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The Wall Street Journal reports (subscription required) that General Motors (NYSE: GM) was recently in discussions to acquire Chrysler from Cerberus Capital Management, the private equity firm in the unpleasant position of owning that train wreck.

Once you learn the details, it's not quite as dumb as it sounds at first. According to the Journal, "Cerberus proposed a swap in which GM would acquire Chrysler's automotive operations, and in turn give Cerberus its remaining 49% stake in GMAC."

Given what a mess GMAC is, the proposal provides an idea of what Cerberus thinks of Chrysler's long-term prospects. It's a little bit like a few college students trying to trade 98 Degrees CDs for Dawson's Creek posters.

It's pretty much moot because the events of the past week have made a deal of this size impossible to put together, at least for now. But it's still interesting to think about. Given what a dump GM is, it's hard to imagine that an acquisition of this size and complexity would help matters. CEO Richard Wagoner (seen at right mulling the merger) already has his hands full.

GM insists that bankruptcy is not on the table. But so does every company -- until it files.

In a stunning reversal of fortune, Chesapeake Energy Corp.'s (NYSE: CHK) CEO put out a press release after the close of trading on Friday disclosing that he "involuntarily sold substantially all of his shares of Chesapeake common stock over the past three days in order to meet margin loan call."

Aubrey K. McClendon stated that "I am very disappointed to have been required to sell substantially all of my shares of Chesapeake. These involuntary and unexpected sales were precipitated by the extraordinary circumstances of the worldwide financial crisis. In no way do these sales reflect my view of the company's financial position or my view of Chesapeake's future performance potential. I have been the company's largest individual shareholder for the past three years and frequently purchased additional shares of stock on margin as an expression of my complete confidence in the value of the company's strategy and assets. My confidence in Chesapeake remains undiminished, and I look forward to rebuilding my ownership position in the company in the months and years ahead."

Read the Form 4 here. It's a little bit sad to watch this happen. McClendon's stake in Chesapeake landed him at number 134 on the 2008 Forbes list, He is also a part owner of the NBA's Oklahoma City Thunder.

It's now clear what one major driver of the sell-off in the company's shares this week was -- it may have presented a buying opportunity and, while it's sad to see someone wiped out, this aggressive insider buys with borrowed funds indicate strong confidence in the company.

Back in July of 2007, Jim Cramer -- who is a very smart guy -- conducted an interview on TheStreet.com (NASDAQ: TSCM) website, where he told Farnoosh Torabi that the subprime crisis had "absolutely no relevance" and added that the media was making a big deal out of it to try to look like they knew as much as the hedge fund managers.

Ooops. Let me be clear: I'm a big fan of Mr. Cramer, and I watch his show regularly. But the bottom line is that, when it comes to predicting the future of the market and analyzing issues as complex as this -- no one knows anything.

With the Dow Jones Industrial Average set to close down at least 600 points, MarketWatch is opting for some gallows humor.

The Countdown to the close banner at the top of the screen is sponsored by "Jack Daniels: Best Enjoyed Responsibly."

Is this an innocent mistake, or are the fine people at MarketWatch indulging in irony? We may never know.

With General Motors Corporation (NYSE: GM) begging the federal government for cash in the face of a deteriorating balance sheet and a hideous fundamental outlook, Standard & Poor's has placed the company on credit watch negative. S&P says the company has adequate liquidity for the balance of 2008, but that the outlook is murkier for 2009.

Shares of GM are currently down more than 20% but, suspiciously, had been lagging the market badly long before CNBC broke the story about the rating move.

I consider myself a big believer in contrarian investing, and I'm certainly not one of the "Sell stocks now! It's only going to get worse" crowd, but it's hard for me imagine how things will get better for General Motors. The balance sheet's a mess, the industry's in trouble, and General Motors has to battle with leaner overseas competitors. Don't even get me started on the legacy costs.

GM will probably bounce around, but it's hard to imagine that it's final destination will be anywhere other than bankruptcy.

Here's a graphic a friend sent me that requires no explanation. Enjoy:

After receiving an $85 billion taxpayer bailout, you would think that the executives at AIG (NYSE: AIG) might have moderated their lavish lifestyles and behaved like the de facto civil servants that they now are.

But during a House Oversight Committee hearing, Rep. Elijah Cummings, D-Md, described what actually happened: a vacation:

After the bailout of AIG last month, the United States government effectively bought an 80% share in the company. That should have caused a fundamental change, you would think, in how the company was spending funds on compensation, bonuses and benefits.

With financial institutions imploding in a wave of writedowns -- and executives who delivered mind-bogglingly bad performance walking away from the wreckage with millions -- Carl Icahn is seizing on the current environment to push his agenda on corporate governance reform.

Icahn announced today that he is forming United Shareholders, a lobbying group, to push for legislative reform that would outlaw shareholder-unfriendly corporate bylaws like poison pills and staggered boards.

Lobbyists get a lot of bad press, but this sounds like one effort that will actually be promoting the interests of ordinary investors. In recent months, we've seen the dangers of bad governance and poorly-aligned pay packages that induce executives to take excessive risks.

It seems that Icahn, who has spent most of his life building one of the largest fortunes in the world, is now looking out for his legacy. If Icahn's lobbying and blogging efforts have any effect on the way companies are run, it will be a good one.

The Wall Street Journal's 'Heard on the Street' column reports (subscription required) on the less than impressive results of recent stock buybacks at public companies.

When a company buys back its stock, it pays cash to shareholders for their shares, and the retires them -- in a market where the vast majority of stocks are trading well of the highs the market reached last year, many recent buybacks are looking poorly-timed. The Journal writes that "General Electric (NYSE: GE) bought back $29 billion dollars of stock, paying an average of $36 and change for each share, according to regulatory filings. This week, it sold $12.2 billion worth for $22.25 each (before fees) and put $3 billion worth of warrants, with the same strike price, in Mr. Buffett's pocket."

The column goes on to argue that dividends "make for better financial discipline and more transparency." Of course that's easy to say right after the market has tanked, but it's a pretty illogical conclusion.

The main argument against dividends is that they're incredibly inefficient, adding an extra 15% cost. A company that pays out a large portion of its income as a dividend is effectively lowering its margins by 15% -- a move that seriously hampers long-term value.

Of course it's unfortunate that GE bought back so much stock only to sell it again at a lower price, but it's a mistake to form general theories about corporate governance based on anecdotal evidence culled from a once-in-a-generation credit meltdown. Given that shareholders of publicly companies presumably feel that their stocks represent a good value, it makes much more sense for corporate brass to hand them more stock with buybacks instead of cash to pay an extra tax on.

The Wall Street Journal reports (subscription required) that private equity heavyweight JC Flowers & Company recently told its investors that it had marked down $6.5 billion worth of holdings by 30%.

That's not good news but it's interesting to note how much worse off Mr. Flowers would probably be if he'd been able to do all the deals he wanted. In 2007, Flowers was set to pay $25 billion for student lending giant SLM Corp. (NYSE: SLM). That deal fell apart and the stock is down about 80% since then on credit market turmoil. Flowers was also a contender for Bear Stearns.

But Flowers isn't backing down. He recently raised $2.5 billion last month for a third fund and received regulatory approval to buy a small Missouri bank.The Journal adds that "Although it is a flyspeck of a transaction -- the bank has just two branches and $14 million of assets -- the deal provides Mr. Flowers a base from which to acquire failed banks or their deposits."

Recent gaffes aside, Flowers has an excellent reputation as a bargain-hunter, and the fact that he's building his war chest with an eye toward the financial sector should give investors something to think about.

Given the continued deterioration in the financial markets and mortgage industry, it seems likely that Bank of America (NYSE: BAC) badly overpaid for Countrywide Financial -- if the company's equity was worth anything at all.

This latest bit of news won't help. Attorneys general offices in California and Illinois have negotiated a settlement with the lender that will require Countrywide to modify terms on tens of thousands of loans. The settlement will offer strapped California borrowers $3.5 billion in relief, and if all 50 states sign on the total price could soar as high as $8.7 billion, according to the Illinois Attorney General's office. So far, Arizona, Connecticut, Florida, Iowa, Michigan, North Carolina, Ohio, Texas and Washington have joined Illinois and California in the deal.

In a statement, California Attorney General Jerry Brown Jr. said that "Countrywide's lending practices turned the American dream into a nightmare for tens of thousands of families by putting them into loans they couldn't understand and ultimately couldn't afford."

Of course, Bank of America knew going into the deal that it would have billions in litigation expenses to deal with but the downward spiraling of the economy has given CEO Ken Lewis a lot less margin for error. There are still shareholder class-action lawsuits and piles of consumer litigation to be sorted through, and, at a minimum, he has to be wishing he'd saved his ammunition to acquire cheaper assets in the midst of the carnage.

Long-term, it seems doubtful to me that the Countrywide Financial brand has any value at all. Why would anyone go to the poster child for the biggest real estate meltdown in history for a loan?

In the face of a tough economy, a weak stock price, and formidable competition from lower cost coffee sellers like Dunkin' Donuts and McDonald's (NYSE: MCD), The Wall Street Journal reports (subscription required) that Starbucks (NASDAQ: SBUX) is taking steps to bring down its labor costs.

The idea is to have fewer workers working more hours, with an eye toward making more of the baristas full-time, working 32 hours or more per week.

The Industrial Workers of the World, a labor union that has been trying to make inroads at the chain, complains that the new system does not guarantee that workers will actually receive those hours. The idea is that cost savings will come from lower employee turnover and reduced training expenses. Because Starbucks already offers generous benefits packages to its part-time workers, the cost increases on that side will likely be minimal.

More importantly though, the move will deliver a more consistent experience for customers, with more knowledge full-time, familiar faces serving coffee.

A Miami bankruptcy judge ruled that the U.S. Trustee Program, an arm of the Justice Department that oversees bankruptcy court related issues, cannot seek sanctions against Countrywide Financial in bankruptcy court. The U.S. Trustee had filed three lawsuits on behalf of debtors (WSJ subscription required) who had allegedly been "abused" by Countrywide during the bankruptcy process.

The judge, A. Jay Cristol, ruled that only federal prosecutors can bring such lawsuits, while still commending the agency for "noble intentions and efforts to protect the public from reprehensible conduct by an apparently overreaching mortgage lender."

The next step will hopefully be for federal prosecutors to take on the company. Countrywide, which is now owned by Bank of America (NYSE: BAC), is still facing a plethora of litigation from its former shareholders and customers. Given the continued meltdown in the mortgage industry since the deal closed, it seems likely that Bank of America overpaid badly for the lender. The millions that Bank of America will have to put up for legal expenses, settlements, and possible judgements also won't help, and that's to say nothing of the distraction it creates for the company's executives.

Goldman Sachs analyst Matthew J. Fassler told investors in a research note that Nintendo's latest portable gaming device (described here by Steven Mallas), which allows users to download games electronically, poses a "tangible early threat" to the physical sale of video game CDs and cartridges. He wrote that "While content will be limited at first, we believe it will likely ramp very quickly."

The Associated Press headline on the story was "Analyst: Best Buy video-game sales vulnerable," but I would say GameStop (NYSE: GME) is in much more trouble because selling video games is essentially GameStop's only business. While the decline of CD sales hasn't ruined Barnes & Noble (NYSE: BKS), it has absolutely murdered Trans World Entertainment (NASDAQ: TWMC), the operators of mall-based music stores like f.y.e.

It's too early to say when video game downloads will wreak havoc on brick and mortar video game stores, but I don't think there are too many people who would say that that will never happen.

Even with the stock near its 52-week low at 16 times earnings, that's a risk that long-term investors will want to pay close attention to.

In an interview with Reuters, Senator John McCain mentioned Warren Buffett and former eBay (NASDAQ: EBAY) CEO Meg Whitman as possible choices to succeed Hank Paulson as Treasury secretary: "I think it would be someone that Americans would recognize that would inspire trust and confidence. There's people like (Cisco chief executive) John Chambers, there's people like Meg Whitman, there's people like Warren Buffett."

That certainly would be interesting as, in addition to being the greatest financial mind in the world ever, Buffett is also a hardcore Democrat and a supporter of Senator Barack Obama.

It's also almost inconceivable that Buffett would leave Omaha and Berkshire Hathaway (NYSE: BRK.A) to go wrestle pigs in Washington. Buffett's pledge of substantially all of his fortune to the William and Melinda Gates Foundation demonstrates his commitment to charity and improving the world but there is nothing in Buffett's history to indicate he would want to spend his days devoted to matters of public policy: he enjoys investing.

So why would McCain bring it up? He probably just wants to look more competent and open-minded on matters of economic policy -- and name-dropping Buffett is easy because he knows nothing will ever come of it.