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When a state or city runs out of money, how does it pay its key suppliers and vendors? The issue is becoming top of mind now that many places face falling tax bases and lack of access to credit markets to sell municipal bonds.

In California, the answer may be IOUs. The state may not be able to pay the company that cleans the capitol building or the car company which supplies vehicles to the state police.

Welcome to the new economy and another horror for the business world. According to Bloomberg, "California, the world's eighth largest economy, may pay vendors with IOUs for only the second time since the Great Depression, State Finance Director Mike Genest said. " The state has an $11 billion deficit.

Most vendors can't sue the state for the money. Even if they could legally take their cases to court, how many have the cash to face a protracted legal battle?

What it means is that California is cutting its own throat, whether it wants to or not. Some companies doing work for the state need the money. A piece of paper won't let them make payroll. Those firms will fold. When they do, unemployment in the state will continue to move up. That creates a need for more social services for the people without jobs. It means fewer people and companies to pay taxes.

It is a cycle which could take California to the brink of receivership or a federal bailout all its own. When the largest state in American needs that kind of help, the recession really has gotten out of hand.

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

IBM (NYSE: IBM) will start offering PCs that do not run Microsoft (NASDAQ: MSFT) Windows operating system. According to The Wall Street Journal, "IBM says it has created a "Microsoft-free" virtual desktop -- a complete suite of applications that run on a backroom server and don't require Microsoft software or costly desktop hardware."

The new machines will use Linux and IBM software and will cost as little as $59 per machine, which could save companies several hundred dollars per desktop.

While IBM would say it is offering the new package because "server side" computing allows many workstations to run from one server, which saves money, there's no denying this is also an aggressive move against Redmond.

Windows is already under siege. The Apple (NASDAQ: AAPL) operating system continues to take market share as Mac sales increase. The latest version of Windows, Vista, is so unpopular that many companies have refused to upgrade to it. Open source Linux has not been very successful against Microsoft, but IBM could help change that.

For Microsoft, PC users slowly moving away from Windows to a number of other alternatives is death by a thousand cuts. There is no one thing that the software company can do to keep customers other than rush a more popular version of Windows to market. That would mean it is more likely to have annoying "bugs."

Windows is where Microsoft makes its money, for now at least.

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

Vikram Pandit, CEO of Citigroup (NYSE: C), and his top managers may give up their 2008 bonuses as a show that they are willing to make sacrifices after the federal government saved the bank with a huge bailout package. Board member Robert Rubin may have been the first to suggest the move.

According to the FT, "People close to the situation said last week's government rescue made it almost impossible for Citi's board to award cash bonuses to other senior executives, led by chief executive Vikram Pandit."

For anyone not paying attention to the Citi mess, its stock has been down as much as 90% this year. The federal government is pouring money into the bank like water, and the company is still losing money due to consumer credit losses, bad LBO loans, and mortgage derivatives.

To put a point on it, why would the Citi board even consider bonuses in the first place without the risk of being tarred and feathered by shareholders and the government?

"Giving up" bonuses is a meaningless gesture for executives who do not deserve them and would likely get nothing in the first place. Maybe it is nice PR.

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

Perhaps it was inevitable, but the car companies fought it. Congress, and perhaps General Motors (NYSE:GM) and Chrysler, are discussing pre-packaged bankruptcies as a way to cut debt and labor costs while the companies get back on their feet.

It is probably a bad idea.

According to Bloomberg, "Staff for three members of Congress have asked restructuring experts if a pre- arranged bankruptcy -- negotiated with workers, creditors and lenders -- could be used to reorganize the industry without liquidation."

Why won't it work? Several reasons. The first is that a bankruptcy plan takes time, the one thing Detroit does not have. A pre-packaged program means getting deals from labor, lenders and suppliers. That can't be done in a day, a week, or a month.

Next, some car parts suppliers are already near bankruptcy themselves. Asking them to take less money from GM and Chrysler could push them into Chapter 11.

Last, and perhaps most important, the UAW may not be willing to give up more than it has offered. It believes that it has done enough by saying it will defer car maker contributions to its VEBA plans and sharply reduce job banks. A proposal for them to take less may cause a series of strikes that could push GM and Chrysler into Chapter 7 liquidations.

Otherwise, the idea of pre-packaged bankruptcy is just fine.

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

Depending on which Wall Street firm or economist you ask, estimates for job losses in November are about 300,000. That would push the unemployment rate up to about 6.7%.

There is growing pessimism that the "consensus" about the number of people pushed out of work last month is way too low. Certainly lay-off news from a number of large companies and a rapidly slowing economy would be cause to reevaluate assumptions.

Goldman Sachs (NYSE: GS) has done just that. It has gone back to the drawing board to revise its estimates for November job losses and the results were not good. According to Reuters, "Goldman Sachs has revised up its forecast for U.S. job losses in November to 400,000 after reports showing a dismal employment picture in the private sector, particularly in services."

A number of that magnitude could move the unemployment rate closer to 7% and presents the risk that the situation could get much worse in the first quarter of 2009.

If there is any hallmark of the current downturn, it is the extent to which economists and other forecasters have missed their estimates and predictions. Almost to a fault, they have been too rosy. With each passing week there is another piece of evidence that economists are more like "guessers" than well-trained experts when it comes to predicting where the national business and financial environment is heading.

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

Perhaps it would make good sense for a big Pacific-based carrier to merge with an Atlantic-based one. But perhaps not.

British Airways is considering a merger with Qantas. According to the FT, "This is an exciting step towards the creation of the first truly global airline," said Willie Walsh, BA chief executive.

The plan comes about a year too late. The major reason for airline mergers has been to cut costs in the face of rising fuel prices. Now fuel prices are moving down -- and sharply.

The risks of merging large airlines make a long list. Putting together worker pools and cutting benefits often causes strikes. Marrying duplicate reservation IT systems can cause customer booking trouble for months. Consumers get upset and often go to another carrier.

Looking at the history of the industry, it is hard to find an airline merger which was a fabulous success. A number of carriers combined in the 1980s and 1990s only to go bankrupt at the beginning of this decade.

A BA merger with Qantas is too risky to try.

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

Auditors from the General Accounting Office say that no one is keeping particularly good tabs on how Paulson is using the $700 billion bailout fund. According to The New York Times, "Government auditors urged the Treasury Department on Tuesday to act more quickly to develop the internal controls and hire the professional staff necessary to ensure that its $700 billion financial rescue package is operating effectively and ethically."

That won't happen. Treasury is too busy putting out fires, which range from getting money into the large banks to considering whether to fund a rescue plan for mortgage owners. Paulson has less than two months to leave his mark on the economy and then he is "retired." Treasury barely has enough qualified people to figure out where money should go, let alone keep careful track of it.

The complaint by auditors is fair, but it gets to the heart of most large federal government spending packages, whether they are for the Defense Department or new national health initiatives. These programs are just too large to monitor completely, so the taxpayers have to rely on the competence of the officials who spend the money in the first place.

Paulson is faced with using his personnel on saving the financial system or counting beans. He has, appropriately, put his effort into the more pressing problem.

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

Most analysts believed that Bank of America (NYSE: BAC) would cut about 10,000 jobs in its consolidation of operations with Merrill Lynch (NYSE: MER) which it bought earlier in the year. That would be enough people to hit the promised cost saving for putting the two firms together. It is a lot of people out of work, but not a blood bath.

Well, it looks like the blood bath has come and no one appears to have expected it. According to CNBC, "Bank of America could end up cutting 30,000 jobs as it moves to absorb Merrill Lynch, three times as many as previously estimated."

Did Bank of America mislead its employees, the press, and investors? Perhaps, but it may have done so for all of the right reasons. Predictions now are the B of A will lose a lot more money than most observers expected a month ago. It faces huge write-offs in its real estate and consumer credit portfolios. That may mean the firm could be faced with having to raise more money and dilute current shareholders. It could also hurt the bank's chances of maintaining its dividend and current share price level which is already down from a 52-week high of $47 to just above $14.

The new layoffs are not good for the poor people who will be hitting the exits, but the news may add weight to the impression that bank earnings for the current quarter are falling apart fast.

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

It would be pretty nifty to bank online with Goldman Sachs (NYSE: GS). It is the world's premier investment bank, although it has converted itself to a commercial bank to get government funding.

Still, saying I bank online with Goldman sounds better than saying I bank online with the First National Bank of Akron Ohio.

According to The Wall Street Journal, "If Goldman goes ahead, the new unit will seek deposits that can be used to fund various businesses now that Goldman is a bank-holding company." In other words, now that Goldman is a bank, it wants to drive up deposits. Starting an online bank is cheaper than going out and buying a number of regional banks to pick up their depositor bases.

All kidding aside, the chance to have an account at such a prestigious financial institution could draw a great deal of money, especially from the well-to-do. A marquis name should make for marquis customers. And, that should bring Goldman a lot of the assets it needs to fund its more profitable businesses.

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

RIM (NASDAQ: RIMM) is the most recent handset company to cut sales forecasts as the recession hits demand for smartphones. It has to make investors wonder what will happen to Apple (NASDAQ: AAPL) iPhone sales.

RIM expects revenue for the third quarter to be in the range of $2.75-$2.78 billion. Preliminary revenue is lower than the previously forecasted revenue range of $2.95-$3.10 billion Part of the reason for the earnings cut was the value of the dollar.

But, a large part of the revision is because of a retreat in buyer appetites. According to the company, much of the weakness is "due to lower than estimated unit shipments of existing products, which RIM believes is a reflection of general economic weakness in the United States."

Palm (NASDAQ: PALM) recently said it expects its revenue to drop sharply below estimates. Nokia (NYSE: NOK) also said its business would not meet plans.

That leaves Apple and the question of whether the iPhone is simply so popular that it is "recession proof".

In an economy this bad, probably not.

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

Oil is trading around $50 a barrel. Gas prices are about $1.80 and could drop another dime or two. That is a long way from the $4.15 drivers were paying in the summer.

A family of modest means, making perhaps $35,000 a year, might have a mortgage of $500 a month. After taxes, the family's real income is probably less than $2,200 a month. Father and mother both drive to work: round-trip, 20 miles each, every day. The difference between $4.15 gas and $1.60 could be as much as $500 a month if each of them use about 100 gallons of gas a month.

Welcome to the lower gas price economy. For people who use home heating oil the difference is even more profound.

OPEC's plan to keep oil prices where they are could go a long way to saving the U.S. economy. The family that spends $500 a month less on gas has an easier time making mortgage payments and is less likely to slip into default or foreclosure. That family might even have a little money to spend on holiday gifts.

The next time you run into an OPEC minister on the street, shake his hand and thank him.

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

Jack Welch once said that a company is screwed if it is not No.1 or No. 2 in the business. Have a look at smartphone company Palm (NASDAQ: PALM), which is getting closer by the day to going out of business. It sits behind two remarkable companies: Apple (NASDAQ: AAPL) and Research in Motion (NASDAQ: RIMM). Those two firms have innovative products and loads of loyal consumer and business customers.

Yesterday, Palm cut its revenue forecasts by a breathtaking sum. For its quarter ending in November, the company said revenue would be between $190 million and $195 million. Wall Street had expected $331 million.

Palm blamed the economy, but that is not really fair because its competitors, which operate in the same economy, will not miss their numbers by nearly as much, if they miss them at all. The reality is that Palm has had a series of unappealing products and its next-generation handset and OS will not be out until next year. Palm does not have the balance sheet to build and market a broad range of products so it is a "one bet" company. Its 2009 launch either works, or the company goes under.

Palm may be deviled by the recession, but years of bad management have come close to burying it by keeping the company a distant third in the high-end smartphone business.

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

Ford (NYSE:F) will present a brilliant plan to Congress. It will build smaller cars to take advantage of the hunger for fuel-efficient vehicles.

According to The Wall Street Journal, "Ford Motor Co. plans to tell Congress it is retooling itself to build small fuel-efficient cars and break from the past strategy of focusing mainly on large pick up trucks and sport-utility vehicles."

The program is not likely to get a warn reception for a number of reasons, the most important of which is that it is too late. Consider that changing over many of Ford's plants to produce small cars will take billions of dollars. Product development and engineering of the new vehicles could take a year or two. In the meantime, Ford will continue to lose sales.

The most important consideration, which Congress should raise right at the start of Ford's testimony, is how it plans to best companies such as Toyota (NYSE:TM) which already build outstanding small cars, have a huge domestic market share, and will be making better and better vehicles while Ford tries to get its act together.

Next question.

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

The conventional wisdom is that if housing does not improve, the economy does not improve and the credit crisis does not go away. This may be a case where the consensus is right.

According to The Wall Street Journal, "TransUnion LLC, which analyzed about 27 million consumer records in its database, predicted that the proportion of consumers with mortgages that are 60 days or more past-due will hit 7.17% in the fourth quarter of 2009." That is about double the rate today.

Of all the data coming out about the current economic downturn that news could be the worst. Rising delinquencies mean rising foreclosures, which are likely the result of job losses or lack of access to credit. That, in turn, means that housing prices will continue to fall.

One of the most puzzling things about the current bailout craze which has the federal government throwing money at everything that moves is that there is not a massive, systematic program to help arrest the deepening housing crisis. If that can be done, many of the other troubles in the economy can be fixed.

Hundreds of thousands of homeowners who genuinely need relief are being thrown to the curb in the name of helping big financial services companies. A recovery only works if its goes from the bottom up. The man who owns his house and has mortgage problems is as "bottom" as it can get.

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

Motorola's (NYSE: MOT) share of global handset sales has fallen from about 22% three years ago to 12%. Its cell phone division revenue is dropping at a rate of over 30% and loses money ever quarter.

For Motorola to break back into the black, it not only needed to launch new products to pick up market share, but it also needed the worldwide handset business to stay healthy. No such luck.

According to Reuters, "South Korean mobile phone makers Samsung Electronics and LG Electronics have cut their 2009 sales targets as a global downturn spreads." By most accounts these companies and other large manufacturers like Sony Ericsson and Nokia (NYSE: NOK) have the financial resource to weather a tough year or two. Not so at Motorola.

Motorola had planned to spin off its handset unit, but that has been delayed. The company's other businesses are profitable, so the cell phone business is dragging them down. MOT shares are off 75% this year to just over $4.

As hard as it would have been to imagine a year ago, Motorola may still have to dump its cell operation and perhaps put it into Chapter 11. Its fate is that grim. It needs to escape its employee and creditor obligations to make it.

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