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It probably made sense and has for at least a year. General Motors (NYSE: GM) and Chrysler have had merger talks, and probably had them recently. The largest car company in the U.S. has been speaking with Chrysler's owner Cerberus.The conversations may have been slowed by the wild stock market.

According to The Wall Street Journal (subscription required), "Uniting two of the country's Big Three auto makers would prove a watershed for an industry knocked down by high production costs and a looming recession."

But the plan may not work. GM and Chrysler both appear too weak position to weather the bad economy, even together. Analysts believe that GM will be low on money next year, and Chrysler is no better off.

What would make sense is that Chrysler makes a good merger partner for Honda (NYSE: HMC) or VW. Both would like a larger market share in the U.S. Both have strong balance sheets, and both could rip out duplicate costs.

Putting together two troubled U.S. auto operations gains very little for either company.

Douglas A. McIntyre is an editor at 247wallst.com.

As had been expected, The Treasury will begin to take equity positions in major U.S. banks. According to MarketWatch, "The plan calls for banks to be recapitalized with public and private funds, but makes no specific mention of another common suggestion."

The part of the plan that is rarely mentioned is that the government could end up owning huge percentages of very large banks. Citigroup (NYSE: C) has a market cap of $76 billion. What if the Treasury has to put $25 billion of equity into the big bank? The agency might not want to have a board seat, but it would need to have a substantial say in what happens with the financial firm. Otherwise, how are the shareholders protected?

It would be better for the Treasury to give banks very long-term loans. It would be less risky for taxpayers if the debt was senior to all other debt and common shares. And, someone in the government would not have to look over management's shoulders to make sure the average citizen was likely to get his money back.

Douglas A. McIntyre is an editor at 247wallst.com.

Time Warner (NYSE: TWX) hit a new 52-week low today at $9.03. Until recently, it has performed better than most of the other media conglomerates, but it now faces two difficult questions.

Before current CEO Jeff Bewkes took over, it was assumed that Time Warner Cable (NYSE: TWC) would be spun out. Bewkes managed to get over $9 billion from the transaction. That may have been priced into the shares when he stepped into the top job. The other major assumption of shareholders was that AOL would be repaired or sold. The internet unit has been divided into two pieces. The ISP operations will probably be sold to another internet service company. The fate of AOL remains unknown. There are rumors that it could be sold to Yahoo! (NASDAQ: YHOO) or Microsoft (NASDAQ: MSFT).

Because internet display advertising is facing a downturn, sales at AOL will almost certainly suffer in the fourth quarter and into 2009. If Yahoo! is a reasonable proxy, the fact that it has lost half of its market cap this year and has been downgraded by several analysts cannot be good news for AOL.

Advertising weakness is bound to catch up to Time Warner's magazine unit. Print advertising may never recover entirely if the newspaper industry is any guide. Analysts have frequently said that the magazine unit should be sold. It is no longer a growth operation.

TWX cable units, like CNN, which rely on TV ads, are also certain to face an unpleasant if not vicious environment heading into the winter.

Investors in Time Warner are troubled for a simple reason: The company still looks too much like it did last year.

Douglas A. McIntyre is an editor at 247wallst.com.

One of Yahoo!'s (NASDAQ: YHOO) big shareholders wants the company to sell itself to Microsoft (NASDAQ: MSFT) ASAP for $22. And, it has a plan to make the deal work.

Mithras Capital does not own a big piece of Yahoo!, but it wants to help the portal firm to get a price well above where it trades today. According to Reuters, "Microsoft would unload Yahoo's Asian assets and non-search businesses, extract $3 billion worth of cost savings and receive $2.8 billion of tax benefits, meaning the software giant would pay $10.3 billion for Yahoo's search business."

If wishes were horses all the beggars would ride. Microsoft understands that Yahoo! is in distress as its share of the search market keeps dropping and display advertising revenue growth slows sharply due to a rough economy. Yahoo!'s stock is at $12.65 and has been dropping rapidly.

If Yahoo! reports a weak third quarter and revises its guidance for the fourth quarter and 2009 down, its shares could quickly move well under $10. Microsoft knows that. If it still wants to buy Yahoo! it may only have to wait a few weeks to get a much better deal.

Douglas A. McIntyre is an editor at 247wallst.com.

Citigroup (NYSE: C) has dropped out of the bidding for damaged bank Wachovia (NYSE: WB). It may be glad it did. According to The Wall Street Journal, "Wells Fargo & Co. (NYSE: WFC) won the battle for Wachovia Corp. as rival suitor Citigroup Inc. walked away from compromise negotiations because of worries about the quality of some of Wachovia's assets."

Citi wanted the FDIC to put a safety net under the value of some of Wachovia's assets. Investors and analysts viewed the Wells Fargo bid as better because it valued Wachovia's share price at a higher level and did not involve any government guarantees at all.

The lack of government guarantees and the likelihood that Wachovia's balance sheet is getting worse each day could cause Wells Fargo to pass on a buyout just as Citi did. In a credit crisis as severe as this one, it is almost certain that the value of bank assets is dropping due to mortgage-backed paper and weak loans. Wachovia has been viewed as having a balance sheet that is worse than any other large American banks. That would make it likely that its situation has gone from being troubled to being desperate.

At this point, the odds have to be 50/50 that Well Fargo will either disappear or sharply drop the value of its offer.

Douglas A. McIntyre is an editor at 247wallst.com

AIG (NYSE:AIG) has now borrowed $70 billion of the $123 billion made available to it by the Fed. It has to sell assets to become self-funding and the question is whether it can do that quickly in a credit crisis. If not, the government will be faced with putting more money into the insurer or watching it fail. Given the seriousness of an AIG failure and the waves of financial problems it would send though the markets, the Fed is probably on the hook for whatever AIG needs.

In the banking part of the US economy, banks and brokerages took record levels of loans from the Fed's emergency discount window. According to The Wall Street Journal, "Total average daily borrowing climbed to $420.16 billion from $367.80 billion in the prior week." If banks stocks continue to fall and depositors continue to withdraw money, the pressure on the Fed's lending facility may grow. Average daily lending could certainly move well above $500 billion per day.

Lending money to banks may not be an adequate measure to keep them sound. The Treasury needs to start buying banks shares as quickly as possible becoming a major stockholder in financial companies in exchange for billions of dollars in capital This process needs to begin immediately so that the system does not move through serial collapses of its weakest companies like Morgan Stanley (NYSE: MS) and Wachovia (NYSE: WB).

Time for the Fed and Treasury to step up to the plate.

Douglas A. McIntyre is an editor at 247wallst.com.

The federal government is considering backing all bank deposits and guaranteeing huge amount of bank dept. Depositors are withdrawing money from financial companies at an alarming rate.

According to The Wall Street Journal, "If the two moves come to fruition they would mark the government's most extensive intervention yet in the financial system."

"If" is a big problem. Many banks and brokerage stocks are selling off at the rate of 10% to 20% a day. Barclays (NYSE: BCS) opened down over 20% in London trading.

Governments are allowing the collapse of financial markets to get well out ahead of solutions. If that continues, confidence in the banking system could falter further and lending could be shut down completely.

If the Treasury and Fed do not act over the weekend, next week could be unspeakably tough.

Douglas A. McIntyre is an editor at 247wallst.com.

The headline in The Wall Street Journal is "Yahoo! (NASDAQ: YHOO) Investors Seek A Savior." But there probably isn't one to be found.

After moving above $34 on a bid from Microsoft (NASDAQ: MSFT), Yahoo!'s shares have now fallen below $14. One would think Microsoft would come back. The company could be picked up for a song now. But Redmond is nowhere to be seen. With Yahoo!'s piece of the search market still shrinking, Microsoft may think it is not worth the capital or the risk of integrating the portal with its own MSN property.

The press keeps mentioning AOL as a merger partner. The theory is that a deal would involve Time Warner (NYSE: TWX) putting its big internet company into Yahoo! and providing some cash, perhaps $2 billion, for a third of the combined company. The trouble with that is that Yahoo!'s market cap is only $19 billion. Take away its ownership in Yahoo! Japan and China e-commerce company Alibaba, and Yahoo!'s value is well below $15 billion. Time Warner would be getting a piece of a firm with a declining stock price, so its third of Yahoo! would be worth less than $5 billion on day one. With the integration risk of marrying the two internet companies, that is not much of a prize. And what happens when Time Warner wants to sell its Yahoo! stock? It would probably tank the price.

The real key to Yahoo!'s future value is the direction of display advertising. By most accounts, the fourth quarter is not going to be very good. The economy is too rough and marketers are looking for more targeted methods of finding customers. In many cases, this involves dropping internet display ads and using links in search results.

Yahoo! may not find a savior because there is little left to save. If the company has a bad quarter and guides for a poor 2009, its stock could go to $7 or perhaps less. A flailing internet firm is really not worth much.

Douglas A. McIntyre is an editor at 247wallst.com.

IBM (NYSE: IBM) had an astonishingly good quarter, especially given the poor state of IT spending. According to CNET, "IBM said earnings per share were at $2.05 for the quarter, up 22 percent from the same period last year. Net income rose 20 percent to reach $2.8 billion, while revenue rose 5 percent to $25.3 billion." Those numbers were higher than analyst estimates. Over the last two weeks a number of researchers who cover the company said they were looking for poor numbers. They were wrong. But their concerns did take IBM down to $90 from $115 just three weeks ago.

The IBM results might tempt investors to moving into other tech shares, especially those of firms which sell to big companies. Most of the stocks in these tech suppliers trade near 52-week lows.

But that would be a mistake. IBM is diversified across a very broad spectrum of international markets, has large hardware, software and services businesses, and has kept costs extremely low. The only tech company with comparable global businesses and remarkable margins is Microsoft (NASDAQ: MSFT).

IBM is the exception to the rule. Tech stocks are in bad shape because corporate spending is down. The great depth and breadth of Big Blue's business has let it dodge that bullet.

Douglas A. McIntyre is an editor at 247wallst.com.

A cool $85 billion ought to be enough to save any company. That is what the government loaned AIG (NYSE: AIG), the beleaguered insurance company. The money is supposed to be paid back and the Fed got an 80% interest in the firm.

But the $85 billion did not cut it. Yesterday, the government had to come up with another $37.8 billion. According to The Wall Street Journal, "The move, which comes less than a month after the Federal Reserve agreed to bail out the giant insurer, raises questions about whether the government will need to keep injecting money into the troubled company."

It actually raises a much bigger issue than that one. If AIG cannot get by on the $85 billion it got just last week, how much worse is its position getting and how fast? Since AIG is only one of many large financial companies with problems, why isn't it fair to ask whether the Treasury's $700 billion bailout program will be enough?

The AIG trouble shows that the government's aid to the financial system is a slippery slope. US taxpayer money goes into a failing system. As the credit crisis gets worse, the Fed and Treasury feel the need to double down. Gamblers and investors who take that path often find out that they lose everything, their initial investment and money that came later to protect it.

If AIG needs more money, it is a good bet that the rest of the system will need more as well.

Douglas A. McIntyre is an editor at 247wallst.com.

The UK did it, so why shouldn't the US? The Treasury may actually buy interests in some American banks as a way to quickly get them capital. It would be an unprecedented move and an unwise one.

According to The New York Times, "Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system."

While the US taxpayer is already troubled with the bank bailout, buying bank assets which may later appreciate in value to allow the capital to be paid back is much different than becoming direct owners in the firms.

Owning piece of banks creates two significant problems. When the government eventually sells its interests, will it cause bank shares to drop? What will investors think if the Treasury is putting its holdings on the market? It may cause stocks in the financial companies to drop again.

The other potential trouble is what happens if a bank fails? Is the government's position compromised or wiped out? Buying distressed and toxic loans from banks at least gives the Treasury something it can hold independent from the banks themselves.

Saving the system goes a bit far when it puts Treasury capital at even greater risk.

Douglas A. McIntyre is an editor at 247wallst.com.

The value of the shares in VW, Europe's largest car company, may have passed those of Toyota (NYSE: TM) for some of the wrong reasons, but it has become the world's most valuable car company nonetheless. VW is facing a possible buyout from its largest shareholder, Porsche, and that may be keeping its shares high.

However, the fact of the matter is that Toyota's share are down. And for good reason. According to Bloomberg, "Toyota has fallen 56 percent since its peak at 8,340 yen in February 2007. By contrast, Volkswagen rose to all-time high at 304 euros on Sept. 18."

The facts behind the reversal may be fairly simple and they may not go away soon. Toyota has substantial exposure to the moribund U.S. market where auto sales are dropping as much as 25% some months. While VW would like to be in North America with more market share, it may be lucky to be a bit player for now.

To demonstrate how tough the US car environment is, shares in Ford (NYSE:F) dropped to to $2.92 yesterday, a multi-decade low, and down from a 52-week high of $9.24.

It used to be that having a big market share in the U.S. was the most desirable thing in the world for an international car company. Having almost no share may be better now.

Douglas A. McIntyre is an editor at 247wallst.com.

Almost every consumer electronics company and large website has a way for people to download songs and pay for them. Even Nokia (NYSE: NOK) has set up its own system to help it sell its handsets.

Now Google (NASDAQ: GOOG) wants in. It will allow users of YouTube to download songs from Apple (NASDAQ: AAPL) iTunes or Amazon's (NASDAQ: AMZN) service. A YouTube visitor can watch a music video and then get the music. According to The New York Times, "If you like the song, you don't need to leave Google or leave the site to buy it," said Bakari Brock, business affairs counsel at YouTube.

Google may have trouble making money on YouTube, but the program is probably not the answer. The system supposes a radical change in online behavior where most people looking for songs go to music download sites such as iTunes and people who want to watch low-quality video go to YouTube. A music video on YouTube allows consumers to listen to a song for free. That may undermine getting people to pay for it, and some YouTube visitors may just pirate the music.

The new service is an example of how the failed economics of online video and social websites such as Facebook have forced the companies to do nearly anything to bring in money. The faltering online advertising market will probably increase the number of these programs, but that does not mean that they will work.

Douglas A. McIntyre is an editor at 247wallst.com.

A settlement may be close in the battle of whether Citigroup (NYSE: C) or Wells Fargo (NYSE: WFC) ends up owning Wachovia (NYSE: WB). Wells Fargo came in with what was considered a winning bid after Citi thought it already had a deal.

An appellate court has ruled against a stay requested by Citi. Most investors and the Wachovia board appear to think the Wells Fargo deal is better for investors. It also does not involve money from the FDIC which the Citi purchase did. That has to be attractive to the government.

To get the fighting over, it appears that Wells Fargo will get about 75% of the WB deposits and Citi will get the rest. According to Reuters, "Analysts said it may make sense for Citigroup to get at least some assets in the transaction because the bank worked with the FDIC on the deal and supported Wachovia financially last week."

But, with the banking industry falling apart, does either bank want Wachovia? Its assets, especially mortgage-backed paper, could be falling in value every day. Some bank stocks were down as much as 20% yesterday on concerns about their liquidity and ability to stay in business.

Citi and Wells Fargo may be better off letting Wachovia fail and picking up the pieces at a fire sale. It has become that dangerous to be a big US bank taking on assets which could potentially have huge problems. Honoring deals has become a thing of the past. Fear has trumped honor

Douglas A. McIntyre is an editor at 247wallst.com.

The UK government will spend over $87 billion to buy preferred shares in many of the nation's largest banks. The government will also guarantee certain bonds sold by the financial firms. The move amounts to a partial nationalization of the banking system.

According to The Wall Street Journal, "The Treasury also said the Bank of England will make "at least" £200 billion in funds available to the banks through its Special Liquidity Scheme. The scheme was established in April, and allows banks to swap illiquid assets such as mortgage-backed securities for Treasury bills, which they can use to raise money."

The news indicates what a desperate and dark hour the financial industry has fallen into and begs the question of whether the US Treasury will do the same thing. Yesterday, Bank of America (NYSE: BAC) had trouble selling $10 billion in new shares and its stock dropped almost 30%. Shares in Morgan Stanley (NYSE: MS) fell almost 40% on concerns that Mitsubishi UFJ would not complete its purchase of shares in the investment bank.

A direct US investment in large banks could cost much more than in the UK because of the size of the banks here. To mount a similar program could cost the Treasury $300 or $400 billion. If the markets keep falling, it may be necessary. With Treasury already committed to $700 billion for a bailout and the Fed loaning hundreds of billions at its emergency financing window, what is another $400 billion.

The US government may just keep pushing until it is out of cash.

Douglas A. McIntyre is an editor at 247wallst.com.