Treasury Secretary Henry Paulson called for better regulatory tools to help prevent the failures of individual financial firms from threatening the entire global system, report The Wall Street Journal on A3 and The New York Times on C2.

Paulson said the market thinks some institutions are “too big to fail”, something the government can’t allow to continue unchecked. The Journal:

That perception exists, he said in a speech in London, because the government is limited in its ability to help unwind the complicated trading relations, debts and obligations of a financial firm, which if unwound all at once could ripple throughout the financial system.

The fact is Paulson himself believes some are too big to let go down, which is why he was instrumental in bailing out Bear Stearns in March, something the papers should have noted.

The Financial Times says Paulson criticized the “balkanised” regulation of financial companies.

The US needs a new “market stability regulator” with the authority to avert a system-wide meltdown in financial markets, he said. Such a regulator would allow banks to fail as a result of their own risky behaviour while protecting the rest of the system from contagion.

Sam to Slam

The hedge-fund manager and convict who faked his suicide surrendered after twenty-three days on the lam, the Journal and Times say on A1.

Samuel Israel III, who ran Bayou Management and scammed his investors out of more than $400 million, hid out in the Berkshires at a camp site, but his mother convinced him to surrender, which he did after pulling up to police on a Yamaha scooter. He already had a twenty-year prison sentence. He faces new charges that could add another ten years, the Journal says.

Quote of the Day from the Times:

“They can’t wait to see him start serving his jail time,” said Ross Intelisano, a lawyer who represents 20 Bayou investors who had lost roughly $25 million. “He might be a criminal but at least he listened to his mother.”

Zell’s bright ideas

The Los Angeles Times will lay off 150 newsroom workers—about 17 percent of its total and cut the size of its newspaper by 15 percent, as part of a wave of such moves at Tribune Company papers, which are struggling under the company’s huge debt load and with the general decline in newspaper fortunes.

The NYT inside Business Day says the cuts are far worse than what Tribune said they’d be (forty or fifty) in February. The paper notes that a decade ago the LAT had 1,300 newsroom employees and after the cut will have just 720. The LAT itself tries to put a brave face on it by offering that “The paper would continue to have one of the largest corps of editors and reporters in the country.”

As the NYT has reported before, expect the paper to become more USA Today-ified:

For decades, The Los Angeles Times has been considered one of the best papers in the country, a serious source of national and international news and in-depth explanatory and investigative articles.

But the mandate from Mr. Zell and his team has been to make the papers more local and more eye-catching, with more graphics and charts, and shorter articles. Each paper will get a physical makeover in the next few months.

The Journal inside its Marketplace section reports that Journal Communications said it would fire 10 percent of its overall workforce of 1,300 at the Milwaukee Journal Sentinel and its “related publications.”

Fear of Freddie

The Journal’s Heard on the Street column says Freddie Mac, the government-sponsored enterprise that helps support the housing market, may be having trouble raising capital.

In May, Freddie announced it would raise $5.5 billion to shore up its wounded balance sheet. Its cousin Fannie Mae similarly announced it would raise capital and did so within a few days. Freddie still hasn’t done it and its stock has dropped 40 percent since then.

Freddie’s delay is stoking concern among investors that the mortgage giant is having trouble raising fresh money to strengthen its balance sheet, which lacks a strong cushion. And the longer Freddie waits, the more shares it might have to issue, causing even more pain for existing shareholders.

Grim economic news

In economic news, home-equity lines of credit are turning delinquent at an increasing rate, with 1.1 percent delinquent in the first quarter, up from 0.6 percent a year ago, the Journal says on A3.

The paper says in a separate A3 story that some in Washington are starting to urge another stimulus package as it becomes more apparent that the current one isn’t going to make a lasting difference.

American Airlines will lay off about 7,000 workers—8 percent of its total—by the end of this year, the Times says on C1.

The U.S. office market showed signs of weakening with rent growth slowing and vacancies increasing slightly in the second quarter, the Journal says on A2.

Some suburban office buildings are suffering from increased gas prices, as companies shift away from locating in places that require employees to drive long distances. In New York’s Long Island, rents declined 0.3% last quarter. One owner there, Metropolitan Realty Associates, is passing out free gas cards to commercial brokers as an incentive for showing tenants its blocks of empty space.
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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.