The New York Times leads its front page with an interesting report that inflation is causing (um, more) turmoil in the Middle East. We’ve read all the stories about how our gas money is paying for a new wave of opulence in the region—as well as the purchasing of big stakes of our Wall Street titans—the Times says the downside is considerable.

Oil price increases have hurt the poor and middle class. Jordan eliminated its gas-price subsidies this month, sending the cost of fuel—along with staples like eggs and potatoes—up nearly double or more.
Many of the region’s economies peg their currencies to the dollar, which has tumbled, spurring inflation for economies that depend on imports for much of their good and services.

In Bahrain and the United Arab Emirates, inflation is in the double digits, and foreign workers, who constitute a vast majority of the work force, have gone on strike in recent months because of the declining purchasing power of the money they send home. The workers are paid in currencies that are pegged to the dollar, and the value of their salaries—translated into Indian rupees and other currencies&mdsah;has dropped significantly.

The Times says rich countries are making up for the increased inflation by jacking up salaries—which in turn worsens the inflation. The United Arab Emirates gave its government workers 70 percent raises this month, while Omanis had to settle for 43 percent. Poor, Omanis!

All this is causing some messy social consequences. Yemen, Morocco, and Lebanon have seen riots over food prices, while Jordan has seen demonstrations.

Off track a bit, an interesting tidbit caught our eye: The Times says a new survey in a Syrian state-owned paper found that 450 of 452 surveyed thought the government’s institutions are corrupt. We’d hate to see what an independent paper would have found.

In news on the length that banks will go to escape obligations they committed to before the credit bust, Wachovia is suing its client Providence Equity for effectively wanting to give the bank more money for less risk on a deal for Clear Channel’s TV holdings.

Providence signed the $1.2 billion deal in April and Wachovia committed to fund it. Since then, conditions have of course deteriorated, and Providence got Clear Channel to knock an impressive $100 million off the sale price.

But Wachovia, despite being promised higher interest rates, according to the NYT, doesn’t want anything to do with the $450 million to $500 million piece of the funding it committed to, and is suing Providence for changing the terms of the deal&mdasheven though they’re in Wachovia’s favor. The reason is Wachovia can’t turn around and sell that debt like it had originally planned, at least not for the price it expected. Since that kind of stuff is trading for 85 cents on the dollar, completing the deal would mean a loss of about $67.5 million to $75 million for Wachovia from the get-go.

The Wall Street Journal and NYT can’t quite figure out what Wachovia is wanting from this. The Times:

Some people inside the deal speculate that Wachovia may be seeking to create an escape hatch from the larger buyout. But it is unclear how Wachovia will accomplish that: The $25 billion deal is not contingent on the sale of the television stations.

Wachovia runs a high risk by suing its own client and killing the television stations deal. As part of financing the larger $25 billion deal, it also agreed to help finance a bridge loan if the smaller deal fell apart.

The WSJ gives us the better context:

The petition puts Wachovia in the awkward position of taking a client—Providence—to court and underscores the lengths to which banks will go in the current environment to get out of funding deals.

Wachovia’s threat comes as banks are facing increasingly strained balance sheets related to commitments they made during last year’s buyout boom. Banks are sitting on nearly $200 billion of leveraged debt that they have been unable to unload as a result of the turmoil in credit markets.

Sit back and pass the popcorn. There’s much more of this kind of thing to come.

The business papers all go high with a video-game duke-out in the making. Electronic Arts has bid $2 billion for Take Two, maker of games like Grand Theft Auto. Take Two has turned down the offer, saying the 50% premium is not enough. says the Financial Times.

The WSJ leads its Business & Finance column with the news and the NYT puts it on the front of its business pages, saying the bid is further evidence that consolidation is under way in the video-game industry. Here’s an interesting bit of analysis:

EA’s action follows an even bigger bid by Microsoft Corp. for Yahoo Inc., continuing a new trend of unsolicited offers in the maturing tech sector. Such companies had long stuck to negotiated acquisitions, on the theory that unfriendly transactions could spur the departure of talented engineers and programmers that were seen as key assets of target companies.

The Chicago Tribune has a colorful piece on a house…well, we can’t improve on the lead here. If this doesn’t make you want to read a story, we don’t know what will:

The new buyers of a rundown graystone on the South Side showed up Jan. 9 to look at the house they won at a foreclosure auction. They took the plywood off the front door and went inside to make sure the utilities had been shut off. Then they called the police.

Sitting upright in the corner of a bedroom off the kitchen was a human skeleton in a red tracksuit. Next to him lay a dead dog. Neighbors told police the corpse was almost certainly Randy Johnson, a middle-age man who lived alone in the North Kenwood house.

The cause of Johnson’s death has not yet been determined, but it is just one of the mysteries about 4578 S. Oakenwald Ave. Somehow, Johnson’s house was transferred three times to new owners without anyone noticing he was inside. It’s a story involving forged deeds, a corrupt title company and a South Side family that has been under investigation for mortgage fraud.

Left holding the bag is Countrywide Home Loans, the nation’s largest mortgage lender and a company whose practices are being scrutinized by the Illinois attorney general’s office.

Countrywide had to take back the house from the latest suckers…er…people it sold it to after Cook County officials threatened the lender. The Tribune says the ordeal shows that lenders taken in by fraudsters have little incentive to blow the whistle before dumping the problem on someone else.

Bloomberg has a good analysis of the impact of the government’s moves so far on the economy and the likelihood that the stimulus plan will fail.

The news service says the tax-rebate plan will boost spending in the second half of the year, but that will only be a temporary reprieve for an economy that will continue to struggle for a long while under the weight of bad debt, consumer retrenchment, and investor suspicion. Bloomberg quotes economists predicting growth of as low as 0.9 percent—in 2009.

It says there’s not much the government can do.

So far, the Fed’s deepest interest-rate cuts since 2001 haven’t helped the financial markets or the economy. What they have caused is an increase in inflation expectations, with the price of gold soaring to a record $958.40 an ounce last week.

Oops. Oh well, higher inflation will at least help all those borrowers pay off their underwater home loans a little bit more easily.

The WSJ goes above the fold on page one with a report saying the U.S. is preparing a move against Iran’s central bank, which it says is laundering money for sanctioned private banks.

The U.S. put sanctions on the Iranian banks two years ago for aiding the country’s nuclear program and, allegedly, terrorism. It’s unclear what effect, if any, a U.S. move would have on Iran, since Europe and other countries would have to cooperate with American moves, something that seems unlikely.

The Journal’s Heard on the Street column says the Goldman Sachs juggernaut may finally be slowed this quarter by the effects of the credit crisis, and it’s shares are likely to fall “much further.”

Leveraged loans, like the one Wachovia is trying to back out of above, are likely to be the main culprit. It is committed to fund loans worth more than 10% of its entire market value and with the value of those loans having tumbled, it will likely face a big writeoff this quarter. Some equity investments also have fallen in value.

Revenue in its core investment banking business is likely to be down, too, up to 50% from last quarter, says the WSJ, weighing further on results.

The Washington Post reports the Army is spending $800,000 to Walt Disney Company to sprinkle some stardust on Walter Reed Army Medical Center’s woeful care system, impressively exposed in the paper’s pages last year.

Apparently the hospital’s employees are learning from Donald Duck and the like how to and how not to treat “customers.”

Even more comforting, the Post says the FBI, CIA, and other government agencies have also paid the Disney Institute to teach them “the business behind the magic.”

Wednesday afternoon’s training session at Walter Reed, held in a hospital meeting room decorated with Disney balloons and loaded with cookies and soft drinks, began with more than a little skepticism evident.

Donnelly, who started working for Disney in the summer of 1986 as a guide on Disney World’s Jungle Cruise ride, warmed up the crowd. “We’re going to kick it off today with what we call ‘Sizzle,’” he said. “Here it comes!”

Not everyone in the crowd looked impressed. “If you are skeptical right now, that’s okay, I am with you,” Donnelly said.

We’re in favor of anything that will help folks who’ve been traumatically injured serving our country get the best care and service possible, and the government should spend what it needs to in order figure out how to do just that. But, we’ll keep our eyes peeled for more reporting on just how well this $800,000 was spent.

That brings us to our Quote of the Day, from the Disney Institute’s Bruce Jones: “People will joke about ‘[a Mickey Mouse operation,’” Jones said. “We generally have to inoculate against that with the audience.”

You might want to shoot up the taxpayers, too, while you’re at it.

The Times takes note of Josh Marshall and his impressive (and burgeoning) Talking Points Memo empire and their landmark win last week of a George Polk award. We’d like to congratulate Marshall and TPM for leading the way in finding new models to support the business of journalism, as the Columbia Journalism Review noted in last September. As the newsrooms of the Neolithic newspapers dwindle away (and will continue to for the foreseeable future), this kind of entrepreneurialism will help keep the watchdog barking.

Sig Gissler, the administrator of the Pulitzer Prizes, said in an e-mail message that online articles are eligible for the awards, but they must have been published on a weekly or daily newspaper’s Web site.

“A freestanding Web site does not qualify,” he said.

Time to get with the (HTML) program, Sig.

Ends today: If you'd like to help CJR and win a chance at one of
10 free print subscriptions, take a brief survey for us here.

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.