Chief Economist Sean McAlinden, "You would have an auto industry in the United States more like that of Mexico and Canada: foreign-owned."

And, finally, Penthouse is bullish on Vegas, even as shares of casino businesses like The Sands and MGM Mirage continue to tank. The adult-magazine and Web site publisher is eyeballing property on the Vegas Strip, the Associated Press reports, citing an interview CEO Marc Bell gave the Las Vegas Review-Journal this weekend. "We're looking to make a presence, take something and clean it up and fix it up and give it a new image," Bell told the newspaper. "We think it would be a tremendous draw." The casino trades are already speculating on what that cleaned-up look might mean: naked dealers. That's one way to revive business.

From defender of the free world to defender of the free markets, President Bush on Thursday delivered what the New York Times described as an "impassioned defense" of capitalism, declaring "the American system is still 'the engine of social mobility.' " This was not merely a presidential road trip to revive slumping markets—though it helped; The Dow, in a wild day, rose more than 6 percent to crest above 8,800, the Wall Street Journal writes. No, Bush's words were carefully chosen to send a message to any weak-kneed foreign head of state who may want to use the financial meltdown to introduce at this weekend's G20 summit a new layer of red tape to rein in rogue capitalists. Once the summit begins, however, the lame-duck president may be forced to take a back seat. “He’s going to be much more the host and much less the chairman than he realizes,” Adam S. Posen, who advises foreign governments on economic coordination, said of Bush to the NYT. “He’s going to be providing the snacks and the venue and making sure everybody’s comfortable, but he is not going to be driving the agenda; that’s the reality. The agenda-setting is with Gordon Brown and Nicolas Sarkozy and Hu Jintao.”

There certainly will be a lot to talk about at this weekend's summit as the world's top economies face increasingly worrying problems back home, the Financial Times writes. Germany announced yesterday it has officially sunk into a recession. China revealed its industrial growth hit a seven-year low, and monthly unemployment benefit claims in the United States are at their highest level since 2001.

With each passing day, automakers' fates look increasingly grim. Their hopes of qualifying for part of the Treasury's $700 billion bailout fund is coming up empty. Republicans in the lame-duck Congress represent a strong enough minority to block any taxpayer dollars going to the Big Three before President-elect Barack Obama is sworn into office in January, BusinessWeek figures. Democratic congressional leaders acknowledged this also, saying Detroit is probably not going to get the emergency aid request before 2009, the NYT writes. January may be too late. One of the Big Three is bound to flame out by then, analysts tell the NYT.

Bad news this morning for bank jobs on both sides of the pond. The WSJ reports that Citi is set to start a cull of more than 10,000 positions in its investment bank and other divisions throughout the world, and will "slash ... budgets for employee compensation by at least 25%." At the same time, the U.K.-based RBS is set to cut 3,000 jobs in its global-banking and markets work force, the BBC reports. The bank, which employees 170,000 people worldwide, is paying the price for "too much exposure to the sub-prime market in the United States and [overpaying] for the giant Dutch bank ABN Amro at the height of the boom." Things could get far worse for Citi, says the NYT, now that "loans that the financial giant made to consumers in good times are going bad in growing numbers." The bank could be forced to lay off 25 percent of its work force over the next year.

While President Bush was celebrating unfettered free-market forces on Wall Street, five of the nation's top hedge-fund managers were extolling to Congress the benefits of tighter regulation. The five, Philip A. Falcone, Kenneth C. Griffin, John A. Paulson, James Simons, and George Soros—"who were paid an average of more than $1 billion last year," notes the Washington Post—told lawmakers they would "support new rules that would require their industry, controlling nearly $2 trillion, to disclose more of its secrets," writes the NYT. Nevertheless, all of the billionaires "emphasised that they were not culpable in the financial meltdown," adds the Financial Times.

Finally, MGM Mirage CEO Terry Lanni appears to have been bluffing. The company announced Thursday that Lanni is stepping down after it emerged he does not have a master of business administration degree from the University of Southern California, as his company bio says, the Los Angeles Times writes. The 65-year-old may not be going out in style, but he's leaving behind an industry in crisis and a company in desperate shape. Shares of MGM Mirage are down 87 percent this year.