Uncle Sam To Take the Keys?

Details of the federal bailout plan for the auto industry are emerging this morning, and the stakes are high. According to the Wall Street Journal, under the legislation being drafted, the U.S. government will gain "a substantial ownership stake in the industry and a central role in its restructuring" in exchange for emergency loans for the Big Three automakers. The deal is potentially costly for the auto companies and their shareholders. Under the terms of the draft legislation, "the government would receive warrants for stock equivalent to at least 20% of the loans any company receives," the newspaper writes. "The company also would have to agree to limits on executive compensation and dividend payments, much like those contained in the government's $700 billion rescue of the financial industry." Despite the onerous terms being kicked around, the auto bailout proposal is close to winning approval, as congressional Democrats and the White House worked through the legislation on Monday, according to the New York Times.

Perhaps sensing this was too high a price to pay, Ford announced on Monday evening it would not be seeking a bridge loan as it sees itself in a healthier position than General Motors or Chrysler. "As we told Congress, Ford is in a different position,” the company said in a statement quoted by Bloomberg. With a bailout plan for the auto sector nearly complete, and helped by the announcement of President-elect Barack Obama's stimulus plan, shares soared on Monday, triggering a worldwide rally, the WSJ reports.

Looking outside the U.S., word out this morning is that Japan's economy is in much worse shape than previously thought. The world's second-largest economy contracted further in the third quarter. "Revised gross domestic product data released on Tuesday showed a quarter-on-quarter fall of 0.5 per cent for the three months to September, compared with a preliminary estimate issued last month of a 0.1 per cent decline," according to the Financial Times. To prevent further shrinkage, Japan is considering a $216 billion stimulus plan, Reuters reports, citing Japan's Yomiuri newspaper. The outlook appears equally bleak in Russia. The government there has poured $200 billion in stimulus funding in recent weeks to stabilize markets. For the first time in a decade, Standard & Poor's cut Russia's debt rating on Monday, "warning of the 'rapid depletion' of Russia's massive reserves," the WSJ writes. S&P warns that if oil prices remain at low levels for the next two years the country risks burning through the $209 billion it has amassed over the years from its oil revenues in special "rainy-day funds."

As the WSJ predicted in Monday's issue, Tribune Co. filed for Chapter 11 bankruptcy protection in a deal that covers its eight daily newspapers and could likely sink the ambitious plans of owner Sam Zell to revive the ailing chain. "Mr. Zell, who led the $8.2 billion buyout that took Tribune private last year, mostly with borrowed money, fell victim to a mix of heavy debt, withering advertising declines and the recession, the same forces that are expected to topple other newspapers across the nation," the WSJ writes. Zell tells the Chicago Tribune, "this filing is all about relieving the pressure on the company from too much debt." In a memo to employees obtained by the Associated Press, Zell still sounded optimistic that the company could re-emerge and be competitive. That's little comfort to recently laid-off staff. "Tribune Co. said it will halt all severance payments, deferred compensation and other payments to former employees, who will be required to file a claim with the bankruptcy court," the Chicago Tribune writes. Incidentally, the Chicago Cubs, which the company is trying to sell off, are not named in the bankruptcy protection plan.

Sony is looking only marginally better this morning. On Tuesday, the Japanese electronics giant announced it will ax 8,000 jobs and that it plans to "scale back investments and pull out of businesses as it aims to cut $1.1 billion in costs out of its ailing electronics operations," Reuters reports.

Merrill Lynch Chairman and Chief Executive John Thain will not be getting his $10 million bonus this year after all. At Morgan Stanley, CEO John Mack won't be collecting either. The Wall Street giants, "responding to evaporating profits and public ire over Wall Street's culpability for the credit crisis," decided against lavish payouts for top brass on Monday, the WSJ writes. It wasn't an easy sell at Merrill. In a meeting with the compensation committee on Monday that lasted several hours, Thain initially resisted the idea of foregoing his annual bonus, the newspaper reported. While Thain and Mack may have gone home grumbling yesterday, New York Attorney General Andrew Cuomo was no doubt exultant. Cuomo had been pressuring the firms, the recipients of federal funding, not to pay bonuses to executives, calling bonuses " a thumb in the eye to taxpayers," the Guardian writes.

And finally, there is one segment of the population that is finding times easier during this economic downturn: online fraudsters. Their get-rich-quick schemes and fraudulent work-from-home offers advertized in scam e-mails appear to be finding a more receptive audience these days, according to AP. The news wire cites new research saying there appears to be an upsurge in the recruitment of "cyber mules," people willing to open up their homes or bank accounts to launder money or stolen goods for IT-savvy crime gangs. The e-mails, according to cyber-security specialist David Marcus of Mcafee, may be too enticing to delete these days. "When people are scared of a job going away, or they're worried about having money to pay bills, they might look at something like this in a different light than when things are rosy and great," he says.