Bum-Rushing Bailout Bucks

This may not come as a great surprise, but it appears that the U.S. government's $700 billion bailout may not be enough. "The rescue plans are coming under pressure as a growing array of distressed companies signal the need for assistance," writes the Wall Street Journal. So who are these poor, hat-in-hand wretches in need of help? American Express, for one. You might remember it as the nation's largest independent credit card company, but yesterday Amex transformed itself into a bank-holding company, paving the way for access to $3.8 billion in financial assistance, notes the New York Times. Then there's Fannie Mae. It reported a $29 billion loss during the last quarter, "putting the firm closer to having to draw on the $100 billion in taxpayer dollars committed to it in September," writes CNN Money. And AIG's toxicity shows no sign of abating. It has secured a new $150 billion government-assistance package just six weeks after the Treasury thought $85 billion would do the trick. "Things are just hitting [the Treasury Department] from every single direction, every day, and I don't think they know whether to spit or go blind," Camden Fine, president and CEO of the Independent Community Bankers of America, tells the WSJ.

Shares in General Motors dropped more quickly than the price of a new SUV yesterday as investors freaked out at the company's warning that it could run out of cash in the new year. GM stock fell nearly 22.9 percent on Monday to $3.36 a share—its lowest level since 1949, says CNN Money. GM's chairman and chief executive, Rick Wagoner, says that GM needs financial help before President-elect Obama takes office Jan. 20 if the company is to stay afloat, and Obama wasted no time yesterday in petitioning President George W. Bush to "support immediate emergency aid" for the auto industry. Bush so far has balked at bailing out the Big Three but suggested (in a very "who cares about swing states" stance) he might be willing if "Obama and Congressional Democrats dropped their opposition to a free-trade agreement with Colombia," writes the NYT. Politics aside, the risks involved in letting GM go under are huge. Deutsche Bank analyst Rod Lache warned that without government assistance, "we believe that GM's collapse would be inevitable, and that it would precipitate systemic risk that would be difficult to overcome for automakers, suppliers, retailers and sectors of the U.S. economy."

The NYT looks to add some perspective on the scale of America's real estate crisis by focusing on Mountain House, Calif., a town where "almost 90 percent of homeowners owe more on their mortgages than their houses are worth,"—the highest percentage in the nation. Not only has this trend caused major cutbacks in consumer confidence and spending in the town, but it appears to have coined a new euphemisitic real estate term: What used to be called negative equity is now referred to as "underwater mortgages." Acutely aware of the risk the housing market poses to its business, Citigroup intends to "modify the terms of as much as $20 billion in mortgages for borrowers who are current on their loan payments but at risk of falling behind," writes the WSJ.

Not a great day for U.S. consumer companies yesterday. Google's stock is down 55 percent on the year to date (compared with a 35 percent average drop for the Dow). Starbucks posted weaker quarterly earnings and saw a further 3 percent wiped off its share value as a consequence. Meanwhile, Circuit City finally declared bankruptcy, Portfolio reports. Circuit City is one of at least 14 major retail chains to go under this year, and that has serious repercussions for the job market. "The U.S. retail sector is losing its place as the employer of last resort for the newly unemployed," writes the WSJ.

Finally, Facebook may be the doyen of the Web 2.0 crowd, but its so-far stillborn success in translating millions of "friends" into revenue remains a cautionary tale for the social media sector. The WSJ explains how the company is experimenting with a new ad format called "engagement ads"—encouraging users to interact with brands "such as comment on a movie trailer or RSVP for the season finale of a TV show." Facebook will be hoping this new system receives a better reception than last year's Beacon program.