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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

When IHOP acquired Applebee's to form DineEquity (NYSE: DIN) back in July of 2007, I wrote this:

Maybe IHOP can work some magic and turn the chain around, but it might be difficult. The company is financing the entire acquisition with debt, and may not be so quick to provide the face lift the restaurants so badly need.

But then again, IHOP's revenue in 2006 was lower than it was in 2002. So maybe this is a case of two drunken sailors trying to hold each other up. There's nothing much to get excited about for shareholders of either company.

Since then the stock has gone from around $60 per share to $16, and Robinson Humphrey analyst Christopher O'Cull wrote in a note to investors that turning around Applebee's and refranchising stores to pay down debt is hardly an easy bet: "Even in a favorable economic environment this plan would be difficult to execute with little precedent within the restaurant industry. Now, given the weakening consumer backdrop coupled with tightening credit conditions this task will prove even harder." More ominously, O'Cull warned that if the company is unable to refranchise stores quickly, it may have to reduce its debt load "in a fashion that would be materially dilutive to equity holders." And with the stock price in the toilet, the timing couldn't be worse.

I don't take too much credit for being skeptical of the deal: betting on the failure of a large scale acquisition is like betting on Tiger Woods to make the cut at a Hooters Tour event.

A good rule of thumb that will save you from a lot of disaster: when a company you own announces a major acquisition, sell the stock.

Earlier this week I wrote about what a bad idea the SEC's new rule requiring short selling hedge funds to disclose their positions was:

Mandatory disclosure of short positions will expose fund managers to issuer retaliation, frivolous lawsuits and harassment. What's so ridiculous about this rule is that a short position in a stock does not represent ownership of a security, and other than subjecting short sellers to harassment, there is no reason to require that the positions be publicly disclosed.

The SEC failed miserably in its responsibility to protect investors, and now it's compounding that mistake by targeting the wrong enemy.

Happily, the SEC has since seen the light. Short sellers will now be required to disclose their positions to the SEC -- which is fine -- but will not be required to make those disclosures public. If you like PDF files, you can read the announcement here.

What's so hypocritical about this is that while press releases posted prominently on the SEC website were made available for the crackdown on naked short selling and mean trash-talking hedge fund managers, you have to do a bit more digging to find the new announcement that backtracks.

It just goes to show what many of us have been saying all along: the "crackdown" on short sellers was just pathetic grandstanding by an agency that failed miserably in its duty to protect investors from misleading statements by public companies.