A Lack of Succor For the Markets

By JOSEPH SCHUMAN | THE WALL STREET JOURNAL ONLINE

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Asian and European shares were trading higher today following yesterday's slaughter on Wall Street, even as the renewed panic this week in U.S. markets and elsewhere seems part of a broader recognition by governments, businesses and individuals that the global economic slump will leave few untouched.

A slew of economic news world-wide yesterday "was almost uniformly bad," as the Financial Times puts it, and included slumping Japanese exports, the Swiss central bank's surprise slashing of its benchmark interest rates by a drastic full percentage point, a warning by Chinese officials that the employment situation there was becoming grim, and the U.S. Labor Department's announcement that a whopping 542,000 people made initial claims for jobless insurance last week. That jobless-claims level surpasses anything seen following the dot-com bust and 9/11 fallout, and is the highest since the recession of the early 1990s.

The Dow Jones Industrial Average fell 444.99 points, or 5.56%, to 7552.29, its lowest daily close since March 2003, while the broader Standard & Poor's 500-stock index "breached its low from the last bear market and landed back where it was in the spring of 1997, marking a 52% decline from its peak," as The Wall Street Journal reports. The price of some Treasury bonds soared as investors sought shelter, while oil futures -- reflecting predictions for a sputtering economy -- slipped below $50 a barrel and are now down more than 65% from their July records. Today's shallow recovery in Asian stock markets, and perhaps in Europe, too, may be due to low trading volume and looks more a reflection of the reigning volatility than a return to confidence.

Yesterday, in the U.S. stock markets, financial-industry shares -- that most usual of suspects -- were the biggest source of damage. Banks that hold much of the troubled mortgage-backed debt Washington no longer wishes to buy continued to suffer, with shares in Citigroup, for example, falling another 26% to less than $5 per share, as the Journal notes. Citi this week announced massive layoffs, and it was joined yesterday by J.P. Morgan Chase, which began to fire employees at its investment bank, as well as Bank of New York Mellon, which announced plans to cut its work force by 4%, or 1,800 jobs. CTPartners, an executive search firm that works with Citi, J.P. Morgan and others in the industry, estimates that the financial-services industry will cut some 350,000 jobs world-wide -- or roughly 20% of its global work force -- by the middle of next year, Bloomberg reports. "This is the financial equivalent of World War II," CTPartners Chief Executive Brian Sullivan tells the news service. "It's unprecedented. You're seeing a seismic shift in the population of banking."

At Citi, the situation is so desperate that executives "began weighing the possibility of auctioning off pieces of the financial giant or even selling the company outright," the Journal reports, citing people familiar with the matter. While the discussions are at an early stage, Citi's board is set to meet today to discuss the options. This is taking place despite continuing insistence from Citi's management and board that it has enough capital, funding and renewed strategic vigor to keep going on its own.

And despite the markets' continuing doubts about many banking players' prospects, Treasury Secretary Henry Paulson, too, has continued to promote what he says has been a stabilization fueled by the government's actions. But his contentions may be helping neither the industry nor the Bush administration's credibility on the financial situation. As the New York Times notes, "with the stock market plunging and the credit market entering a new freeze, cries are being heard for a new government intervention to prop up major financial institutions before President-elect Barack Obama takes office." Yet for now Congress and the White House can't agree on a new stimulus package or ways to help the far-flung American auto industry, or much else of financial import, which surely isn't helping investor or consumer confidence. Robert Barbera, the chief economist of investment firm ITG, tells the Times: "We can't get from here to Feb. 1 if the current 'who's in charge?' situation continues."

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Shared Sacrifice in Detroit?
The UAW is negotiating the possible elimination of its controversial jobs bank and is considering other concessions to help Detroit's auto makers win low-cost loans from Congress, people familiar with negotiations told the Detroit Free Press. Union officers from several locals said they didn't know if the concession had been made, but expected the jobs bank to be ended as part of a package of shared sacrifice when the auto makers and UAW President Ron Gettelfinger return to Congress early next month. The jobs bank pays laid-off workers, sometimes for years. The disclosure came after Congress kicked back the cash-starved U.S. auto makers' urgent pitch for a $25 billion rescue, saying executives failed to convince lawmakers and the public that the industry knew how to fix itself.

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Also of Note…

Times of London: The global economy suffered a new blow as Maersk, the world's largest shipping company, announced that it would no longer put its tankers at the mercy of pirates off Somalia by steaming through the waters of the Gulf of Aden. Pressure is mounting for an international solution to the menace there as world leaders urged shipping companies and their insurers not to embolden the buccaneers by giving in to ransom demands.

McClatchy Newspapers: In the first ruling of its kind, a federal judge ordered the speedy release of five Algerian men after concluding the government didn't have the evidence to hold them for nearly seven years in Guantanamo Bay prison. The decision by U.S. District Judge Richard Leon, a Bush appointee, was the latest setback for the administration's detention policies and could foretell more court-ordered releases.

BBC: U.S. economic, military and political dominance is likely to decline over the next two decades, according to American intelligence agencies. U.S. clout will weaken as China and India grow more powerful, the National Intelligence Council predicts in its latest report on global trends, which includes forecasts that the U.S. dollar will no longer be the world's major currency and food and water scarcities will fuel conflict.

BusinessWeek: America's military and scientific institutions -- along with the defense industry that serves them -- are being robbed of secret information on satellites, rocket engines, launch systems, and even the Space Shuttle. The thieves operate via the Internet from Asia and Europe, penetrating U.S. computer networks. Some of the intruders are suspected of having ties to the governments of China and Russia, interviews and documents show. Of all the arms of the U.S. government, few are more vulnerable than NASA, the civilian space agency, which also works closely with the Pentagon and American intelligence services.

New York Times: Rep. Henry Waxman wrested the chairmanship of the powerful House Energy and Commerce Committee from Rep. John Dingell in a coup that is expected to accelerate passage of energy, climate and health legislation backed by President-elect Barack Obama.

Washington Post: Attorney General Michael Mukasey collapsed last evening while delivering a speech to a prominent legal group and was rushed to a hospital, where he remained overnight for observation, though a Justice Department spokesman said Mr. Mukasey had strong vital signs and was "in good spirits" after the incident.

Wall Street Journal: A onetime union leader is a top contender to head the Federal Aviation Administration, people close to President-elect Barack Obama's transition team said, at a time when smooth labor-management relations will be critical to the agency's modernization plans. Airline consultant Duane Woerth, who was president of the Air Line Pilots Association from 1999 to 2006, has met with House Transportation and Infrastructure Committee Chairman James Oberstar and has his tentative support, according to people familiar with their discussions.

Financial Times: Plans to make banks hold greater capital reserves and limit the amount they can borrow have been outlined by the world's leading banking watchdog in an effort to prevent a repeat of the credit crisis. The proposals from the standard-setting Basel Committee on Banking Supervision are an attempt to salvage a global regulatory framework for the industry.

Nikkei: A consortium led by sovereign wealth fund China Investment Corp. is negotiating with struggling U.S. giant American International Group to acquire a stake of up to 49% in unit American Life Insurance, also known as Alico.

Variety: The Screen Actors Guild's bitter contract stalemate with the major studios and television networks looks like it will stay that way. Negotiators met face-to-face yesterday in the first official meeting in over four months but progress appears to have been negligible. People familiar with the meeting disclosed that it consisted of little more than each side restating its positions.

Nature: The discovery of tracks on the sea floor made by a giant single-celled organism could prompt palaeontologists to reassess the origins of animal life on Earth. The tracks, found by biologists on a research dive around the Bahamas, measure up to 50 centimeters long and are thought to be made by Gromia sphaerica, a marshmallow-like protozoan measuring around 30 millimeters in diameter, as it moves along the sea floor. The researchers say the furrows bear a "remarkable resemblance" to Precambrian fossilized tracks, dating back to 1.8 billion years ago.

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Quote of the Day
"She could be the tough cop to Obama's good cop," Steve Clemons of the left-leaning New America Foundation think tank tells The Wall Street Journal, in suggesting a Hillary Clinton-led State Department could support the president-elect's desire to promote coercive diplomacy to induce nations like Iran and North Korea to give up their nuclear programs. Aides to Mr. Obama said yesterday he is "on track" to nominate Sen. Clinton to be secretary of state, as the Journal reports. But Democratic officials tell the New York Times that the party's leaders in the Senate are prepared to give Sen. Clinton a still-undefined leadership role there if she doesn't become Mr. Obama's secretary of state.

Write to Joseph Schuman at joseph.schuman@wsj.com

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