Today's Business Press

No relief in sight. That's the prognosis from the December Fed meeting, revealed just yesterday, showing we're in for a longer and nastier recession than first feared. The bleak economic outlook appeared to even take some Fed officials by surprise. "Policy makers at the Federal Reserve appeared almost stunned by an economy that was sinking faster than they had expected on almost every front in December, so much so that they even toyed with the idea of not announcing an official target for overnight interest rates," The New York Times writes. The minutes show Fed officials "expect a deep contraction in the first half of the year and slow growth in the second half that won't make up for the losses," The Wall Street Journal writes, amounting to more job losses and further deflationary pressures.

The minutes also reveal the Fed is focusing again on the inflation/deflation see-saw with renewed vigor. According to the Financial Times, Fed policy makers are toying with the idea of setting more explicit inflation targets to signal to the markets acceptable levels of price increases to jump-start economic growth, and, particularly, price stabilization and job creation.

Almost on cue, Alcoa yesterday announced it would slash 13 percent of its global workforce, cutting 13,500 jobs by year-end, in the face of slowing global demand, CNNMoney.com reports. The Pittsburgh Post Gazette goes into explicit detail on Alcoa's massive restructuring, quoting CEO Klaus Kleinfeld as saying the plant closings and job cuts are necessary in these "extraordinary times." Dutch Chemical giant LyondellBasell Industries too is suffering mightily amid the global downturn. It filed for Chapter 11 bankruptcy protection on Tuesday, what The Houston Chronicle is calling "the first major casualty of a recent downturn in the chemical industry." The newspaper writes there is a Who's Who list of creditors including: "Germany’s BASF, oil companies including the state-owned Petroleos de Venezuela, commodity trading firms, and chemical transporters like pipelines, railroads and tankers."

Amid all this pain, the markets have shown remarkable buoyancy over the past month. The WSJ reports the Dow is up nearly 20 percent from its November low, and the S&P 500 is up 24.22% over the same period.

Apple has decided to drop the anticopying restrictions on music tracks in its iTunes Store. By removing its digital rights management (DRM) software, the company will for the first time enable downloaders to share music across non-Apple devices. Apple also is dropping its insistence that all songs sell for 99 cents and and will now allow record companies to set a range of prices for music downloads - something they have been demanding for some time. Songs will now be "sold at three price points—$.69 for older songs with limited popularity, $1.29 for hot new records, and $.99 for songs that fall in the middle," writes Business Week. Taken together these moves "will help shape the online future of the music business," writes the NYT.

The Russia-Ukraine gas spat continues to hit European heating needs just as the continent suffers from frigid winter weather. The BBC reports that "exports of Russian gas to Europe via Ukraine appear to have completely stopped," this morning with both national gas companies blaming each other for the shutdown and Russia arguing that Ukraine is stealing gas intended for countries in Europe. Ten Eastern European and Balkan states have reported a total halt in Russian gas supplies and both Italy and Austria say they are getting just 10% of their normal quota. Both politics and money are at stake in this latest winter energy war writes the WSJ, noting that while Russia would certainly like to bully Ukraine into regime change it might be Gazprom's fading oil fortunes - and hence the desire to hike Ukraine's bill - that makes this latest dispute harder to resolve.

And, finally, not a day goes by without some new juicy Bernie Madoff development. The WSJ reports today on A1 that 95-year-old Carl Shapiro, a longtime friend and mentor to Madoff, lent the disgraced financier $250 million on Dec. 1st, evidently a last-ditch effort to keep the operation from crumbling. We all know what happens next. The philanthropist Shapiro has lost a personal stake of $400 million in the alleged Madoff fraud, including the $250 million emergency loan, and his charitable foundation is out $100 million.

The U.S. car market ended 2008 on a dire note, according to new data released yesterday. Both the Wall Street Journal and the New York Times report that GM, Ford, and Toyota saw U.S. sales drop more than 30 percent last month, "capping one of the worst years for the industry in decades and solidifying the view that more turmoil lies ahead in 2009," writes the WSJ. Shares in GM and Ford actually rose on the news, which tells you just how little confidence remains on Wall Street for the fate of the Big Three. Indeed, with consumers shunning new-car showrooms, auto execs must ask themselves whether their industry, "will ever again have sales levels that it took for granted just a few years ago," the NYT writes. And it's not just U.S. companies feeling the pain. Along with Toyota, BMW and Honda both saw December sales fall more than 35 percent.

Obama went to Washington yesterday to sell his estimated $770 billion economic stimulus plan on Capitol Hill. While CNN Money recaps the president-elect's intention to push through some $300 billion in tax cuts for individuals and businesses, the WSJ digs into the details and finds a potential tax credit for the poor that "would grant an estimated 5.5 million poor children access to [an existing $1,000-per-child] tax credit for the first time, and expand the tax benefit for millions more poor children who currently qualify for only a partial credit, according to its advocates." Is $770 billion enough or too much? Many economists have urged a bill of $800 billion to $1.2 trillion even as some Republican lawmakers fret about the size of the package given the lack of accountability surrounding 2008's bank bailout, the NYT reports. Obama argues that now is not the time to get caught up in the details. "The economy is badly damaged—it is very sick. So we have to take whatever steps are required to make sure that it is stabilized," he told congressional leaders.

Prosecutors are seeking jail time for mega-Ponzi-schemer Bernhard Madoff after his sons reported that he mailed them "jewelry, watches and other items in violation of an asset freeze," Bloomberg reports. Defense lawyer Ira Sorkin said the objects, which included pens and $25 cuff links, were heirlooms innocently sent to Madoff’s children and other family members, but the WSJ reports that the U.S. government estimates the goods "were worth more than $1 million." The move to revoke Madoff's bail is viewed by the NYT as "a serious deterioration in relations between the government and Mr. Madoff, who ... had seemed to be cooperating with investigators trying to unravel the fraud."

The Steve Jobs health watch took a new turn yesterday after the Apple CEO disclosed that his recent dramatic weight loss that has been the subject of intense media and blogger speculation is due to a "hormone imbalance that has been robbing him of needed proteins," reports the San Francisco Chronicle. Jobs' "rare personal statement on his health," in the words of the Guardian, was intended to allay the fears of "investors, analysts and gadget enthusiasts" who have been less than upbeat about Apple's prospects without Jobs at the helm. Even as Jobs insisted his present frailties were not due to a recurrence of the pancreatic cancer he suffered in 2004, the Los Angeles Times suggested otherwise. It writes: "Jobs may not be 'on my deathbed,' as he wrote in a letter posted on Apple's website Monday. However, his admission to having a hormone imbalance indicates he may be dealing with a recurrence of the disease, some doctors suggest."

Finally, even as unemployment and consumer bankruptcies continue to soar, the FBI has embarked on "one of the largest hiring blitzes in our 100-year history," CNN Money reports. The bureau has openings for 850 special agents and more than 2,100 professional support personnel. Could it be revving up for a new Depression-era "war on crime"?

The Wall Street Journal and New York Times lead off their business coverage today with word that President-elect Barack Obama's economic recovery plan will include a larger-than-expected tax cut of roughly $300 million for companies and individual taxpayers. The tax breaks don't end there. Over the next two years, the cuts could reach $775 million, the WSJ calculates. The ambitious cuts are designed to win over congressional skeptics, particularly Republicans who want to see more tax breaks and less federal spending to revive the economy, both newspapers point out. While the president-elect is hoping this more palatable economic plan will sail through Congress, it's unlikely to be approved until mid-February at the earliest, the NYT writes.

Lest you think the Federal Reserve is out of bullets after cutting interest rates to nearly zero last month, some of its more vocal hawks are again urging a massive stimulus package to keep the economy from contracting further. This weekend, San Francisco Fed President Janet Yellen and Chicago Fed President Charles Evans urged even greater government spending to pull America out of a recession, a strategy that will no doubt spur further debate in Washington. Yellen, according to Bloomberg, says “it’s worth pulling out all the stops” with an economic recovery package.

Obama's economic recovery plan did hit one significant setback this weekend when Bill Richardson withdrew his name from consideration to head the Commerce Department as a grand jury investigation into a political donor winning a lucrative government contract in his home state of New Mexico continues. The Financial Times notes that the Richardson withdrawal comes at an inopportune time as Obama will be consumed this week with trying to get Congress to quickly approve his stimulus package. Richardson, in a statement printed in part in the Washington Post, said he is withdrawing because he believes a confirmation fight could prove detrimental to work carried out on an economic recovery package. "Given the gravity of the economic situation the nation is facing, I could not in good conscience ask the President-elect and his administration to delay for one day the important work that needs to be done," Richardson said in the statement.

Meanwhile across the Atlantic, the ongoing natural gas spat between Russia and Ukraine worsened this weekend as five European countries and Turkey are now reporting that they are experiencing a cut in fuel supplies as the two volatile neighbors continue to haggle over a billing dispute. Russia's Gazprom, Europe's principle supplier of natural gas, cut supplies to Ukraine on Jan. 1. "Since then, Poland, Hungary, Romania, Bulgaria, the Czech Republic and Turkey have reported slightly reduced supply," the WSJ writes. In a replay of a 2006 dispute, Russia and Ukraine again say the other is to blame for a shortfall that is affecting Europe in the dead of winter. Over the weekend Gazprom officials accused Ukraine of siphoning off 50 million cubic meters intended for European consumers, Reuters reports. That's about a sixth of what Russia pumps to Europe every day, the WSJ adds.

Back to the U.S. now, where new details continue to emerge about the alleged Bernie Madoff fraud. The WSJ breaks the news that regulators at the Securities and Exchange Commission and other agencies had probed Madoff a total of eight times over the past 16 years, but investigators "never came close to uncovering the alleged $50 billion Ponzi scheme that investigators now believe began in the 1970s." The revelation will no doubt add more tension to congressional hearings set for today into how the SEC failed to crack down on Madoff's shaky business dealings before he himself copped to the ruse last month, Bloomberg writes.

And, finally, Britons might find it hard to stick to their New Year's resolutions to hit the gym and not the pub. One of the country's largest pub chains, JD Wetherspoon, says it is cutting the price of a pint of beer to as little as 99 pence, or $1.44, "to cheer cash-strapped drinkers," the BBC reports. But already the offer is coming under fire from health officials who fear it will aggravate binge drinking, a recurring health issue in Britain.

The Wall Street Journal leads this morning with news that Russia has cut off the supply of natural gas to Ukraine, reflecting what the paper calls "a jolting reminder of a 2006 cutoff that spread fear in Europe about Moscow's tightening grip on energy supplies." The dispute between Ukraine and Russian gas monopoly OAO Gazprom has been brewing for some time, with Russia trying to exact a higher price and demanding payment for previous shipments that Ukraine insists it has already made.

The Financial Times highlights the international jitters around the situation, including a White House statement issued Thursday "urging both sides to keep in mind the humanitarian implications of any interruption of gas supply in the winter." Since 80 percent of the gas that Western Europe gets from Russia flows through Ukraine, there are fears that supplies could be disrupted elsewhere as in 2006, though the Journal downplays this scenario, noting that "partly because of declining industrial use, both Ukraine and the EU have built up their gas storage, meaning that any immediate disruption to the EU's supplies appears unlikely." The Journal also includes the telling tidbit that this time around Russia wants to get the upper hand in terms of publicity; Gazprom "has retained an American public-relations agency, Ketchum; it is running a dedicated Web site to explain its position; and is holding frequent news conferences."

Even so, the underlying causes of the dispute are unlikely to disappear soon. The New York Times plays up the fact that this time Russia really needs the money. "Plagued by the sharp fall in oil prices, Russia has been scrambling to make up the revenue shortfall as prices have slipped below $40 a barrel. Gazprom, too, is heavily in debt and sinking along with the energy market," the paper reports.

The NYT also features two stories today that spotlight the interdependence of government and business. Louis Uchitelle sums up the state of the steel industry, which just a few years ago was widely touted as enjoying a renaissance, reshaped by tycoons like Wilbur Ross and Lakshmi Mittal. Today, U.S. Steel and other giants are laying off workers, facing declining costs and a slump in demand. Much of 2008 was going pretty well for steel, but as Uchitelle notes, "The steel industry's collapse closely tracks the alarming late-autumn swoon in the national economy." Now steel—like so many others—awaits an Obama administration infrastructure infusion that will create demand for its product. By contrast, it's harder to see a quick fix for the milk industry, which saw a similar drop in prices as the overall economy stalled.

So far, 2009 has seen no slowdown in the burgeoning field of Bernie Madoff news. Relying on the ever-useful "person familiar with the situation," the Journal seems to slightly advance the story that the NYT pursued earlier this week, namely, that investigators are now focused on Madoff's potential use of offshore accounts to further his apparently massive fraud. "[I]nvestigators believe Mr. Madoff had at least one and possibly multiple accounts located in offshore tax havens or locales with robust privacy laws, according to a person familiar with the situation. Such accounts may have been used to hide ill-gotten gains, this person said," the WSJ says. Meanwhile, the Times serves up a menu of juicy personal details about Rene-Thierry Magon de la Villehuchet, the French aristocrat and longtime Madoff associate who committed suicide in Manhattan a few days before Christmas.

Finally, the LA Times appears to be on to a hot story, though it's hard to tell from the details that it has published to date. The paper is reporting that the U.S. Treasury Department's inspector general is asking for a review of the $400 million in bailout money that has gone to City National Bank, Beverly Hills' "bank to the stars." The paper is quick to point out that this is not based on any allegation of wrongdoing by the bank, but rather that "investigators see the review as a case study into how the Treasury Department is implementing" the bailout program. Right, because of the 209 banks that have received federal bailout money, the most typical is the one with almost a fifth of its commercial loans going to the entertainment industry? There is something peculiar here, and we suspect Monday will bring further developments.

Tuesday was not a happy day for data on the U.S. economy. One of the major ways of measuring housing prices—the Case-Shiller index—"fell 2.2% in October from September and 18% from a year earlier, the sharpest declines in the data's two-decade history," as the Wall Street Journal crisply summarized it.

While earlier surveys had shown some signs of flattening prices, the October report hinted that the real estate market is as anemic as ever. All of the 20 cities measured by Case-Shiller showed a decline, and in six of them—Atlanta; Charlotte, N.C.; Detroit; Minneapolis; Tampa, Fla.; and Washington, D.C.—the monthly decline from September to October was the highest ever. "The only thing selling is foreclosures if you're on the south side of town," a broker told the Atlanta Journal-Constitution. "It has absolutely gotten worse."

As you might imagine, if people have the sense that their homes are worth less, they have a gloomy feeling about the economy in general. And lo and behold, consumer confidence as measured by the Conference Board hit 38 in December. While that number is, of course, arbitrary, it was at 90.6 a year ago, the Journal notes.

Even amid all the numerical carnage, the papers seem to want us all to go out and buy American cars. The $6 billion federal infusion into GMAC has the financier ready to lend again, says the New York Times. GMAC has dropped the minimum credit-rating score it needs to make a loan to 621 from 700; the median American score, according to the Times, is 723. In addition, GMAC's co-parent GM "said it would offer a new round of low-rate financing, including zero percent interest on some models." No doubt this means that some car-buyers are going to get a great deal, but the notion of taxpayer money being used to prop up car loans to borrowers with credit well below the national median does not instantly inspire confidence.

In the meantime, there's plenty of fresh Madoff meat to chew on. Today is the date that Judge Louis Stanton assigned "as the deadline for Mr. Madoff to provide federal securities regulators with a full accounting of his and his New York firm's assets—from real estate to art works to bank accounts," the NYT notes, though it's not clear that Madoff will make his deadline. The NYT also informs us that the focus of the Madoff investigation has turned to whether or not he and some of his investors used offshore tax havens. (Based on the history of former frauds from Enron to Parmalat, it would be shocking if Madoff didn't take advantage of the casual financial scrutiny available in some countries.) And the Journal forces a little humility onto Henry Kaufman, the famed "Dr. Doom" of Wall Street, whose trademark financial pessimism was not enough to keep him from being one of Madoff's victims (along with Kevin Bacon and Kyra Sedgwick, who have little directly to do with the Journal story but make for a slightly more eye-catching photo than 81-year-old Kaufman).

And finally, if the pending midnight ball-drop has you contemplating what a high-pressure year you've had, spare a thought for old Henry Paulson, who gave a reasonably candid interview to the Financial Times. He decries the weak regulatory tools that the U.S. government had to handle the financial crisis that became apparent in September and says that even with his newfound authority, "I am sure I am going to look back ...  and think of all kinds of things I wish I had done differently." Asked to describe the last year for himself personally, the outgoing Treasury secretary says, "It has been unusually intense."

Today's Business Press will take a break on Jan. 1 and return on Jan. 2. Happy New Year's.

It gets harder and harder to distinguish between news about the U.S. auto industry and news about the economy itself. The Bush administration, which not long ago resisted using the Treasury Department bailout program to rescue the automobile industry, has now extended its support to failed automakers by tossing $6 billion at GMAC, the ailing financial arm of General Motors. As The Wall Street Journal rather stiffly phrases it, the move "represents the second tranche of government aid that redounds to the benefit of giant private-equity firm Cerberus Capital Management, which owns Chrysler and, until these recent moves, a majority stake in GMAC." The Journal pointedly notes that "John Snow, a top player at Cerberus, was the Bush administration's Treasury secretary before Henry Paulson."

GMAC filed last week to change its status to that of a bank so that it could qualify for Treasury money. This is not a huge conceptual stretch; like the nation's banks, as the New York Times notes, GMAC "has been reeling from both the paralysis in credit markets and huge losses from its mortgage lending subsidiary, Residential Capital."

Under the new arrangement, the U.S. government now owns $5 billion worth of "senior preferred equity" in GMAC and will receive an 8 percent dividend on that investment. GM and Cerberus, meanwhile, must turn over some of their ownership of GMAC to their investors (in Cerberus' case, we don't even know who those people are, but that's another story). Still unresolved are the precise contours of GMAC's relationship with its bondholders, who've been frantically renegotiating to convert most of the firm's $38 billion in debt into bondholder equity. You might think that a few billion dollars of taxpayer aid would come with some requirements to disclose such details, but you would be wrong. The Detroit Free Press cites a GMAC spokeswoman who "declined to say Monday how much debt had been converted, but said the deal had met all conditions."

All this free-flowing federal cash must have veteran activist investor Kirk Kerkorian wondering if he should have held onto his shares in Ford. For a brief time earlier this year, Kerkorian's investment vehicle, Tracinda, was Ford's largest outside shareholder. According to the Reuters account, Tracinda has now sold off all of its Ford holdings. How much did Kerkorian lose on this venture? Evidently he held 133.5 million shares as of October, acquired at an average price of $7.10 a share, and began selling in October when shares were worth about $2.43, for a loss of some $600 million. The 91-year-old Kerkorian can withstand the hit, but maybe he, too, would have qualified for a bailout if he had yelled loud enough.

The day's last bit of auto news worth reading is a New York Times story examining the particular impact that the car companies' woes are having on African-American workers. Black workers make better wages in the auto and auto-parts industries than in other manufacturing jobs and have been disproportionately hit by the recent downturn, according to studies cited in the Times. As one former auto worker tells the paper: "There's a saying that when America catches a cold, African-Americans catch the flu."

Finally, the end of the year is an ideal time for the nation's business press to look back at one of the most tumultuous periods in American economic history. Yesterday's Wall Street Journal provided a recap of the last days of Lehman Bros., with a particular eye on how its fall signaled the end of Wall Street's tenuous ethos of cooperation. Today's Washington Post offers a chilling, forehead-slapping account (part two of a three-part series) of how the financial geniuses at AIG cooked up a system that couldn't possibly fail.