eBay answered mounting Wall Street concerns about its business by laying off 10% of its workforce and spending $1.34 billion on business to bolster non-core company growth. The soon-to-be acquired companies are Bill Me Later-- a tool for quickly giving online shoppers credit on purchases--and two Danish auction sites. eBay called the moves contrarian plays, and the market wasn't too thrilled.

Scott Kessler of Standard & Poor's Equity Research joined me from New York to talk about the announcements and what he wished eBay were announcing instead.

From ClusterStock, Oct. 6, 2008:

Worried about a protracted legal battle further wrecking the credit markets, banking system, and economy, the Feds have stepped into the fight for Wachovia. The solution? Citi and Wells Fargo may have to share it:

WSJ: Under the leading plan being discussed Sunday night, Citigroup and Wells Fargo would divvy up Wachovia's network of 3,346 branches along geographic lines, with Citigroup getting Wachovia's branches in the Northeast and mid-Atlantic regions and Wells Fargo taking those in the Southeast and California, according to people familiar with the talks. Wells Fargo would also take over Wachovia's asset-management and brokerage units.

Unlike Citigroup's original agreement to take over Wachovia's banking assets, in which the Federal Deposit Insurance Corp. agreed to shoulder potentially hundreds of billions of dollars in toxic loans, the plans being discussed Sunday night don't entail either buyer receiving financial assistance from the U.S. government, according to people briefed on the talks.

The talks ended late Sunday night with no resolution, but were expected to resume Monday morning, according to a person familiar with the matter.

Whatever. All we know is Wachovia CEO Bob Steel has played this thing (and Citi) brilliantly. A week ago, his company was minutes from failure. Now, he has two massive, outraged suitors fighting for the right to carry him off into the sunset.

With the credit squeeze tightening, start-ups in Silicon Valley (and elsewhere) are starting to feel the pinch, and dire predictions for the industry are circulating:

• Jason Calacanis recently predicted "50-80% of the venture-backed startups currently operating will shut down or go on life-support (i.e. 3-4 folks working on them) within the next 18 months."
• TechCrunch warns that start-ups who've failed to raise at least $25 million are at risk.
• "All startups are going to have to batten down the hatches, get leaner, and work to get profitable," says Fred Wilson.
• The New York Times reports: "High-tech entrepreneurs, investors and executives now believe the question is when, not if, the financial chaos will hurt the country's cradle of innovation."

Taking the other side of this doom trade is Howard Lindzon, partner at Knight's Bridge Capital and an early-stage investor in companies ranging from LifeLock to WallStrip and, more recently, ECHOage and StockTwits.

"I'm as bullish as ever on two kids with a laptop" and a great idea, Lindzon says, stressing he only invests in companies with a strong entrepreneur at the helm, a viable product and an existing revenue stream. (He declined to give a view on kids with two turntables and a microphone.)

That said, Lindzon clearly believe start-ups today need to be more judicious with their capital today, not only what's on hand but also how and when they raise it.  See the accompanying video for details.

Watching the Nasdaq drop the most points since May 2000, it's clear Silicon Valley isn't immune from the bank meltdown on Wall Street. Even the mighty Google and Apple weren't safe: Google fell more than 11% today to under 400 for the first time in two years and Apple fell nearly 18%.

There is plenty for tech investors to worry about:

-    The financial sector could slash IT budgets, impacting enterprise players like Oralce, IBM and Hewlett-Packard. At a minimum there are fewer banks to buy up software, hardware and services thanks to the forced consolidation.

-    A worsening economy will very likely hurt every consumer play from Research in Motion to Apple to gaming companies. Already, RBC Capital Markets says 40% of people plan on spending less money on electronics in the next 90 days, the weakest outlook the bank has ever seen. That doesn't bode well for a strong Christmas season.

-    Web companies grappling with a continued deterioration in advertising spending now that the Olympic boost is over and the presidential election has just a little over a month left.

-    The impact a shut down IPO and acquisition market has on an already abysmal year for venture capital returns. Sure, the public markets don't immediately affect startups; that's the advantage of being private. But investors need a return at some point. In sectors that have been overheated in recent years like the Web or clean tech, expect second and third rounds of funding to get tighter if companies aren't showing any progress on revenues. With ad markets shut off and the general economy in turmoil, that's a lot harder to do. Entrepreneur Jason Calcanis recently said the collapsing economy would kill some 50%-80% of startups. You can argue that's just the odds to the early stage startup game, but this economy and its lack of liquidity and confidence certainly doesn't help.

We'll keep an eye on all of these ripples, as shoes continue to drop in this crisis and the Valley picks its jaw up off the floor and actually starts to react. But it's important to realize so far it's a story of ripples in the Valley-a long list of potentially deadly ripples to be sure-but ripples nonetheless. For people who've been in the Valley more than ten years, there's none of the hand-wringing of the last bust when more than 450,000 Valley workers lost their jobs in a little more than a year and the Nasdaq lost three-quarters of its value in just a few years.

Facing insolvency, Wachovia became the credit crunch's latest victim Monday, selling its banking operations to Citigroup for $2.2 billion, or $1 per share. Citi will assume Wachovia's debt, meaning bondholders will not be wiped out, as they have in some recent transactions.

After the deal, Citigroup have one of nation's largest retail bank franchises and cements its place among a handful of other firms that appear truly "too big to fail," lest the entire U.S. banking system crumble: Bank of America, JPMorgan Chase, Wells Fargo, Morgan Stanley and Goldman Sachs.

The deal is far from a coup for Citigroup, which expects to take a loss of up to $42 billion to write down Wachovia's $312 billion loan portfolio. Citi slashed its dividend and said it will seek to raise $10 billion in equity to offset the loss. The transaction was brokered by the FDIC, which received $12 billion of warrants in Citi in exchange for insuring the bank's losses won't exceed $42 billion.

Speaking of the FDIC: Unlike Washington Mutual, Wachovia had not been taken over by regulators prior to the deal. But just like JPMorgan's acquisition of Washington Mutual last week, the deal was brokered by the FDIC, which wanted no part of having to insure Wachovia's depositors.

"All depositors are fully protected and there is expected to be no cost to the Deposit Insurance Fund," the FDIC said in a statement. "Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open-bank basis with assistance from the FDIC."

The operative words in that statement being "expected to be no cost" and "assistance from."

From paidContent.org, Sept. 24, 2008:

And to think what they could’ve gotten from Microsoft… Yahoo (NSDQ: YHOO), whose stock continues to languish, has hired Bain & Co. to help it “(explore) ways to streamline our processes and bring new agility and efficiency to how we work as an organization.” in the words of spokesman Brad Williams, who spoke to Bloomberg. He says it was premature to speculate on whether the company would in fact have layoffs, but that’s often what the word “streamline” means. Valleywag has a copy of a letter sent out by Jerry Yang, in which he talks about the “great progress” the company has made, the challenges it faces in light of the economy, and the need to “get fit.”

Kara Swisher has also reported that top brass is telling employees about likely layoffs. So barring some massive misreading of the tea leaves, it looks like Yahoo will soon face cutbacks. The news comes just as the board reportedly authorized merger talks with AOL (NYSE: TWX). While such a combination would likely be talked about using some lofty rhetoric about strategic synergies and whatnot—but a big part of the appeal would have to be the chance to cut costs through redundancies.

• With Stock Below $20, Yahoo Board Authorizes Fresh AOL Talks: Report

From paidContent.org, Sept. 24, 2008:

So what happened at Carl Icahn’s first Yahoo board meeting? Apparently the board authorized talks about a potential combination with AOL. FT is reporting that while talks have been authorized, there’s nothing actually happening just yet. It’s not clear what the shape of a Yahoo-AOL combination would be, if it ever got to that. Back when Yahoo was scrambling for anything other than Microsoft, in the spring, a variety of potential tie-ups were discussed. Meanwhile, Time Warner CEO Jeff Bewkes recently said that the ultimate fate of AOL would be known “soon,” and that a lot of talks remained ongoing. So if Yahoo -- whose shares remained mired below $20 -- calls, he’ll surely pick up the phone.

There's one advantage to the recent sell-off in the solar sector: Bargains. Blogger and investor Paul Kedrosky says it's time to take a close look at solar stocks now that multiples are low and revenues for names like First Solar are still growing strong.

Click on the video for his tips on how investors should navigate this volatile sector.

Acting in front of movie cameras? No big deal for Ashton Kutcher. Launching a company in front of the Silicon Valley elite? That's another matter. TechCrunch editor Michael Arrington has called Kutcher one of the new Hollywood "ambassadors" to the Valley.

In the final installment of our interview with Kutcher from TechCrunch50 in San Francisco this week, we asked him what it's like to be that guy and how humility has served him well in the ego-driven worlds of both Hollywood and the Valley.

• Initially we chatted about being an entrepreneur.
• The second part of our chat was about new online advertising models.
• We then moved on to discuss the tension between the Valley and Hollywood.

MySpace v. Facebook. Motion Picture Association v. YouTube. Dodgers v. Giants.

Everywhere you look there's tension between the superstars of Northern California and the superstars of Southern California. In this interview with actor-turned-producer-turned-Internet-entrepreneur Ashton Kutcher, we talked about this culture war and how he's being received in a Valley that keeps getting burned by Hollywood. My sitdown with him was part of TechCrunch50 this week in San Francisco. 

For part one of my chat with Kutcher about being an entreprneur, click here.

For our discussion about online advertising markets, click here.