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On September 27th, investors thought the $700 bailout package was on the verge of passing the House. Hank Paulson and George W. Bush pushed that bill as the way to avoid financial calamity -- and "heaven help us" if it failed to pass. Last Monday, the bill was voted down -- and the Dow fell a record 778 points. Last Friday, an $810 billion version of the bill passed -- with added sweeteners.

So, did the clouds in the heavens part to reveal sunshine and rainbows? Not exactly. Since the market closed on the 27th -- the day before the bailout to save the world was expected to pass -- the Dow has lost 1,188 points, wiping out $2 trillion in stock market value. I wonder whether anyone actually believed the government when it said the bailout bill would fix things.

I didn't, because I did not expect the bailout to work. The good news is that with the market regularly tanking so much every day, our leaders are getting ever more desperate to try something that will work. This increases the odds that they will try what I think is a better plan. And if it would kindly supply a $25 billion guarantee to the $1.7 trillion Commercial Paper (CP) market. This would help companies finance payroll and buy inventory. (How hard would that be to do this after the government has already set aside $50 billion to guarantee the $3.4 trillion money market industry?)

One of the great things about a global financial collapse is that economic activity slows down so much that people use less oil. And one of the more interesting aspects of this collapse is that despite the terrible problems we face in the U.S., investors are flocking to the dollar as a symbol of permanence in a turbulent world. Since oil is traded in dollars, the combination of a stronger dollar and weaker demand leads to a lower price.

For example, today oil went as low as $86.36 -- which is 41% below its July peak of $147. Meanwhile, the dollar hit a 13-month high of $1.36 to the Euro -- that's 15% stronger than the $1.60 it traded at this summer. That may be because the U.S. passed its $810 billion bailout plan and Europe has not yet figured out what it will do to deal with its financial crisis. Not to worry, oil is still 260% higher than the $24 it traded at in January 2001 and the dollar has lost 48% of its value of $0.92 to the Euro at which it traded back then.

Where do we go from here? That depends on two variables: how much oil-producing nations cut back on production and how the dollar performs relative to other currencies as this global financial crisis unfolds. If oil-producing nations cut back on production, prices will rise as long as the supply contraction matches the decline in demand. And as long as the world perceives that the U.S. is the world's financial safe haven -- the dollar could strengthen. And that would push oil prices lower.

In a nutshell, oil prices will keep dropping unless oil producing nations drastically slash production and the dollar plunges.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

One of the most basic precepts of the U.S. economy is that Gross Domestic Product (GDP) growth depends on the consumer -- some 70% of GDP growth, in particular. The U.S. has created two inter-related industry clusters to assure that consumer spending keeps growing. While one continues in full force, the other is failing fast. This is causing consumers to put their spending into reverse, creating an economy-wide recession diet on steroids.

What are these two inter-related industry clusters? The Celebrity Industrial Complex (CIC) assures that we see images of the wealthiest and most celebrated sliver of society -- creating a desire to close the gap between us and them. And the Borrowing Industrial Complex (BIC) provides the cash we otherwise could not afford to pay for the goods and services that never quite close that gap. The CIC is still going strong, but with incomes down since 2000, household wealth slashed by $6 trillion, and banks scrambling for capital, the BIC is in cardiac arrest.

Consumers have decided to ignore the psychological pull of the CIC and use whatever money they still have to keep their families alive. While official government statistics don't show this -- perhaps they will when it releases third quarter reports -- consumers are cutting back. Gil Colon, sales manager at Villa Reale, a Las Vegas art and furniture store puts it well: "People have lost their confidence. They have no buying power. They are losing their retirements, their vacation funds, and they are scared to commit to buying anything," according to The New York Times.

With markets in Asia down between 4% and 5%, Europe is following suit. Maybe the $810 billion bailout package that was sold on the premise that it would stop a financial meltdown is not living up to its billing. (Has anyone found those Iraqi WMDs?) But it could simply be that this global financial crisis is taking a bit longer to surface in Europe than it did in the U.S.

How bad is the stock market damage? Japan's Nikkei fell 4.7% to a four-year low and Hong Kong stocks tumbled 5%. European stocks opened lower -- the Dow Jones Stoxx 600 Index lost 3.9%; UK's FTSE 100 and France's CAC-40 Index both lost over 5% of their value, while Germany's DAX declined 4.8%. How can this be happening? Weren't the combination of a $700 billion worth of reverse auctions to buy financial toxic waste and another $110 billion of tax breaks enough to cure what ails the global economy?

In a word, No. Europe has similar problems to those in the U.S. -- financial institutions that borrowed too much money to take on more risk than they could manage. And by creating a single currency that integrated many European economies, the EU is facing its biggest financial challenge since its creation in 1992. So far, it has taken piecemeal steps to deal with problems at particular financial institutions.

Citigroup (NYSE: C) looks like it's trying to get a breakup fee in exchange for giving up on its deal for Wachovia (NYSE: WB). Citi persuaded a New York judge to extend an exclusivity agreement between Citi and Wachovia -- which prohibited Wachovia from talking to other suitors -- through at least October 10th when the parties are scheduled to meet with the judge. Citi can either offer a higher price than its rival, Wells Fargo (NYSE: WFC), or it can negotiate a breakup fee to soothe its hurt feelings.

As a reminder, Citi thought it had a deal last Thursday but on Friday that deal evaporated. Citi's deal for Wachovia's banking operations was for $1 a share, or $2.2 billion, and it left Wachovia's brokerage business as a "stub." On Friday, Wells offered much more -- $7 a share, or $15 billion -- for all of Wachovia's operations. Not only that, but the Wells deal was less risky to the FDIC.

That's because the Citi deal required it to take the first $42 billion in Wachovia losses from Wachovia's option ARM mortgages. The FDIC would take the rest of the losses in exchange for Citi preferred stock and warrants worth about $12 billion. By contrast, the Wells deal -- paid for by issuing $20 billion worth of shares -- would leave the FDIC unscathed.

During the Great Depression, Franklin Roosevelt established the Work Projects Administration (WPA) to create work -- such as constructing public buildings, projects and roads and operating large arts, drama, media and literacy projects -- for Americans of all stripes.

Now the W Administration has its own WPA -- but this one only applies to the very wealthiest of Wall Street who are looking for more to do. The three million homeowners who are going through foreclosure won't get that $810 billion ($700 billion is earmarked for buying financial toxic waste and the other $110 billion went to buy the additional votes -- through tax cuts -- needed to get the House to pass the bill).

How will W's Wall Street WPA (WSWPA) program work? It will hire firms such as Bill Gross's PIMCO and Blackrock (NYSE: BLK) to manage a reverse auction to buy that toxic waste. Bill Gross bought $500 billion of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) bonds at distressed prices, "advised" the administration on its $200 billion program to nationalize Fannie and Freddie, and then profited handily when the bailout boosted the value of Gross's bonds. Blackrock is already enjoying our tax dollars as the manager of the $29 billion in Bear Stearns assets which the Fed took on back in March. In total, WSWPA could generate $7 billion in fees (1% of the $700 billion to be spent) for Wall Street.

The $810 billion bailout plan was just approved by the House of Representatives after a second vote by a margin of 263-171. That's a lot of taxpayer money for a plan that misses the target. And with stocks falling well off the highest levels of the day, I gather that investors are not too surprised that it passed.

To put this in perspective, the Dow now trades 631 points below where it was on the morning of the record 778 point decline on Monday. That's when the House voted thumbs down on the original plan. I guess taxpayers will need to spend a few trillion dollars to get more of those triple digit gains.

Meanwhile, I think that unless the Treasury can solve the thorny problem of setting a price for the mortgage-backed securities (MBS) and collateralized debt obligations (CDOs), then it will fail to solve the real economic problem -- which is a lack of trust in the financial system. I've proposed what I thought would be a better solution.

Maybe we can try that one next week if stocks drop another 700 points. There seems to be no limit to the amount of taxpayer money the government is willing to throw at this financial crisis.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

This is a rumor that was reported on CNN's iReport site by one of its "citizen journalists" this morning. Apple Inc. (NASDAQ: AAPL) denied the rumor and iReport, which kept the post live from about 7:30 this morning to 10:15am, has since removed the post from its site. Needless to say, Apple stock took a big hit until Apple denied the rumor.

The original rumor included the following sentences: "Steve Jobs was rushed to the ER just a few hours ago after suffering a major heart attack. I have an insider who tells me that paramedics were called after Steve claimed to be suffering from severe chest pains and shortness of breath."

Silicon Alley Insider interviewed Apple's Katie Cotton, Vice President of Worldwide Communications, who replied quickly, saying "It is not true." This incident is likely to be investigated by the SEC. But given how important Steve Jobs is for Apple's future and the lack of information available about his health, a rumor like this is likely to gain more traction than it might at other companies.

And until cameras get live pictures of Steve Jobs actually appearing to be fine, doubts about his health may linger.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Apple securities.

Fresh statistics reveal an economy that is in grim shape -- and just in time for the election. Jobless claims are higher than they have been since September 2001 and factory orders plunged 4%. If we elect the McCain whose chief economic advisor thinks we're whiners, we can keep this streak going for another four years.

The economic statistics are grim. Initial jobless claims were higher than they've been in seven years. They increased 1,000 to 497,000 last week thanks in part to Gulf Coast hurricanes and staff cuts due to low demand. Meanwhile, the 4% decline in factory orders was worse than anticipated. Economists had forecast a 3% drop after a previously reported 1.3% increase in July. Why so bad? With banks reluctant to lend, companies can't get the funds they need to buy that factory equipment.

Could we be getting whitewashed economic statistics? If GDP growth is reported as positive for the recently departed third quarter, I will be surprised. If you like the effects of deregulation and tax cuts on our economy, there is ample opportunity to keep those policies firmly in place for four more years. With the S&P 500 down 22% so far this year, I am not sure who can afford to vote that way.

But congratulations are in order for their ability to prosper under such difficult economic conditions.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

In case you missed it, the Senate just slipped another $149 billion into its Taxpayer Assisted Reelection Plan (TARP, which actually stands for Troubled Asset Relief Plan). That $150 billion is in the form of tax cuts -- just what we need due to our record budget deficit for 2009, which should approach $600 billion by the time this is all over. But wait, there's more -- the Senate bill also suspends accounting rules so companies no longer need to report the true value of their financial toxic waste.

Now, this is rich! Washington wants to cure a financial crisis caused by debt and deception by -- wait for it -- even more debt and deception. The proposed bill would boost the national debt to $11.3 trillion -- 125% more than it was in 2000. And by suspending fair value accounting rules, will allow financial institutions that hold mortgage-backed securities and other toxic waste to stop valuing them at the market price. This is like blaming a thermometer for telling you that you have a fever of 104! Next thing you know, Congress will be mandating that all banks report $100 billion in revenues and 90% profit margins.

Meanwhile, Edmund Phelps, who won 2006's Nobel Prize in economics, agrees that a better plan would be to recapitalize the banks -- not try to buy their toxic waste. If they're so determined to load up our children and grandchildren with debt, why can't they at least pass a plan that will solve the problem instead of giving away our hard-earned tax dollars to help them get reelected? Let's see how the House likes them apples.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Things in the $1.7 trillion Commercial Paper (CP) market have not been great in recent weeks. These month-long loans are suddenly costing CP issuers much more than they have in the past -- for instance on Monday CP rates rose 1.71 percentage points to 3.95%. And during normal CP markets, issuers replace their old loan with new ones -- it's called rolling over the loan. But what if an issuer went to roll over its CP and nobody was willing to play any more? Then the issuer would need to come up with the money from some other source -- and in a big hurry.

This problem is spooking General Electric Company (NYSE: GE) and other companies in the CP market. GE has $90 billion worth of CP and it could be in trouble if it can't roll it over. By the end of today it should have a total of $34 billion in cash. How so? Yesterday it raised $3 billion from Warren Buffett and it expects to sell $12 billion in common equity this morning -- at $22.25 a share, which is a 9% discount to yesterday's closing price and the same as the strike price of Buffett's GE warrants. (By diluting current shareholders at a below market price, this high cost of capital signals trouble.) GE reported $19 billion in cash at the end of June.

This $34 billion leaves GE $56 billion in the hole if it needs to replace all $90 billion of its CP. The New York Times interviewed anonymous analysts who said GE has enough cash on hand to make up this $56 billion -- possibly from credit lines with banks which represent money that could be borrowed in the event of an emergency. Many consumers with home equity lines of credit have found that they can't get the cash when they want it.

Another "respected" American company looks to be in a bit of financial trouble. You'll recall that Goldman Sachs Group (NYSE: GS) recently received a $5 billion capital infusion from Warren Buffett. And today, the once-admired General Electric Company (NYSE: GE) accepted a $3 billion check from Buffett in exchange for preferred stock paying a 10% dividend and warrants to buy $3 billion common shares of GE at a strike price of $22.25 for five years.

This comes as the Credit Default Swap (CDS) market is charging GE a rapidly rising premium to insure its bonds. CDSs protecting against a default by GE Capital Corp. for five years climbed as much as 1.25 percentage points to 7.4% -- and last traded at 7%. This increase in perceived risk is happening as GE suspended its stock buyback, shifting capital to protect its dividend and AAA credit rating.

Will these moves be enough to protect GE's credit rating or is getting 40% of its pretax profit from financial services too risky? Who will be the next company to be stricken by this financial crisis? And which of these weak companies will pay this steep price for Warren Buffett's money?

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns GE shares and has no financial interest in Goldman shares..

In the last few years it's become pretty clear that there are many mortgages which people can't repay. But that's not the only place where people are having problems making ends meet. Borrowers holding loans for commercial real estate, leveraged buyouts, and automobiles are also having their problems with repayment.

So it should not be a huge surprise to learn that people who hold credit cards are not repaying the money they borrowed in a timely fashion. Innovest StrategicValue Advisors, a consulting firm, forecasts that banks will charge off $18.6 billion worth of credit card receivables in the first quarter of 2009 and $96 billion in 2009 -- that would be 261% more than in 2007 and 131% higher than the level it expects by the end of 2008.

But will a rise in defaults be devastating to credit card companies? A typical installment loan is a relatively low $2,200, so if a borrower pays late, the credit card companies can charge very high fees and raise the interest rates so high that they can offset some of the losses they'll incur when they ultimately end up charging off the receivable. But this credit crunch has proven that historical patterns don't always apply.

It would not surprise me if a rapid rise in credit card defaults had a negative impact that most experts had not anticipated.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Tuesday's rally may have been the last gift the market will give you for a decade. After diving a record 778 points Monday, stocks regained 485 points -- or 62% of that loss. And that might be the best you're going to see for a long long time. With the S&P 500 down 21% year to date, you have no doubt already suffered big losses in your stock portfolio, if you own any. (I think many people got out of stocks after the dot-com crash.)

But if you are a regular investor in stocks, it may be time to move out of them and park the money somewhere safe. Between 1930 and 1932, stocks lost 80% of their value -- and that's not just ancient history. Since its peak of 5,049 in March 2000, the NASDAQ is down 59%.

There are people seeking your commissions who don't want you to get out of the market -- although, selling would give them some big commissions in the short run. It is more profitable for brokers if you stay in the market and keep investing. But is that in your best interest?

This morning markets in Asia fell about 4% -- a relatively muted response to the 7% drop in the Dow Monday. Should we trust our increasingly fragile global financial system to the 73-year old gambler who claimed a victory in yesterday's failed vote on the bailout bill? One poll suggests that the answer is no.

A September 29th Gallup poll found that Americans have the least trust in the Administration's ability to handle this financial crisis and the most in Senator Barack Obama (D-IL), 47. Here is the percentage of Americans who approved of how various people were handling the economic crisis:

• Barack Obama (46%)
• Democratic congressional leaders (39%)
• John McCain (37%)
• Republican congressional leaders (31%)
• Hank Paulson and George Bush (28% each)

Senator McCain, a former POW, gambled on taking money from corporate interests, on appointing Sarah Palin as vice president, and on choosing Phil "Americans are Whiners" Gramm as his chief economic advisor -- the same guy whose bill to deregulate the Credit Default Swap (CDS) market helped get us into this financial catastrophe.

Our national decision is less than six weeks away.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.