Dow: How Low Can You Go?

Down 13 percent in the last five trading days. That's the Wall Street Journal's calculation for the dismal Dow this past week. The New York Times goes a bit further back, saying the benchmark index has lost one-third of its value this year after ending Tuesday down a further 5.1 percent. Yesterday's drop occurred despite hopeful talk that the Federal Reserve is planning a fresh rate cut. And, in an historic move, the central bank plans to loan directly to cash-strapped corporations. The direct-loans silver bullet, the WSJ explains, hasn't been tried since the Great Depression (no need to go back any further in history than that, we hope), part of "a cocktail of unconventional and conventional remedies for an economy whose prognosis is deteriorating rapidly."

And how is the world responding today? Japan's Nikkei tanked 9.4 percent on Wednesday, the NYT reports; markets in Hong Kong, Australia, and Shanghai were all down too. Europe, meanwhile, the new epicenter for the global banking crisis (more on that below), opened lower as well with bourses in Britain, Germany and France each down more than 3 percent in early trading, according to Marketwatch.

There was still more finger-pointing at last night's presidential debate over which candidate is more to blame for the current economic crisis. But there was some evidence the sinking markets and gripes from home- and small-business owners are making an impression. Republican nominee John McCain unveiled at Tuesday's debate a $300 billion rescue plan to buy up distressed home mortgages while his opponent, Barack Obama, used the stage to call for a tax-cut on the middle class, the WSJ's Washington Wire blog writes. Expect more specifics on shoring up the economy from the candidates as the legion of frustrated undecided voters grows, BusinessWeek writes.

How bad is voter disaffection over the economic bailout? CNN Money reports on a new poll that says just 40 percent of Americans saw last week's $700 billion plan as an attempt to rescue the overall economy. "Instead, 53% saw the bill as mostly a bailout for Wall Street." Ouch.

They should get a load of what's going on the other side of the pond. Consider the U.K. banking sector, the bedrock of the British economy. Eight High Street banks had to be partly nationalized this morning, the Guardian reports. The U.K. government said it would inject £50 billion ($88 billion) into eight of the country's largest retail banks and building societies to shore up their balance sheets, the BBC reports. In exchange, the government will become a "preferential" shareholder. As part of the deal, the Bank of England will make available a further £200 billion ($349 billion) to U.K. lenders to free up liquidity in the stalled credit market. The European bailouts do not end there.

Spain, too, has launched a 30 billion euro ($41 billion) rescue fund—it could be increased to 50 billion euros—for its struggling financial sector on Tuesday, according to the Associated Press. Iceland's troubles too only seem to get worse. As Iceland "teeters on the brink of bankruptcy," the government nationalized another bank, Landsbanki, the Financial Times writes, and it lashed out at its Western neighbors for failing to come to its aid. Its only savior? It's working on finalizing a 4 billion euro ($5.4 billion) loan from Russia, a deal that FT Alphaville helpfully points out would not give the Russian military access to a vacated U.S. airbase.

Back in the U.S., the bank blotter looks a little better. First, the bad: Bank of America struggled to find buyers for its $10 billion stock offering, the WSJ reports, triggering a 26 percent share fall on Tuesday. Morgan Stanley shares fell as much as 40 percent on Tuesday after concerns its Japanese investor MitsubishiUFJ Financial Group would back out. But it appears the fears were overblown. According to Bloomberg, the deal is "proceeding on track." Meanwhile, an emboldened Citigroup is looking for financial partners to help it snatch up Wachovia in a tug-of-war with rival suitor Wells Fargo that could result in Wachovia being split up and sold off to the bidders, the WSJ writes.

After Lehman, it was AIG's turn yesterday to get publicly humiliated on the Hill. Two former AIG CEOs Martin J. Sullivan and Robert B. Willumstad pulled the well-paid short straw and tried to answer how, as the WSJ, put it, they "glossed over warnings about the risks that helped necessitate a government rescue—and continued to reward AIG executives even as the big insurer headed toward a cliff." Sullivan was slammed by the House Committee on Oversight and Government Reform for recommending that AIG not count massive unrealized losses tied to the toxic AIG Financial Products when calculating bonues for top executives—including himself. "Mr. Sullivan said the other executives weren't responsible for the unit's problems," the WSJ writes. Sullivan also was criticized for issuing "reassurances to investors about AIG’s health in December despite warnings from company auditors that its exposure to those contracts was growing," writes the NYT.

It looks as if Pfizer may have been operating a "need to know" communications policy as well. According to internal company e-mails submitted in a lawsuit, Pfizer marketing executives suppressed a large study suggesting "their blockbuster medication Neurontin was ineffective for chronic nerve pain," reports the Boston Globe. Back in 2004, the drug company's Warner-Lambert unit pleaded guilty to felony charges that it "promoted Neurontin for uses not approved by the Food and Drug Administration, including bipolar disorder and chronic nerve pain," notes the WSJ. This new case consolidates lawsuits by health insurers and consumers who claim they were misled into purchasing Neurontin and want a refund—$4.9 billion, to be precise.

The news of these alleged shenanigans comes the same day when Pfizer announced a realignment of operating structure whereby it will create three new business units "that will focus on primary care, specialty care and emerging markets," writes Forbes. The news comes a month after Forbes reported that Pfizer was shifting its research and development focus to more profitable areas such as cancer, Alzheimer’s disease, and pain management and away from bone diseases like osteoporosis, liver disease, muscle disease, and obesity.

Finally, could the secret to business success in these trying times be found in the Colonel's secret recipe? It sure seems that way. Yum Brands, which operates Pizza Hut, Taco Bell, and KFC, defied the odds on Tuesday, reporting a better-than-expected profit surge in the last quarter, the WSJ reports, one of the few upbeat stories to be found anywhere on the business pages. The success can be explained with strong overseas sales, a sign that good, old-fashioned American fast food is still a strong export.