A little perspective, please

(Money Magazine) -- How did this crisis happen? Could it get worse? When will the pain end ? If you were looking for answers to those questions - and you should be - you'd seek out someone with knowledge of the past and a record for being right about the future.

Allow us, then, to introduce you to three people rich in both. Diane Swonk, the chief economist of Chicago's Mesirow Financial, has been named one of the country's top forecasters and is an adviser to the Federal Reserve Board.

Jeremy Grantham, co-founder of the investment firm GMO, was one of the first investors to foresee that the financial system was headed for a breakdown.

And market historian John Steele Gordon, whose grandfathers held seats on the New York Stock Exchange, has chronicled America's long history of booms and busts in An Empire of Wealth.

Reporter Joe Light and senior writer Janice Revell spoke with them in mid-September.

In retrospect, there were plenty of signs pointing to the serious and growing problems in the financial system before everything seemed to fall apart at once. Why didn't anyone, on Wall Street or in Washington, take action sooner?

Jeremy Grantham: We got so good at denial. The Fed was in denial, the Treasury was in denial, the bosses of Merrill Lynch and Lehman were in denial. And yet this crisis was the most widely heralded "surprise" in the history of finance - there were plenty of people warning that it was going to happen long before it did.

You were one of them. What did you see that bothered you?

Grantham: All you had to do was open a history book and see what happens when you have a bubble. In this case, there was a bubble in housing and there was a magnificent bubble in risk taking. People were just shoveling their money into risk on the pathetic idea that risk is always rewarded.

That is completely misguided. You don't get rewarded for taking risk; you get rewarded for buying cheap assets. And if the assets you bought got pushed up in price simply because they were risky, then you are not going to be rewarded for taking a risk; you are going to be punished for it.

You can lay the evidence in front of everybody, but they will yawn and ignore it. It's that denial that's impressive. It's what happens in bubbles.

How did individual homeowners contribute to the current meltdown?

Diane Swonk: The housing bubble is certainly the root of the problem in the financial markets. If you were a home buyer, you didn't have to have any skin in the game, you didn't have to put any equity down to get a mortgage.

Another problem is the ease with which people can walk away from their homes in this country. A home buyer can say to a bank, "Here are the keys; the house is your problem now. But I'm going to keep my car, my 401(k) and everything else."

No other major industrialized country in the world allows that. And it encouraged homeowners here to take more risk, to put zero money down.

How much at risk were the financial institutions involved? That is, was this degree of intervention really necessary?

Grantham: Leverage is the ultimate demonstration of risk, and we never had system-wide leverage like this before. Ever. We had several firms that were leveraged 30 to 1. [For every $30 of assets on their books, they put up $1 of equity and borrowed the other $29.] At leverage of 30 to 1, you have to lose only about 3% on your $30 worth of assets and your dollar of equity gets wiped out. You're bankrupt.

Why would those financial firms take on such extreme risk?

Grantham: They believed their risk models, which said they had a diversified portfolio, so their investments couldn't all go down together. And the potential rewards were out of whack with the risk.

Say you're in the hedge fund division of some investment bank and you have a billion dollars to invest. You hit the ball out of the park, make 120% on that billion and probably walk away with a $45 million bonus. If you lose the billion dollars, you're fired. Hey, that's not bad! If I thought the odds of success were fifty-fifty, I'd be a fool not to try.

How bad is our current situation compared with previous financial crises?

John Steele Gordon: It feels bad but not like a panic. In a classic panic, as in 1987 or 1929, everyone was selling and prices went through the floor. The market lost 22% on Oct. 19, 1987, compared with 4% on the day Lehman filed for bankruptcy. We were getting close to a breakdown in the whole financial system, but now that decisive government actions are being taken, we're stepping back from the brink.

By comparison, after the 1929 stock market crash, the government didn't do much of anything - and what they did do just made the situation worse. For instance, the Fed kept interest rates high and the government implemented the largest tariff in American history, which was effectively a big tax increase in a declining economy. These things converted a perfectly ordinary recession and market crash into the greatest economic calamity in American history.

In 1987, on the other hand, it was the Federal Reserve that ended the panic. The Fed basically called up Wall Street and said, "Listen, you guys need liquidity. Bring your wheelbarrows and we'll fill them up." We've seen a similar use of the Fed in the current crisis.

How have other countries responded to the deteriorating situation here?

Swonk: This is one aspect of the crisis that most people aren't talking about. The financial liquidity that has been infused into the market to provide stability has come not only from the Federal Reserve but from international sources as well. The European Central Bank and the Bank of Japan have been very involved.

The reality is setting in that globalization has made us all intrinsically linked, and coordination of policy across borders is critical. That is not the place America was in during the Great Depression. Then the rest of the world was still hurting financially from World War I and there was nowhere to go outside the U.S. to raise money. Today there are a lot of places to go.

Is a massive government rescue program really necessary?

Swonk: The piecemeal approach to creating some sort of backstop to the financial system - Bear Stearns, AIG and so on - appeared to add more panic than confidence to the markets. We needed a more holistic approach to stop the bloodletting, especially once it started to affect short-term credit.

What about the cost to taxpayers?

Gordon: People thought the cost associated with the S&L crisis would be two or three times larger than the $150 billion it turned out to be. At the time the S&L's problem assets - real estate - would have overwhelmed the market if sold at once. The government later sold them for much more than people originally thought they could. That may also be the case today.

We've now seen huge banks acquire other huge banks. Are these massive financial institutions dangerous?

Gordon: It's good because it makes the banks more stable. A lot of the banking problems we had earlier in our history occurred because the banks were so small. In 1920 we had 30,000 banks in this country; each small town had its own bank. If the economy of that small town went into the toilet - a factory closed or there was a long drought - the bank went broke because there was such a small base supporting it.

The more widespread a bank is, the more stable it is. If something goes wrong in one area, there are other places where things are going well to offset that.

What can the past tell us about where the stock market is going next?

Grantham: Historically, when a market bubble has popped, it has almost always overcorrected. But after the tech bubble burst in 2000, the stock market didn't hit the lows it should have.

Before it could, the housing bubble and tax cuts that followed 9/11 kicked off the biggest sucker rally in history, from 2002 to 2006. So I think the market isn't cheap yet. There is more pain coming. I don't think we'll hit the low until 2010.

Swonk: But even though the market is turbulent and scary today, we're still looking at a pretty favorable environment over the longer term for stocks. Productivity growth is accelerating - we all know this, of course, because we're working harder for less money. Rising productivity leads to rising corporate profits. That, historically, has been highly correlated with a bull market.

What's your advice to investors now?

Grantham: Understand that the market may recover for a while and then go to a new low. One of the lessons I have learned over the years is that things can get a whole lot more extreme, both up and down, than you ever dreamed of. So we may drop another 30% before we hit bottom.

Keep telling yourself every night that you're a long-term investor and don't look at daily stock prices. And it's not too late to shift some of your money to high-quality blue chips. Emerging markets are probably no longer too expensive either. If you had 80% of your stockholdings in blue chips and 20% in emerging markets, you'd have a pretty reasonable portfolio to ride out the bad times.

Gordon: Psychology is central in these kinds of markets. Don't panic, that's the No. 1 rule, and think long term.

What's ahead for the economy now?

Swonk: We can't really avoid the economy getting worse before it gets better. We don't have the tax rebates helping us out anymore. Labor markets have deteriorated further, and people who are working are in many cases earning less. So I don't think we'll recover before 2010. It won't be until then that housing prices stabilize, and that's the key issue.

I'm confident that they will by 2010 because we are still creating a million new households a year and those people have to live somewhere. We've got some fundamentals working for us, but it will take a while to get there.

What needs to change to prevent another crisis from happening?

Gordon: We need a thorough housecleaning of the financial regulation system. Right now it isn't even really a system. It just sort of grew over the years and doesn't make a whole lot of sense.

You have the Federal Reserve, the Comptroller of the Currency, the FDIC, the SEC, state banking authorities and state insurance authorities - and all of them working at cross-purposes. It doesn't make any sense at all anymore.

The stock market

Wondering when the roller-coaster ride will end? Should you bail out now? Here are some answers to your questions about your stock portfolio in the current economy and what your next move should be.

When will stocks bounce back?

Don't expect an immediate rebound. "Investors shouldn't get overly enthusiastic," says Jean-Marie Eveillard, portfolio manager for the First Eagle Funds. Why? Even if Washington gets its act together, the economy will remain a drag. "In a time of slow growth, profits will not be that great," Eveillard says.

Remember too that a massive government rescue plan could have unintended consequences. If the budget deficit were to balloon - as many economists assume it would - that could further weaken the dollar, which would lead to another bout of inflation fears.

Rising inflation and a falling dollar, in turn, would likely boost market interest rates, since it will take a big carrot to entice foreign investors to buy U.S. bonds. When rates are on the rise, investors typically aren't willing to pay up for stocks in the form of higher price/earnings ratios.

Economists are predicting that a recession could last through next spring or even the fall. Does this mean stocks will languish that entire time? No. Equities have a knack for rallying in anticipation of an eventual recovery. So a stock market rebound could take place sometime in the first half of 2009. Until then, don't hold your breath.

If the outlook is so bad, why not dump stocks?

Selling stocks after they've sunk to a three-year low in hopes of buying them back after they're trading at higher prices is a surefire recipe for losing your shirt.

While it's understandable to want to flee, Bohemia, N.Y. financial planner Ronald Rogé suggests taking a cue from Warren Buffett. "Here's the smartest guy on the block, and his firm, Berkshire Hathaway, is down like most other stocks this year." But instead of looking to sell, Buffett is buying. Recently he agreed to plow $5 billion into Goldman Sachs.

Still have the urge to purge your portfolio? Consider this: So far this year, fund investors have yanked more money out of their stock funds than they've put in, marking only the third time in recent memory this has happened. The other two times? In 2002, just before a five-year bull market, and 1988, the start of a 12-year bull.

"If you leave the market now entirely, you probably won't make it back in time to enjoy the recovery," says Torrance, Calif. financial planner Phillip Cook. According to Standard & Poor's, equities typically recoup a third of what they lost in a bear market in the first 40 days of a new bull.

Are stocks still best for the long run?

If you've been a stock investor over the past decade, you probably feel like the mythical Sisyphus: You've been trying to roll your portfolio up the hill, only to see the market keep batting it back down. Stocks are trading lower than they were at the start of 2000. Even boring bonds have beaten equities during this time.

But disappointing performance doesn't erase the case for stocks. Over the long term (meaning more than a decade), equities give you something fixed-income investments can't: a share of growth. The benefit of owning a stake in a company - as the Treasury Department, no doubt, understands with the majority position it is taking in exchange for helping AIG - is that you get to share in the earnings of the firm. And because stock prices, over time, reflect corporate profit growth, you're likely to far outpace the long-term rate of inflation.

If your faith in stocks is still wavering, consider the last time they performed so poorly: the 1930s. "What if you concluded then that stocks weren't the best place to be?" says Alan Skrainka, chief market strategist for Edward Jones. "You'd have missed out on decades of bull markets."

Wall Street's 8 brutal days

Dow plunges 2,400 points, or 22%, as panicked investors run for the exits.

NEW YORK (CNNMoney.com) -- The Dow ended its worst week ever Friday and capped a staggering eight-session selloff that has seen the blue-chip index fall 2,400 points.

Investors could be in for another rough ride as Citigroup (C, Fortune 500) and Merrill Lynch (MER, Fortune 500) are on tap to report results this week, giving another glimpse into just how deep their losses continue to be. And a slew of economic reports are also due out, including readings on consumer spending and housing.

Much of the Dow's loss occurred over the most recent sessions as the global credit market crisis intensfied. In fact, last week the Dow fell just over 1,874 points, or 18%. The index has lost nearly 22% over the last eight sessions, as panicked investors ditched stocks across the board.

That panic also gripped the global markets, which have seen some brutal selloffs of their own.

"The magnitude of what's going on is unprecedented and people are frightened," said Robert Philips, senior portfolio strategist at BLB&B Advisors.

Finance ministers from the Group of Seven nations said Friday that exceptional steps were needed to ease the global financial crisis and get money flowing again.

And early Saturday, the G-7 vowed to work together to stem the criris. Later in the day, the International Monetary Fund soundly endorsed the G-7 commiment, with IMF managing director Dominique Strauss-Kahn saying the crisis "had pushed the global financial system to the brink of systemic meltdown."

Wall Street lost roughly $2.4 trillion in market value during the week, according to losses in the Dow Jones Wilshire 5000, the broadest measure of the market.

And investor fear surged to record levels, with the CBOE Volatility (VIX) index, or the VIX, hitting a record just shy of 77 Friday, before closing a bit off those levels.

The Dow Jones industrial average (INDU) ended Friday's session down just 128 points, after falling as much as 697 points in the morning. The Standard & Poor's 500 (SPX) index also declined Friday and for eight sessions in a row. The Nasdaq composite (COMP) ended barely higher, following seven down sessions.

Paralyzing fear. Banks have clamped down on capital, with credit markets remaining frozen and several measures of bank nervousness hitting all-time highs. Treasury prices slumped, boosting the corresponding yields as investors no longer bet that government debt was necessarily so much safer than stocks. The dollar recovered versus other major currencies. And oil, gold and other commodities plunged on bets that slowing global demand will hurt oil usage.

"Investors are the most fearful they've ever been," said Phil Orlando, chief equity market strategist at Federated Investors.

The heightened volatility that has left investors seasick was evident in Friday's market. In the first five minutes of trade Friday the Dow plunged 697 points, falling below 7,900 to the lowest point since March 17, 2003. The Nasdaq and S&P also hit more than five-year lows. But stocks recovered abruptly, with the Dow erasing losses. The afternoon saw the Dow make violent swings back and forth, toppling as much as 600 points and rising as much as 322 points.

Stocks have plunged despite a series of efforts on the part of the government to unfreeze the credit markets and get money flowing through the system again.

"Fear is feeding upon itself and nothing the officials have done to this point seems to stem the tide," said Ryan Atkinson, market analyst at Balestra Capital.

Last week, the Fed announced an emergency rate cut, coordinated with banks around the world. The central bank has also pumped billions into the system. But the moves have hardly made a dent in investor sentiment.

"Central banks of the world have been flooding the markets with liquidity, but banks are hoarding cash," Atkinson said. "This is the lynchpin of the entire financial system and as long as this is still going on, the markets will be driven by fear."

On Friday, President Bush said that the government will continue to work to resolve the economic crisis to return stability to the markets. Meanwhile, House Democrats are meeting Monday to discuss a potential second economic stimulus package, although House Republicans are reportedly skeptical of a second package, CNN reports.

Looking for a bottom: Stocks have been in a bear market for most of the year, but the selling began accelerating in September following a series of bank failures and mergers.

Since hitting all-time highs a year ago, the Dow has lost just over 40% and the S&P 500 has lost 43%. The Nasdaq has not come close to reclaiming its tech-bubble record, but it did hit multi-year highs last October. Since then, the Nasdaq has fallen just over 42%.

And investors across the board are pulling money out of equities, with $43.3 billion pulled out of stock mutual funds during the week ended Oct. 8, according to TrimTabs Research.

"To some extent, we are seeing a retail investor capitulation," said Kelli Hill, portfolio manager at Ashfield Capital Partners. "And when everyone is getting out, that suggests we're getting closer to finding a bottom," she said.

Wall Street was last in a bear market between 2000 and 2002 amid the end of the tech bubble, a recession and the terrorist attacks on 9/11. But stocks bottomed in October 2002 and then again in March 2003, leading to a more than four-year bull market.

On Friday, the three major stock gauges fell to within shouting distance of that March 2003 bottom. Some market pros are wondering if that 2003 level could turn out to be the bottom for the 2008 bear market also. (Full story)

However, bottoms are often "retested," meaning stocks fall to a low, bounce for a few days or even months, then fall back to right around that low, before making a bigger, more sustained advance off the low.

That's what happened in the last bear market. Stocks bottomed in early October 2002, bounced a little bit in the lead up to the start of the Iraq war and then retested those lows in March of 2003 before moving higher.

Either way, the analysts spoken with agree that when the market does finally put a bottom in place, it will lead to an extensive rally.

One comfort for investors is the knowledge that there are limits to how low the Dow can go, thanks to rules put in place in the aftermath of the crash of Oct. 19, 1987, when the Dow plunged 22.6%. The NYSE has rules to halt trading if the Dow loses 10%, 20% or 30% in a single day. Trading is halted for 30 minutes, an hour or two hours, depending on the time of day. Trading is over for the day if the Dow loses 30%.

The Dow's 22% decline roughly compares with the two-day slide in the crash of 1929. On Oct. 28, 1929, the Dow fell 12.8% and it It fell an additional 11.7% the next day, according to Stock Trader's Almanac.

Bear vs. Bull: Looking for a bottom

Credit markets frozen: Amid the ongoing crisis, lending has dried up, making it difficult for businesses to function on a daily basis and for consumers to get loans.

The TED spread, the difference between what banks pay to borrow from each other for three months and what the Treasury pays, spiked to an all-time high of 4.65% Friday before pulling back slightly.

The wider the spread, the more reluctant banks are to lend to each other, rather than from the federal government. When markets are fairly calm, banks charge each other premiums that are not much higher than the U.S. government.

Three-month Libor, or what banks charge each other to borrow for three months, rose to a 2008 high of 4.82% Friday.

The yield on the 3-month Treasury bill, seen by many as the safest place to put money in the short term, fell to 0.24% from 0.5% Thursday, with panicked investors willing to take a piddling return on their money rather than risk stocks. Last month, the yield on the 3-month bill skidded to a 68-year low around 0%.

But in a sign that banks were willing to take a chance on near-term lending, Libor, the overnight bank lending rate, eased to 2.47% Friday from 5.09% Thursday, according to Bloomberg.com. Libor was at 2.15% a month ago.

Treasury prices slipped at the end of the week, raising the yields. The benchmark 10-year note ended Friday's shortened session at 3.88%. Treasury bond markets closed early Friday and are closed Monday for Columbus Day.

Other markets: Oil prices plunged $8.89 a barrel Friday, the second biggest decline ever, to settle at $77.70 a barrel on the New York Mercantile Exchange, a 13-month low.

Oil prices have tumbled on bets of slowing demand since the price of crude hit an all-time high of $147.27 a barrel on July 11.

Gas price drop: Closing in on $3

Gasoline prices are within 25 cents of $3 but remain some 19% above year-earlier levels.

NEW YORK (CNNMoney.com) -- Gasoline prices extended their slide, dropping more than 4 cents a gallon and coming within 25 cents of breaching the $3 level, according to a daily survey of credit card swipes releases Sunday.

The average price of unleaded regular fell to $3.247 a gallon nationwide, down 4.4 cents from $3.291, according to the Daily Fuel Gauge Report issued by motorist group AAA. That brings the two-day total decline to 10.3 cents.

The decline comes as hurricane season winds down and oil prices drop because demand is likely to weaken as the economy slows.

Gas prices dropped a record amount in the last two weeks, falling by more than 35 cents a gallon, the publisher of a separate survey said Sunday.

Trilby Lundberg, publisher of the nationwide Lundberg Survey of gasoline prices, said the average price for self-serve unleaded across the United States dropped to $3.31 a gallon - the largest decline in the six-decade history of the survey.

"This could be one the largest drops in history," Lundberg said.

Lundberg's survey looks at about 5,000 gas stations around the nation, tallying an average gas price for regular-grade unleaded gasoline.

Before the latest survey, the record drop tallied by surveyors came after Hurricane Katrina in October 2005, when national gas prices dropped 25 cents a gallon, Lundberg said.

The price has now tumbled nearly 87 cents, or 21%, below the record $4.114 set July 17. And it's down about 43 cents from a month ago, but still remains some 49 cents, or 19%, higher from a year ago.

The average price has dropped below $3 a gallon in six states: Iowa, Kansas, Minnesota, Missouri, Ohio and Oklahoma, where gas was selling for $2.83 a gallon, on average.

Gasoline is highest in Alaska, at $4.133 a gallon, with Hawaii - at $4.079 - the only other state above $4 a gallon.

Gasoline prices had surged during the highly traveled summer season and as a series of hurricanes battered oil refineries in the Gulf of Mexico. But with hurricane season nearly over, prices began their slide.

Oil prices also have been moving sharply lower amid fears that the economic crisis, which has deepened globally, will have a severely adverse effect on demand.

Crude plunged to a 13-month low on Friday, ending down $8.89 to $77.49 a barrel. That's a far cry from the $147.27 a barrel seen in July.

And since oil prices make up about half of the price of gasoline, the slide in crude S good news for drivers.

The survey is conducted for AAA by Oil Price Information Service from credit card swipes at more than 85,000 service stations nationwide.

Stocks: Bailout rally

NEW YORK (CNNMoney.com) -- Stocks surged Monday morning as investors cheered the global response to the deepening financial crisis, following the worst week on Wall Street in history.

The Dow Jones industrial average (INDU) jumped 400 points, or 4.8% with bank stocks leading the way. The Standard & Poor's 500 (SPX) index rose 4.3% and the Nasdaq composite (COMP) added 4.4%.

U.S. bond markets are closed Monday for the Columbus Day holiday.

Markets have gotten slammed because of the deepening credit crisis. In fact, the Dow ended its worst week ever Friday, capping a staggering eight-session selloff that resulted in a 2,400-point loss. It's not just the size of the loss keeping investors on edge, it's also the gyrations. On Friday, the Dow whipsawed, falling as much as 697 points in the first minutes of trading before quickly climbing back into positive territory, only to turn lower shortly after.

The whiplash has left investors scrambling and world leaders struggling for a way out.

Monday morning, Neel Kashkari -- appointed last week to oversee the $700 billion U.S. bailout program and the newly created Office of Financial Stability -- made his first public speech. Kashkari, a former executive at Goldman Sachs, offered details about how the bailout will be implemented.

House Democrats will also meet Monday to discuss a potential second economic stimulus package, although House Republicans are reportedly skeptical of a second package, according to CNN.

World leaders gathered over the weekend to work on solutions for stemming the fallout from the world's worst financial crisis in decades. Following an emergency meeting Sunday, European nations agreed to shore up their troubled banks by adding capital and guaranteeing inter-bank lending.

Early Monday, the British government said it would invest $63 billion into the Royal Bank of Scotland, HBOS and Lloyds TSB to help the battered banks navigate through the crisis.

Also on Monday, four central banks, including the Federal Reserve, announced new measures aimed at thawing the credit markets. Provisions include providing unlimited short-term dollar funds at fixed interest rates.

In other banking news, Morgan Stanley (MS, Fortune 500) announced Monday that it has sold 21% of itself to Japanese banking giant Mitsubishi UFJ Financial Group for $9 billion in stock.

On tap. Investors could be in for another rough ride as Citigroup (C, Fortune 500) and Merrill Lynch (MER, Fortune 500) ready to report results this week, giving another glimpse into just how deep their losses continue to be. And a slew of economic reports are also due out, including readings on consumer spending and housing.

None of the reports, corporate or economic, are due out Monday.

Overseas markets. Stocks in overseas markets were trading higher - though down from earlier highs - the first market signal following the most coordinated effort to date to address the global financial crisis.

Japanese markets were closed Monday.

Dollar and oil. The U.S. dollar pushed lower early Monday. The greenback was down modestly against the Japanese yen, the 15-nation euro and the British pound.

Crude prices, meanwhile, stepped higher. Oil prices have been under pressure amid worries that the global crisis would undercut demand. Late last week, OPEC announced it would hold an emergency meeting Nov. 18 to address the issue.

Prices, which have plunged some 44% from the record $147.27 a barrel set on July 11, were up $4.01 at $81.71 a barrel early Monday.

GM closing Wisconsin factory

1,200 workers were told the SUV factory will shutter in December, as sales of its GMC Yukon, Chevrolet Tahoe and Suburban plummet.

DETROIT (AP) -- The U.S. automotive sales slump worked its way to Janesville, Wis., Monday when General Motors Corp. told workers that it would cease operations at a sport utility vehicle factory there in December.

GM spokesman Chris Lee said the plant's 1,200 workers represented by the United Auto Workers were told the factory would be shuttered Dec. 23, earlier than GM had expected.

Sales slump

The factory makes the GMC Yukon and the Chevrolet Tahoe and Suburban large SUVs, and sales of those vehicles have plummeted with an increase in gasoline prices to around $4 per gallon earlier this year.

Gas prices have subsided closer to $3 per gallon nationwide, but that has done little to boost sales.

"That segment is really shrinking, so we had to make the difficult decision to have this cessation," Lee said.

In early trading Monday, GM (GM, Fortune 500) shares soared $1.07, or 22%, to $5.96 as markets rose on news that the Bush administration and European governments pledged coordinated actions to help the crippled financial system. The shares had lost nearly half their value last week.

GM announced in June that it would close Janesville and three other factories as demand for pickup trucks and SUVs waned, but the only time frame that was given was by 2010.

GM announced earlier this month that another of those plants - the Moraine, Ohio, SUV factory - will close Dec. 23.

More bad news

On Friday, a person with knowledge of GM's plans said it could close more factories as early as this week to deal with slumping sales and the collapse in its stock price.

The announcement was likely to include acceleration of the assembly plant closures, which also include factories in Oshawa, Ontario, and Toluca, Mexico.

The person, who did not want to be identified because the plans are not finalized, said further cuts would likely hit engine, transmission and stamping operations to correspond with the assembly plant closures.

GM Chairman and CEO Rick Wagoner said last month that the automaker would have to make adjustments, particularly in metal stamping factories.

Lee would not comment Monday when asked if further plant closures or announcements are expected.

On Friday night, word leaked that GM had talks with Chrysler LLC owner Cerberus Capital Management LP about GM merging with or acquiring Chrysler. The talks have been shelved during the country's financial crisis.

GM's shares plunged to the lowest level in 59 years last week. The shares fell 31% to $4.76 Thursday and dropped to $4 in the first minutes of trading Friday, the lowest level since Nov. 16, 1949, according to the Center for Research in Security Prices at the University of Chicago.

They rebounded to end six straight losing sessions and close at $4.89, up 13 cents, or 2.7%.

Cost reductions

Industry analysts say closing factories or cutting shifts will help GM reduce costs and preserve cash at a critical time with the company losing billions and burning up cash at an alarming rate.

GM had $21 billion in cash and $5 billion available through credit lines at the end of June for total liquidity of $26 billion but has been burning up cash at a pace of more than $1 billion a month.

The company announced a plan in July that calls for cutting $10 billion in costs and raising another $5 billion through asset sales and borrowing through 2009.

Spoiler alert: Comic books are alive and kicking

Yes, super-hero movies are big. But another business that's booming for Marvel? Old-fashioned publishing.

LOS ANGELES (Fortune) -- The Dark Knight and Iron Man are the two biggest movies at the American multiplex so far this year. It's become rote that super-heroes rule the box office, just as the conventional wisdom is that the old print comic book is a dying art form that has found a new lease on life in its onscreen iterations.

But here's a secret about comics that has been hiding in plain view amid all the cinematic hoopla: At Marvel Entertainment (MVL), the industry's largest player, revenues for its print wares have been growing in double digits for the past three years and profit margins have been running at close to 40%. Plenty of magazine, book or newspaper publishers would put on a mask, cape or even giant bunny ears if that's what it took to generate those kinds of numbers - especially right now.

There's a few interesting messages in this, not least of which is the reminder that new formats of media don't necessarily replace old, and that some habits don't change as quickly as people think. And it probably doesn't hurt to be in a corner of the media world that is effectively a duopoly. Indeed, the figures are all the more striking considering that, by most industry estimates, some 60% of comic book sales still take place via one of the most archaic distribution systems in existence: ye olde comic booke shoppe.

Last week, I interviewed David Maisel, the chairman of Marvel Studios, as part of a PricewaterhouseCoopers event in Los Angeles. Marvel has a growth story to tell right now amid all the gloom: Following its decision to become a studio in its own right, it just announced that it's building its own studio facility here in Manhattan Beach, and unveiled a distribution deal with Paramount (which released "Iron Man"). Marvel has had a star-crossed past - it filed for bankruptcy protection twice in the 1990s during a period in which a speculative bubble among comic book collectors burst, sales plummeted and lots of comics shops shuttered.

A few incarnations later, Marvel has been one of the few breakout Hollywood stories of the past couple of years: Its stock is up nearly 90% over the past five years, a period during which media giants like Viacom (VIA), News Corp (NWS, Fortune 500), Time Warner (TWX, Fortune 500) and Disney (DIS, Fortune 500) all declined between 30% and 50% (Dreamworks Animation (DWA), a company that is probably closest to Marvel in terms of its scale and ambitions, is down 35% during that period.)

Marvel offers the only real glimpse at the economics of big-time comics publishing, because it and its main rival DC Comics together roughly split close to 80% of the market in new comic book sales. However, DC is a division of Warner Brothers (which, like Fortune and CNN, is owned by Time Warner), and you can find little mention of its financial performance within the media giant's releases, although its brands are going strong thanks in part to films like "The Dark Knight" and its upcoming "Watchmen." (A quick primer: Marvel publishes Spider-Man, X-Men, Hulk and Iron Man, while DC is the home of Superman and Batman).

Maisel acknowledged that much of the buzz on his company has been on its emergence as a film studio and the growth of its largest business: licensing its characters for toys, video games and theme parks. But he himself marveled (pun intended) at the enduring health of the publishing business, given that the distribution of comic books has been "artificially constrained" by the need for fans to largely find their way to comics stores. The upside of that scarcity, he added, is that "it sort of created a cult around comics: People felt like they were a part of a social group. When I was a kid, being a geek was being a geek. Now being a geek is cool."

In the quarter ended June 30, publishing accounted for $32 million of Marvel's $157 million in revenues, and $11.7 million of its $85.2 million in operating profit. (The bulk of the rest came from licensing - which generates even higher margins of more than 80% - since the spoils from "Iron Man" won't show up until the next couple of quarterly results.) Although its publishing revenue and profits declined in the first half of the year, the company has given guidance that it expects revenue growth in publishing between 3% and 7% for the year, and margins between 37% and 40%.

Maisel declined to specify to what extent his hit movies drive comic book sales, but it seems a stretch to suggest that cinematic success alone can take the credit. Neither is there much of a digital play at this point. Still, like DC, Marvel has been talking up the digital potential of its characters -- particularly, in Marvel's case, as far as putting its catalog - 70 years of stories featuring some 5,000 characters - online for fans to read.

In print, both companies have been putting greater emphasis on graphic novels that can sell into book retailers and have proved to be a boon for them to generate value by repackaging their back catalog - something the comics bigs were late to do compared to other media businesses like film and music.

In recent years, they've also modernized advertising sales to emphasize big-ticket categories like video games, not just mail-order services hawking joy buzzers and sea monkeys. And, given the mood of the world right now, their wares may even find new relevance: After all, Superman was created amid the gloom of the depression.

Last year, one of Marvel's biggest sellers was a series about the death of Captain America, one of its signature heroes. And guess what? Reports of the Captains's death, like the demise of comics, turned out to be a wee bit premature.