While Wall Street's recent surge may vanish just as quickly as it arrived, the rebound came with something the market hasn't seen in awhile—buying into a rally.Wall Street Wants Action NowTreasury Bonds Rally]]>

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Citigroup is being bailed out as I write these words. Now, let's be clear: This is a good thing. But it also stinks, in a very deep, ingrained, infuriating way. Bailing out Citi is a bit like putting out a fire in the house of a very irresponsible fellow down the street who lets his kids play with matches while he's sleeping in a hammock out back. You'd be very happy to see his house burn down, preferably with him in it, but you're afraid that the flames will spread through his unraked leaves to engulf the entire neighborhood. At the very least, after the flames are put out, you want an investigation. You want arrests. You want to see someone held accountable. You want to see, pardon the expression, justice. I say "pardon the expression" because I am speaking in an alien tongue here, at least as far as the recent spate of bailouts is concerned. The basic principle of equity, which is that the guilty will be punished and that he who causes pain will feel pain, is simply not a part of the equation in any of the bailouts of the big banks that have taken place this year. In fact, I fear that the way things are going, nobody is going to be held responsible for any of the bank failures that are littering the landscape. I'm not talking about criminal action or anything like that, but simply the rather self-evident requirement that the responsible executives be punished, financially or otherwise, and that the shareholders get absolutely nothing. Zippo. Zilch. The markets are celebrating the Citi bailout, which is good for all of our 401ks, but it is time for the public to feel a greater sense that justice is actually taking place. And no, restricting the dividend to a penny, a pledge to "comply with enhanced executive compensation restrictions," and tossing the taxpayers a few billion in preferred stock at 8 percent is not what I am talking about. That's a pinprick. What's needed is more of a Saudi-style justice. A hand-chopping, not a wrist-slapping. The government should make an example of Citigroup. It isn't, and it won't, but it should. So, this being pure fantasy mind you, let's consider what the elements of that would be: Vikram Pandit He should be given two weeks severance and sent on his way. Oh, and he needs to cough back the ridiculous, we're-buying-a-hedge-fund-to-buy-the-people pay package that he received when he was brought into Citi in 2007. Nothing personal—I've met the man and find him to be thoroughly engaging—but Citi's descended into glorified panhandling on his watch. Why should he not suffer while thousands of people under him are being laid off? And lest one be put off by such a populist equation, how about this: Why should Pandit keep his job when John Thain, who avoided a bailout, loses his? Citi's board of directors, including (especially) Robert Rubin Fired, and must repay every cent they received while Citi was mismanaged. This is almost too obvious to mention, as is this: Can someone please explain to Barack Obama that one of his top economic advisers was in a responsible position at Citi—including chairman of its executive committee—during a period in which it was grievously mismanaged by people he supported? Citi's shareholdersOne of the most dismaying things I've seen is how Citi's common shares rallied 50 percent today after the bailout was announced. Citi's common equity should be reduced to zero, lest we abdicate the principle that bad investment judgments result in proportional losses. And believe me, when your company needs to be bailed out, lest it drag down the whole financial system, your common shares should not be worth squat.     Now, I know that this is not a complete package, as some culprits (such as ex-C.E.O. Chuck Prince) are not covered, but it's a start. I also realize that this may be viewed as unduly vindictive by some. I can't see why that is. Homeowners who made similarly bad judgments, by taking on mortgages that they could not afford, are being thrown out on the street. Thousands of Citi employees will be gracing the unemployment lines this holiday season, not because of anything they did but because the people who run their company are, and were, incompetent. As I said, this is all, most likely, fantasy. The public is becoming accustomed to a two-tier system of equity, played out during each of the recent bailouts, in which the most egregious scoundrels escape scot-free. Still, there's a slim chance that Obama will disregard the advice that I presume he is getting from Rubin, and give the public a small measure of justice.  Even a tiny amount will do. Related LinksThe Next Shoe: Credit CardsCan Anyone Lead Citi?Why Citigroup Imploded

As expected, President-elect Barack Obama today announced his appointment of Timothy Geithner as Treasury secretary and Lawrence Summers as director of his National Economic Council. He also tapped Christina Romer as head of the Council of Economic Advisers and Melody Barnes for director of Domestic Policy Council.They all have impressive résumés. Geithner has been running the New York Federal Reserve during the credit crisis and held positions in the Treasury Department during the Clinton administration. Summers, of course, was Geithner's boss as Clinton's Treasury secretary before going on to run Harvard University. Barnes is a lawyer at the Center for American Progress, who served as chief counsel to Senator Edward Kennedy for years. Romer is a respected professor of economics at University of California, Berkeley.That's a lot of experience for a group of economic policymakers. But what will they actually do?Geithner's role as Treasury secretary is well known, thanks to the high profile that position has garnered during the past year. Few Treasury secretaries have made the front page of newspapers as often as Hank Paulson has recently. Geithner will step in to that challenging position as the "Fixer of the Problems" at hand, which are plentiful. Good luck, Mr. Geithner.The National Economic Council and the Council of Economic Advisers sound awfully similar in title, but in execution they are quite different. It's worth noting that what they have in common is a consistently brief tenure of their directors. The National Economic Council was created by Bill Clinton, and its chief responsibility is to coordinate the president's economic policy across all sectors of the executive branch. Much like the National Security Council is responsible for coordination among agencies like the Department of Defense, the State Department and the Treasury Department, the National Economic Council ensures that the administration's economic policies are being consistently applied in all agencies, including the Departments of Agriculture, Labor, Housing, Transportation, and Commerce. Three directors filled this slot under Clinton, and four under Bush.The Council of Economic Advisers, meanwhile, is responsible for setting that economic policy that the N.E.C. coordinates across the rest of the executive branch. Its economists and statisticians crunch the numbers to provide economic forecasts and policy decisions on behalf of the president. Bush has had five economists in this advisory role, while Clinton had four.As for the role that Barnes will fill, as director of the Domestic Policy Council, it's easiest to think of this position as being responsible for all domestic policy outside of economics, which will be handled by Summers at the N.E.C. It's almost a misnomer to call this position a part of the White House's economic team.  Related LinksObama's Economic TeamWhen Stabilization Isn't StimulusIncentives for Inflation

Before Sam Zell bought the Tribune Company last year, he said he was "skeptical" of using staff reductions to increase profit. He famously told the Los Angeles Times, "I promise you I did not come here to be the captain of the Titanic." Since then, however, the newspaper industry's woes have intensified—and Zell has made numerous staff reductions at Tribune's newspapers, which in addition to the L.A. Times also include the Chicago Tribune and the Baltimore Sun. The outspoken Zell, who made his fortune investing in real estate, has dubbed the Tribune purchase "the deal from hell." displayPromoModule ('{"moduleType":{"value" : "featuresModule", "index" : "1"},"mediaType1":{"value" : "article", "index" : "0"},"mediaType2":{"value" : "article", "index" : "0"},"mediaType3":{"value" : "article", "index" : "0"},"mediaType4":{"value" : "article", "index" : "0"},"url1":"/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom","url2":"/news-markets/national-news/portfolio/2008/11/09/Can-Bankruptcy-Save-US-Carmakers","url3":"/executives/features/2008/11/11/Gender-Discrimination-at-Bloomberg","url4":"/executives/features/2008/07/15/Washington-Post-Publisher-Weymouth","teaser1":"Liar's Poker author Michael Lewis on how Wall Street fell apart.","teaser2":"Why bankruptcy might not be the worst thing that could happen to General Motors.","teaser3":"New York's mayor is dogged by a suit charging discrimination against pregnant women.","teaser4":"Washington Post publisher Katharine Weymouth is shaking up the newsroom. ","headline1":"The End","headline2":"The Case for Chapter 11","headline3":"Discrimination at Bloomberg","headline4":"The Last Media Tycoon","title":"Related Content" }'); On November 12, Zell spoke with Condé Nast Portfolio editor in chief Joanne Lipman at Quadrangle Group's Foursquare media conference, where, true to form, he came out swinging against journalistic icons. He declared the worthlessness of Pulitzer Prizes ("I haven't figured out how to cash in a Pulitzer Prize"), said the newspaper business model is "unequivocally...a failure," and challenged New York Times publisher Arthur Sulzberger, saying "If you want to be a charitable trust, be a charitable trust. If you don't want to be a charitable trust, then you've got to focus on producing a return for investors' capital, and it's just that simple." Zell also talked about running spadias (ads that wrap around an entire newspaper section) and said that comparing Tribune's advertising declines to that of other newspaper companies is "comparing leprosy to cancer." The Foursquare conference was an off-the-record event; Sam Zell and event organizers agreed to put this transcript on the record. EMCEE: Thank you, gentlemen. And now Sam Zell will be in a conversation with Joanne Lipman. JOANNE LIPMAN: All right. Welcome, Sam Zell. It's great to have you here. Thanks very much. You barely need introducing, but a quick recap. Sam, of course, made his reputation buying up distressed real estate, earning himself the nickname, "The Grave Dancer." In his more recent incarnation as a media mogul, that nickname might be more apt than ever. Last year, Sam, of course, bought the Tribune Company, which owns newspapers and local television stations, for $13 billion. Since then, the newspaper industry, as we all know, has been in a free fall, and Tribune properties, which include the L.A. Times, the Chicago Tribune, the Baltimore Sun, and the Orlando Sentinel, have also been in a free fall, along with the rest of the industry. And so it's apropos that we talk with Sam today. And everybody here wants to know the same thing, which is: If you knew then what you know now, would you have made this deal? SAM ZELL: Well, obviously, the newspaper business and advertising, generally, has gone off a cliff. And it didn't go off a cliff in October or September. It went off the cliff in January. When we looked at the historical numbers, we saw an average erosion of about 3 percent. At the time we underwrote the transaction, we used a 6 percent erosion.  And the last time I checked, 19 percent erosion is bigger than 6. JOANNE: Yeah. SAM: And so it's just a whole new ballgame. Just like if you asked the guy would you have stepped on the tracks if you'd known the train was coming, the answer is no. But once the train is here, you've got to deal with it. JOANNE: Right. Would you actually have gone into the newspaper industry, or would you simply have wanted to adjust the price accordingly? SAM: I don't think that I ever woke up in the morning and said, "I want to own a newspaper." I think that the attraction to the Tribune deal was the ability to put the deal together, to apply a business patina to what has historically been a nonbusiness business, and ultimately test the thesis as to whether or not there is a place for the newspaper in the 21st century. JOANNE: And the answer to that question would be what? Is there a place for the newspaper?  SAM: I think the answer is certainly, but the answer to whether the conventional approach to the newspaper business that has been the model since the beginning of time, I could tell you unequivocally that model is a failure, or that model has passed its time of relevance. The newspaper business basically grew up as a monopoly, and like every other monopoly, it built processes and approaches that reflected its monopoly status. One example was the rate card you give to an advertiser in order for that person to determine how he would like to participate. You needed a Ph.D. in order to understand the rate card. In the days where the customer had no options, you could give him the rate card and say, "Take it or leave it." But today, that doesn't work. I think the newspaper industry truly still doesn't understand that it is in a business with customers, and the business must reflect the needs and demands of the customer. And to the extent that we don't do that, we will disappear. JOANNE: So what is the new model? Have you figured that out yet, or are you cutting your way to…? SAM: I think the answer is we are testing and testing and changing. We've reformatted all eight newspapers. Among other things, we shrunk the size of the newspapers by an inch. And then we responded to our customers. Our customers have an enormous interest in our newspaper on Sunday; have almost no interest on Monday, Tuesday, Wednesday; Thursday and Friday, they're more interested; and Saturday might as well be in the desert. So we did something that was really extraordinary. It kind of came out of Econ 101. We looked at demand and we said, "Gee, we ought to reduce supply when demand is weak"—a very shocking concept, particularly for the newspaper industry. So, we've now done that across all of our newspapers. We did not have a single salesperson on commission. In other words, every single newspaper had a cadre of salaried salesman. Now, you know, I'm just a businessman, but I've never seen any kind of a sales force that was effective if, in fact, they had no incentives. Now, part of the reason is that historically, because it was a monopoly, newspapers heavily depended, and still do, on national advertising, where the salesman is an order taker. When the guy from Macy's calls and says, "We want six pages," you don't say to him, "Well, how about nine." You just say, "Yes, sir. Send me the check and we're on." But, among other things, what that led to was a massive abdication of potential advertisers within the local markets using zones, so that, in effect, the zone belongs to the salesman. Nobody else can go in there. Even if nobody has bought anything in that zone for 20 years, it's still his territory. I mean, this is nutty stuff. And, in effect, what we're trying to do is address the newspaper business like a business. As you and I talked about earlier, somebody has to address the home-delivery question. Right now, if you go across the street and you buy a newspaper from a vendor, you will pay 50 cents. But if you get it home-delivered, which costs the company 10 times as much, you pay 30 cents. I don't understand. Okay? I mean, you try and make those numbers work, and it don't make any sense. JOANNE: So, all the things you're talking about are somewhat around the periphery. They're all working within the structure of the conventional newspaper, and if you really need to blow up the business model and start from scratch, what might that model be? We saw the Christian Science Monitor just said they're doing away with the print edition and only going to the Web. Do you see something that radical, or is there some other way of looking at this? SAM: Well, if you want to play futuristic—and I don't know how big an f on the word futuristic—you can make a case that the world in the future is all Kindles, and you'll send out an email to everybody to their Kindle, and that's how they're going to get their newspaper every morning. That's a real possibility at sometime in the future. But most importantly I think the newspaper has to acknowledge the reality of the world we're in. When I grew up—and I hate to tell you I'm that old—but when I grew up, the definition of "breaking news" was your front door. So you run…you go up in the morning, you open up the front door, you see what happened. Okay? Well, that's not the case anymore. Now, you hit your homepage, now you turn on CNN, or some other news-TV program, and that's how you find out what the latest news is. So then the question becomes: Is there a role for newspapers? And I think the answer is yes, there's a role for newspapers, providing the newspapers understand what that role is and are able to adjust to it. So, for example, most of my newspapers do not have a comparative advantage on international news. I'm not going to compete with Bloomberg or Reuters to, in effect, secure the latest international news. On the other hand, I've got staff and people and knowledge locally that nobody else has. So…and when you do focus groups with people and you ask them, "What do you want from your newspaper?" they tell you, "local, local, local." And they say it over and over again, "I want to know what's going on locally because that's the only thing I can't find from 10 other sources."  JOANNE: So you raise a couple of questions there. I mean, one is simply the staffing issue. And it's interesting, when you came in a year ago, the L.A. Times, you went to the L.A. Times and said, "I have no intention of being the captain of the Titanic," and you also said that you didn't believe in kind of cutting your way to success. You, more than the other of your competitive set, have really made very, very deep cuts and particularly among the journalists. So how does that gel with providing the reader more and building on the papers to create a model of success? SAM: Like everything else, we're dealing with process, we're dealing with changing methodologies of the way things were done before. If this gentleman over here is a reporter and he calls in and says, "I've got a story and you want to put it up on the Web," he talks to one copywriter, they put it all together, it's on the Web in 10 minutes. But if that same story with the same facts is going in the newspaper, then it goes to the copywriter, the section editor, the page editor, I mean, it goes to everybody. Okay? And you wonder why the newspapers can't financially compete.JOANNE: But the newspaper is supposed to be giving you something more than the instant news that you get on the Web. Would you argue that your newspapers—after the year of cutting and attempting to fix the model—would you argue that the journalism is improved from when you purchased your newspapers? SAM: Interestingly enough, my customers say yes. My customers say yes. JOANNE: By what measure is that? SAM: I've reformatted all eight newspapers—they're much louder; they've got more pictures; they have more color; they have easier navigation. I mean, simple things. I ride my motorcycle to work every morning… JOANNE: Good for you. SAM: I say goodbye to my wife as I walk out the door, and I used to ask her, "What's the temperature?" Because if it's bitter cold, there's a problem. And then I would see her go, "Argh!" as she tried to find where the weather is in the newspapers. And in the reformatted Chicago Tribune in the bottom left-hand corner it says, "64 today, 75 tomorrow, 83 the next day," in one quarter of an inch in the lower left-hand corner. Isn't that information that everybody wants? JOANNE: But that customer…there's a couple of customers that you have. You're talking reader service. Another customer, obviously, is the advertiser, and your advertising has declined at a more rapid clip than some of your competitors, more so than he Times and USA Today… SAM: Well, I think that's comparing leprosy to cancer. I mean, I beg to disagree with you, and I think Arthur Sulzberger is out here someplace, and I'm sure he would vie that his has gone down more than mine. [Editors note: In the third quarter of 2008, New York Times Co. ad revenue fell 14.4 percent, while Tribune Co. ad revenue fell 19 percent.] But the answer is everybody's advertising is dramatically down. We've seen literally the destruction of classified advertising. You know, not just in our paper, but in all the papers. There's somebody here, Mr. Craig, from Craigslist, who is responsible for that. I think the answer is that we have to come up with a product that our customers want. In Chicago, we launched a product called RedEye. RedEye, which is delivered to the train stations and the bus stations every afternoon, is aimed to the 25-to-40-year-old. It's given away free. It has a higher circulation than the Tribune, and makes a profit. We launched a new paper in Chicago called Mash. It's delivered to 50,000 high schools free once a week, underwritten by Verizon and Nike, to reach perhaps the hardest demographic there is to reach. So these are paper products. They are successful. JOANNE: And a lot of the products that you're talking about come as a result of focus grouping, and you've talked a lot about how you've done a lot of focus groups, and readers tell you they want short stories, and they want graphics, and they want big pictures. I find it curious that you are embracing focus groups because…and maybe this word has been tarnished now, but you've always been a maverick. Right? I mean, if you ran your business according to how focus groups told you you should run your business, you wouldn't be up here today. SAM: Yeah, but the answer is you are acting like a journalist—okay?—because you grabbed the word focus group and, in effect, turned it from one element that's relevant in a hundred elements to somehow or another we're going to take one focus group and implement everything that they said, which is silly. One of the benefits of focus groups is you get a chance to listen to your customer. And all I'm saying is that there isn't a successful business out there that doesn't listen to their customer.  JOANNE: And the kind of journalism that…as you know, you've become a popular topic of conversation among journalists. SAM: Really? No shit. JOANNE: Maybe you read some of the blogs about yourself. SAM: No, never. JOANNE: But I think the question really is, journalists believe that there is a reader service and a public service, that there's a public good… SAM: And journalists are more than willing to tell you what they think you need to know. And to some extent, that's a valid position, but I certainly don't think it is the answer. And to the extent that you have journalists who are unwilling to listen and only want to talk, they really should give up journalism and become college professors. JOANNE: It takes a lot of resources to pour into investigative reporting…and this is not just "How much did Sarah Palin spend on her wardrobe?" but serious investigative reporting that takes…could take months at a time that could take you down some dark alleyways that are not going to pay off. Is there a place for that? Is there a way to fund that, or are newspapers not the place for funding that any longer? SAM: Well, you know, you were just talking to me a minute ago about the precipitous decline in advertising revenue. So the answer is that every piece of a newspaper has to be economically evaluated, because, in the end, we're not an eleemosynary institution, even though most of the newspapers have been run as one. I mean, how would I not challenge every cost, every decision, and basically look at the cost benefit, just like our government is supposed to do when it raises our taxes? I got to look at the cost benefit and say, "What's the benefit? What's the cost? Does this make sense?" JOANNE: So at the L.A. Times, for example, which under a previous editor before you owned it won quite a few Pulitzer Prizes and really put a lot of effort into pieces that may or may not pay off, does that no longer make sense in the business model that we're talking about? SAM: I haven't figured out how to cash in a Pulitzer Prize. There was a day when a newspaper put "Winner of Pulitzer Prize" on the front page, and people flocked to read the Pulitzer Prize story. Unfortunately, I'm not sure that that's the case today But I also think that there are scale issues. In other words, I think that if the goal is a Pulitzer, it's in the wrong place. In other words, we're not in the business of, in effect, underwriting writers for the future. We're a business that, in effect, has a bottom line. So as far as we're concerned, I think Pulitzers are terrific, but Pulitzers should be the cream on the top of the coffee. They shouldn't be the grounds. And I think there are a lot of scenarios in the newspaper industry where the entire focus is on Pulitzers. The entire focus is on becoming an international correspondent. I mean, I know that because our newspaper sent somebody to Kabul to cover the "Afghan Idol Show." Now, I know Idol is the No. 1 TV program in the world, but do my readers really want a firsthand report on what this broad looked like who won the "Afghan Idol" Show"? Is that news? JOANNE: The "Afghan Idol Show"…I'd like to know what the broad looked like. SAM: I'll send you a picture, okay? I mean, really, it's not a problem. JOANNE: But you're talking about two different things here, though. SAM: Why am I talking about two different…? JOANNE: Because I think the essential question, what the Pulitzers get at, would be that…the way that newspapers had seen themselves, and I spent many years on a newspaper, was as a public trust. And, you're right, their finances were not put first. So I guess you're saying that that age is over and we need to be… SAM: My question is real simple. As of last night, the entire market cap of the New York Times [Co.] was $1.2 billion. And my question to Arthur, who I think is out here someplace, is if you want to be a charitable trust, be a charitable trust. If you don't want to be a charitable trust, then you've got to focus on producing a return for investors' capital, and it's just that simple. It worked in the old days because you could be a public trust and you could do well for your shareholders because you had a monopoly, and monopolies are wonderful. I mean, I think competition is terrific, particularly for all those guys out there. Me? I like monopolies. I'm just sorry I waited 60 years to get into the newspaper industry because the 40 I missed were great.  JOANNE: I think the audience is going to have some good ones for you. Just broadly, if you could speak to the industry as a whole…first of all, are we in a recession or are we in a depression? SAM: I think we're in a recession. I think that government action, both past and future, will more than likely make it a recession and nothing worse. In my opinion, the comparables to the '30s are not comparable. It's just almost 180 degrees different. I mean, we had a recession in 1930 that government policy turned into a depression. I don't think we're going to see that happen at this point. JOANNE: So…and the second question would be in terms of advertising, the advertising industry. We've seen it fall off a cliff, as you said. When does it bottom out, and where do you think it bottoms out? Would it be in…next year, 2009, or is it going to go beyond 2009? SAM: I'd answer your question by saying that I think advertising will return as the economy returns. I think the question for the media industry really revolves around are we in the middle of a, quote, economic reduction in advertising, or are we seeing structural change? Are we seeing advertisers challenging the assumptions as to what works for them and what doesn't work for them. So I think to some extent part of the advertising reduction is very much connected to the advertisers trying to see if there's a different blueprint that produces higher bang for the buck. JOANNE: So are you betting on secular versus cyclical changes? SAM: Well, I mean, the question is what's the percentage? In other words, there's no question in my mind that there's been a secular change. The question is what's the percentage, and what can we as media companies and newspapers, in particular, do to respond to it and to find different avenues? Our high-school newspaper is a perfect example of finding a different methodology to, in effect, attract advertising dollars and serve the public at the same time. JOANNE: But a year from now when the Tribune earnings come out, will we still be seeing declining numbers in advertising revenue, or will those numbers start to shift? SAM: I, of course, don't know, but if I were guessing, I would think that we will start coming out of the current recession in the third quarter of next year. JOANNE: All right. SAM: And I think it will be a slow recovery, much more an "L" than a "V." The No. 1 issue for everybody is going to be inflation, because you can't stimulate at the level of which we've stimulated and not have that risk. And so, in effect, it's going to be a redo of where Greenspan was in 2001 and 2002. Bernanke is going to have to deal with the question of "When do I take the punch bowl away?" JOANNE: Got it. All right, we've got a couple of minutes for questions from the audience. Right over here? QUESTION FROM THE AUDIENCE: Hi, Jim Jarvis. Mr. Zell, first, I may speak for others here when I say I wish you would do this more often and talk publicly more often. It's great fun. I'm a journalist, and I got attacked in Salon this morning…or Slate this morning—I get them confused—for holding journalists responsible for the fate of journalists. Is it possible, do you think, to change the culture of journalism? What's the major changes that need to be made? Are you making any progress in changing that culture, and, if so, how?  SAM: I'm on the record as saying that, you know, I think that part of the problems with the newspaper industry revolve around the fact that the newsrooms have basically never recovered from Watergate, and everybody wants to be Woodward and Bernstein, and that's the definition of success. Obviously, the newspaper business must be a great deal more than that. So I think we are making progress. I think we are changing the paradigms, many of which were just unwritten rules that we don't put ads on the front page. "Why not?" "Well, because we've never put ads on the front page." "Well, that's a good reason not to." You know, "Well, what do you mean you want to put a spadia on the newspaper?" 'Well, somebody is willing to pay us $100,000 for one day for a spadia on the newspaper." "I know, but it will destroy the integrity of the front page." I said, "For $100,000, you know, who's kidding who? What business are we in?" I remember one of the first things that I noticed when I took over the Tribune was that, in effect, ChicagoTribune.com, which was our website, was in gray lettering, with the hope, maybe, that nobody would notice it. I scratched my head and I said, "This is supposed to be the future. It needs to be on the front page of the newspaper in bright-red letters because you want everybody in the world to connect to the concept of it and go from there." And the last thing I'd say to you, which is a much bigger question—86 percent of the cost of the newspaper business is print, paper, distribution, and promotion. That's untenable long-term and…short-term. And I think when it's all said and done, the future must attack this inherent problem, which, among other things, if you attack the problem and solve it, you then make newspapers a much more economic advertising venue. Right now, that infrastructure sets the floor. That makes newspapers uncompetitive. JOANNE: I think we have time for one more question…in the back there. QUESTION FROM THE AUDIENCE: Richard Bilotti, GSO Capital. I would submit that today the Tribune is truly a television company that happens to sell newspapers. Your television assets probably significantly…in any environment will be significantly worth more than your newspaper assets for the next couple of years. What are the essential changes that you need to make to the television business that you own, if any, given that we're in the beginnings of a very severe downturn in advertising there, as well? SAM: Well, in the case of the Tribune, you're right that we have 23 TV stations and one superstation and one radio station. Whenever you talk about TV as it relates to the Tribune you have to start with the superstation. We have one of two superstations. Our superstation earns $80 million a year. The other superstation earns $480 million a year. We hit 75 million homes. I think they hit 90. So, obviously, this is a dormant asset that needs desperately to be addressed, which is, frankly, the first place we went to work. We also basically doubled the amount of news that all of our TV stations do, because that news is 100 percent owned by the local station, is an enormously successful revenue producer, and is very local targeted. So that's two. And then, of course, we also put all the salesmen on commission and did other irrational things like that. But net-net, we're very, very aware of the TV role, and we're very aware of what we need to make it better, and we've brought in a lot of extraordinary people, who are beginning to make a measurable difference. JOANNE: That's all we have time for. I want to thank Sam Zell. SAM: Thank you. Glad to. Related LinksLate Breaks: Time Inc., Tribune, moreNYT: We Love the Credit Crisis!The Worst Investment in America

The hotness of Twitter, the microblogging site (140 characters or less), has been confirmed: The previous hot thing, Facebook, wants it. Or at least wanted it. The oft-rumored mating dance between Facebook and Twitter ended three weeks ago, Kara Swisher reports on All Things Digital. The negotiations ended over price, Swisher says. Facebook was offering $500 million of its private stock at the most disputed valuation of $15 billion.But price wasn’t everything, Swisher says. There was also “a feeling among Twitter investors and execs that the start-up should still take a shot at building its revenues—there are none right now—as well as it had done at building its growth.” Twitter recently reshuffled its top management, with Evan Williams, a co-founder taking over from Jack Dorsey as chief executiveTechCrunch notes that “serial entrepreneur and angel investor” Marc Andreessen is both an early investor in Twitter and a member of Facebook’s board.Facebook’s valuation was established by Microsoft’s $240 million investment in 2007, and it has arguably come down quite a bit. In a round of fundraising last summer, Twitter was valued at around $100 million.A public valuation of Facebook might have been soon forthcoming had not the company has received an exception from the Securities and Exchange Commission from the requirement that a company with more than 500 stockholders must publicly disclose financial results, BusinessWeek reports. It was that requirement that contributed to Google’s decision to go public in 2004. Related LinksTwitter Tops List of Fastest Growing Social NetworksFirst Bytes: Wink, Reunion, Kindle, Facebook, Circuit City, TeslaRumors of a Facebook Music Store

Is this is the last great escape in the financial crisis? There will probably be other bailouts, but few will be able to top the government’s audacious rescue of Citigroup. And despite the desperate nature of the weekend deal, the stock market seems to like it.The Treasury and the Federal Deposit Insurance Corp. will backstop some $306 billion in loans and securities, including mortgage-backed securities. Citi will absorb any losses up to $29 billion, but the U.S. government is on the hook for 90 percent of anything more than that. And that’s in addition to the government's portfolio of toxic debt from Bear Stearns, A.I.G., and Fannie and Freddie.The asset guarantee will free up $16 billion in capital, Citi said.The Treasury will also invest $20 billion into the company under the TARP. Citi had already received $25 billion from the TARP.Citi will issue the government $27 billion in preferred stock that pays an 8 percent dividend and it will issue warrants equivalent to a 4.7 percent stake in the company. The warrants have a strike price of $10.61 (Citi closed on Friday at $3.77) Under the terms of the deal, the government must approve any executive-compensation plan, and the bank is prohibited from paying a common stock dividend of more than a penny a share for the next three years without the government’s consent. But there will be no management changes.Robert Reich, the former Labor secretary, is not impressed, saying: "This is not a particularly good deal for American taxpayers, but it is a marvelous deal for Citi. In return for all the cash and guarantees they are giving away, taxpayers will get only $27 billion of preferred shares paying an 8 percent dividend. No other strings are attached. The senior executives of Citi, including those who have served at the highest levels in the US government, have done their jobs exceedingly well. The American public, including the media, have not the slightest clue what just happened." The weekend intervention came after rumors increased about Citi and its stock price plunged 60 percent in just a few days. In rescuing Citi, the government finally acknowledged the elephant that has been in the room ever since the frenzied weeks of September, when Lehman Brothers collapsed, American International Group was bailed out, Washington Mutual and Wachovia were sold, and Morgan Stanley and Goldman Sachs became bank holding companies. Citi was vulnerable because of huge amounts of toxic mortgage debt on its books, but it was not seen as being in danger because of its size. “Too big to fail” gave a false sense of safety.The announcements this week that the bank was still trying to shrink—suggesting that like A.I.G., it could not find buyers for its assets—and that it would be buying back some $17 billion in investments from its structured-investment vehicles formed a powerful wake-up call: Citi could not keep stumbling day after day, quarter after quarter. With the Citi bailout, the government may have finally settled on a template for financial rescues: one that involves the original design of TARP, providing protection for —if not outright purchase of—troubled securities as well as cash infusions. Related LinksCDS Didn't Bring Down Bear and LehmanHank Paulson, RevisionistWhy Citigroup Imploded

This news will come as no surprise to Portfolio.com readers: New York Federal Reserve president Timothy Geithner has reportedly been tapped as Treasury Secretary for the Obama administration. Chuck Todd and Andrea Mitchell at NBC News report that the president-elect plans to announce more cabinet positions on Monday. New Mexico governor Bill Richardson is expected to be named Commerce Secretary. Geithner's name has been on the short list of possible successors to Hank Paulson because he's been so instrumental in the negotiations over Wall Street's most troubled firms during the past nine months. He also worked at the Treasury under both Robert Rubin and Larry Summers during the Clinton administration. Indeed, Portfolio.com readers predicted his appointment in a recent interactive feature using N.C.A.A.-like brackets. Of 27,188 votes cast, 3,790 went to Geithner. Their No. 2 pick with 2,931 votes, former Treasury Secretary Larry Summers, may still play a role in an Obama administration, NBC reports. Fox Business News personality Cody Willard (453 votes) and Portfolio.com deputy news editor Jeffrey Cane (666 votes) brought up the rear of the poll, dashing any hopes for a Cinderella Treasury pick. Even though the Geithner pick doesn't come as a surprise, investors welcomed the news as the Dow surged nearly 500 points in the last hour of trading. With the roiling financial markets and the sluggish economy at the top of so many Americans' minds, Obama made it clear he would waste no time in putting together his economic team to ensure swift action once he's inaugurated in January. Related LinksObama's Economic TeamThe E TeamObama's Real Economic Team

Want two words to prove the U.S. economy hasn’t totally bottomed yet?  BlackBerry Storm. On a day when shares of Citigroup fell 20 percent by lunchtime and U.S. automakers’ odds of survival were dwindling, New York filmmaker Adrian Richards stood in line at a Verizon Wireless store in Midtown Manhattan for four hours for a chance to spend $199 on a new Storm the day it was released. Why? “Basically,” he admits, “I don’t want to get it after everyone else.” The Associated Press reported this morning that hundreds lined up for the new BlackBerry phone—a slick, touchscreen model that Research in Motion hopes will be a real competitor against the all-powerful iPhone from Apple. Steven Amezquita, who emerged from the store victorious, holding a brown paper Verizon bag, got wide-eyed stares from the 30 people still waiting in line. He said he was excited to get to his job (no surprise, he’s an I.T. consultant) because he was “ready to rub it in everybody’s face.” By 11:30 a.m., the 34th Street Verizon outpost was one of the few in the city to even still have the phone.  Further uptown, at the Verizon store on 57th Street, employees said a line had formed by 7 a.m., and the Storm was sold out by 9. BlackBerry devotee Jules (she declined to give her last name) went Storm-chasing through New York City this morning. She checked out the display model at the 57th Street store and is planning on reserving one of the phones. It was the third Verizon store she’d visited without being able to actually buy one.  “I really think Verizon should have better measured the number of phones they would need,” she said. Maybe executives at Verizon and Research in Motion have been watching the news, noticing rising unemployment numbers, freefalling financial markets, and plunging retail sales, and figured consumer demand wouldn’t reach this fevered pitch. They may not have expected the masses to huddle for the storm, especially with the tenacity of filmmaker Richards, who finally got inside the Verizon store just before noon, hoping to get his hands on a Storm. “Hopefully,” he said.Related LinksBlackBerry's Storm PassesThe Latest Microsoft-Google Front: VerizonFirst Bytes: Microsoft, Verizon, Gawker, Technorati, Intel

The bad news? You get to run a retailer when consumer spending has collapsed. The good news? It just happens to be the biggest, most-powerful retailer in the world, one whose discounting, efficiencies, and global reach have allowed it to prosper during a recession. The retailer, of course, is Wal-Mart Stores, which has unexpectedly announced a change at the top. The company said today that Mike Duke, 58, has been chosen to succeed Lee Scott, 59, as president and chief executive, effective February 1.Eduardo Castro-Wright, 53, the president of Wal-Mart U.S.A., has also been promoted to vice chairman.Under Scott's nine-year reign, Wal-Mart expanded overseas, in the U.K., Brazil, Japan, and elsewhere. And the company gradually shed some of its prickly corporate culture, a legacy of being a family-run business, trying to polish its public image on labor and environmental issues.The slump in the economy, meanwhile, has driven shoppers to buy food and basics at Wal-Mart and Sam's Club stores. In its third quarter, the company exceeded Wall Street estimates, reporting a 9.8 percent gain in earnings and even saying that it was optimistic about the holiday shopping season. "Mike Duke is a highly-respected executive, both domestically and internationally, with broad experience throughout the company, having successfully led Wal-Mart's Logistics Division, U.S. operations, and International operations," Rob Walton, the chairman of the board, said. "He understands retail and appreciates the complex global environment in which we operate.”Related LinksSmiling on Wal-Mart Storm Clouds Over Black Friday Wal-Mart Crams for Back-to-School

What's a global bank with a $1 trillion balance sheet to do? Citigroup faces a frightening next few weeks. With recessions around the world threatening to create a new wave of consumer-driven losses for the bank, this week's cost-cut plan, a focused strategy, and an endorsement from one of the biggest and most influential shareholders are simply not going to cut it. Shares of Citigroup are down 50 percent this week alone, and there are no obvious solutions. David Enrich of the Wall Street Journal reports that Citi has now begun weighing whether to sell off pieces of the company or even the company itself. He cautions that these internal discussions are very preliminary and that the chief executive, Vikram Pandit, and the board, remain committed to the bank's strategy of cutting costs and streamlining to weather the financial storm. Erich Dash and Louise Story of the New York Times pour some cold water on these discussions, saying that "Citigroup executives are seeking to stabilize the stock price, but at this point they are not actively exploring selling or splitting up the company." And they note there are few buyers willing to pay the prices Citi would seek for its assets. Yves Smith on the Naked Capitalism blog goes further, pointing out that American International Group, the insurer that had to be rescued by the government, had more desirable assets than Citi and could not find buyers. "Financial institutions are too capital starved to be sticking their necks out now, and private equity firms cannot meet their target returns without leverage, which they cannot get right now. And who, pray tell, would buy the entire bank?" So what are the possibilities for Citi? More Government Help. The bank has raised $50 billion in new capital on its own and is getting $25 billion as part of the $125 billion injected into the nation's nine biggest banks under TARP. Hits from credit cards, commercial real estate, and consumer lending may produce another $20 billion in losses for 2009. Will the government need to come up with another $25 billion for Citi? Sell or Merge. A foreign bank like Mitsubishi UFJ that wanted to become a global giant overnight could buy Citi, whose market value has sunk to just $26 billion. But with the Japanese market reeling, it would never take the chance. A government-forced merger with J.P. Morgan Chase or Bank of America is within the realm of possibilities, but as Yves Smith notes, then you are simply concentrating all the economy's banking risk into one institution. Might as well nationalize the entire industry now. Attract a Big Investor. On Thursday, Prince Alwaleed bin Talal of Saudi Arabia said that he would increase his stake in Citi to 5 percent from less than 4 percent, expressing his support for Pandit and the bank's management. Yet, the shares still fell 26 percent. The market was unimpressed with the prince because his move represented a relatively small amount of money—he was arguably just retopping an investment that had been diluted by Citi's capital raises. And the prince's reputation as a savvy investor has been questioned by his loyalty to the bank. But if someone like a Warren Buffett or another financial institution were to take a 5 percent stake, proclaiming Citi's long-term viability, that would change the perception of the bank quickly. Stay the Course. Just get through to 2009. This is not entirely wishful thinking. Pandit's moves do make strategic sense, and there is a real likelihood that the fear that has buffeted markets and Citi will ease with a new year and a new government. Richard Beales on Breakingviews.com says of Citi: "There are recovery scenarios, but precious few investors have the nerve to bet on them. It's all about safe, relatively predictable investments that won't lose any more money. That may, perhaps, be a particularly acute feeling as an exhausting 2008 winds down—the end of the reporting year for most market players." We may learn more today as Pandit plans to hold a meeting for senior managers and the board of Citi will meet, according to reports.   Related LinksCiti Under SiegeCiti Can Sleep Knives Out at Citi

That the Dow Jones Industrial Average and Standard & Poor's 500 kept falling Thursday, down to their lowest levels since when Britney Spears was svelte, is no longer news.  The news is simply that the bag of tricks upon which regulators, traders, and assorted smart money relied for so long is truly empty. The last hour of trading took investors further into the economic sinkhole as grim forecasts and plunging oil prices gripped Wall Street. What didn't work today was strong-arming on Capitol Hill as guerilla bands from both parties tried to push through a federal bailout of the auto industry. News that it was close to happening actually lifted the Dow to triple-digit gains early in the day, a flash that quickly became a memory as Democratic leadership put the brakes on. What also didn't work was Prince Alwaleed bin Talal's grandstanding buy of Citigroup shares. Long known as being among the smartest of the smart money, the Saudi billionaire can now join Warren Buffett, G.E. boss Jeff Immelt, and countless others who are bottom-feeding before Wall Street has found its bottom.  His Kingdom Holding Co. is down 63 percent this year, costing him $13 billion in paper losses, according to Bloomberg. The prince stepped up today and increased his stake in the megabank from 4 percent to 5 percent—a buy that Bloomberg estimates cost nearly $350 million. Citi's shares closed at a 15-year low of $4.71, down 26 percent for the day.  History may absolve him, but on this day, the prince looked desperate, hoping his aura would pull Citi out of the doldrums more effectively than massive job cuts, draconian restructuring, and, likely, a few more heads rolling from corner offices. The cosmetic moves and shows of bravado won't hide what's ailing the markets or the U.S. economy: growing fears of corporate bankruptcies and credit chill that don't show any signs of lifting.Related LinksNext Year's HeadlinesAnother Day, Another RoutHoping for a Fed Encore