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News Corporation, the media conglomerate controlled by Rupert Murdoch, has engaged in early-stage discussions with Microsoft about a pact to get paid by Microsoft to remove its news content from Google’s search engine and be available on Bing, according to a person briefed on the matter who spoke anonymously to discuss confidential negotiations.

Murdoch has been vocal of late about getting paid for the company’s content online. News Corporation owns many newspapers, including The Wall Street Journal, The New York Post, The Times and The Sun in Britain.

The Financial Times first reported on the discussions, which involve Microsoft possibly paying News Corporation to index its content on Microsoft’s search engine, Bing. The development has the potential for the newspaper industry to finally generate revenue from online news beyond advertising.

A spokesperson for Microsoft was not immediately available for comment. A News Corporation spokeswoman declined to comment.

Microsoft executives have been clear about their intentions to pursue bold measures – and tap into the company’s vast cash reserves – to disrupt Google’s dominant position in the search market.

In a recent interview, Steven Ballmer, the chief executive of Microsoft, noted that Google handled about six times as many search queries as Microsoft, while also producing more than six times as much revenue.

It’s unclear how a partnership with news organizations that fragmented search results and content on the Internet would be received. The notion of walled-off communities on the web falls into a thorny area of debate.

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As I write this from real estate disaster-ridden but still-glorious Los Angeles, I read much speculation that the recession is over.

The stock market has rallied explosively. Foreign markets in both the developing world and the developed world have done spectacularly well. China is unbelievably up after an unimaginably gruesome crash.

Even the poor beaten-to-death REIT sector has gained dramatically lately. Credit is supposedly flowing to at least some sectors (barely mortgages and small business yet), and the big banks look incomparably more solid than we feared just a year ago. Retail is showing signs of life, and even home sales are up and prices look to have stabilized in many areas. Unemployment is still gruesome but it is always the last thing to improve.

So, now, beloved class, what can we say we have learned from this recession, its runup, and its aftermath, if we are in fact in the aftermath?

1. Economic forecasting is still an extremely difficult gambit and nowhere near a science. It is a lot more like astrology than mathematics. As the recession bore down on us, the great majority of economic seers said it was not going to happen or if it did happen, it would be mild.

In fact, the recession turned out to be long-lasting and severe. Not one person I know foresaw that the government would allow Lehman Brothers to fail and thus simply shoot investor, borrower, lender, consumer, and employer confidence in the head. As dismal as Henry Paulson appeared, no one dreamed he would be that foolish.

Perhaps more worrisome, as the recession ground on, the top dogs in economics said it would last indefinitely. Many truly big names said it would turn into a genuine Depression, with prolonged unemployment approaching depression-era levels of one in four or five workers. This now looks extremely unlikely.

Even the auto sector, consigned to the scrap heap not long ago, has rallied, although whether it has legs much beyond the incredible "cash for clunkers" boondoggle is still unresolved. Hardly any of this was foreseen by the powers that be. The realm of economic forecasting is still a murky, lawless place.

2. Financial market forecasting is even more troublesome than economic forecasting. Hardly anyone I am aware of got the recent stock market recovery right. No one saw a recovery of roughly 60% in broad indices in the span from early March to mid-November. To the contrary, even in the spring, I was getting e-mails from people "in the know" seeing a bottomless pit for the stock markets.

3. The amount of lying and deception by the financial sector of this country has been breathtaking. The banks lied about the risks they were taking on, about the amount of their exposure, about how well capitalized they were, and about their prospects for survival. Throughout the financial sector there was similar deceit.

The fact that so much fraud can go on with no one getting punished for it is terrifying to the investor. Major players in finance were playing a truly staggering game of deceit — selling pension funds CMOs while at the same time selling the same instruments or derivatives attached to them short. This is betrayal of trust on a scale that even I, as someone who looks at The Street with a gimlet eye, could scarcely have imagined.

4. The government has no special abilities to forecast or predict a darned thing. Alan Greenspan, former head of the Fed, a truly wonderful man and a smart economist, not only did not see the crash, but did not see the bubble preceding it. Not only did he not see it, he thought it was an economic impossibility.

Ben Bernanke, the current head of the Fed and a helpful man of immense goodwill, did not see the possibility of a housing bubble and a crash when he was chairman of the President’s Council of Economic Advisers. He also did not think the pre-retirees of this country were in any kind of serious trouble. This shows a genuine inability to see the obvious.

Once he got to be head of the Fed, he did not see the severity of the crisis. He especially did not see the disaster that would result from failure to rescue Lehman. This went beyond ordinary mistakes.

As to former Treasury Secretary Henry Paulson, let us say a prayer for people like us who have rulers as arrogant and incompetent as he was. As to the current Treasury Secretary, Timothy Geithner, he also failed to see the crisis coming and failed to see how vital it was to rescue Lehman. He has definitely gotten better on the job, but whether he works for the taxpayers or for Goldman Sachs (GS, Fortune 500) is extremely questionable in my little mind.

Lessons for the investor

There is much more that could be said about the lessons of the crash and the recession, but there are lessons to be learned about individual investor behavior that are critical, too.

One important one: liquidity in a very secure form is a beautiful thing. Those persons who had a lot of cash or Treasury bonds or otherwise insured savings had a much more restful and happier recession than others with almost all of their money tied up in stocks or real estate.

If I had only one lesson to offer investors, it would be to keep invested in both stocks and bonds and keep plenty of liquidity in good times and bad.

Secretary Geithner’s "stress tests" which reassured investors about banks, was a brilliant idea and has worked wonders. But the timing and efficacy of government bailouts is very much in doubt on any short-term basis, and brings up a final important lesson: It is up to the prudence and foresight of the ordinary investor to save the ordinary investor and his or her family. The government will not and cannot do it for you.

You must be diversified between different asset classes and you must maintain liquidity. And you have to assume that the worst can happen and plan accordingly, which means having not just a bare minimum but somewhat more. We have just had a scary episode and a close shave, and we do not know for sure that the nightmare is over.

Learn the lessons and act as if the worst could happen again at any time. It can and it will. Let us pray a recovery is happening — but let us also tighten our helmet straps.

And another little note … my much-missed father used to tell me with great approval Adam Smith’s famous quote regarding prophecies of doom for America, "there is a lot of ruin in a nation."

I was moved to recall this when I saw Warren Buffett’s optimistic read on the economy at a great ‘town hall" he gave with Bill Gates at Columbia recently. In answer to a query about the short-term future of the market, he waved aside "what’s going to happen tomorrow" and instead said, regarding America, something like, "If you have a good farm, with good crops and good soil and you know you’re going to have five droughts in the next fifty years, you don’t let it affect you that much."

I am paraphrasing here, because I saw it on CNBC while eating dinner, but perhaps Buffett’s meaning was, "Don’t sell America short." At least not for the long run.

Ben Stein is a lawyer, actor, writer, and economist, who also appears in commercials as a spokesman for various companies.  

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Former Bear Stearns hedge fund manager Matthew Tannin, on trial for fraud and lying to investors early in the financial crisis, might have made strategic mistakes but he did not conspire with colleagues to commit a crime, his lawyer said on Thursday.

A New York jury also heard testimony from a wealthy investor who said he would have pulled money from a Bear Stearns Asset Management fund had he known Tannin’s boss and co-defendant, Ralph Cioffi, transferred $2 million of his own money to another fund.

Cioffi, 53, and Tannin, 48, have denied charges of fraud and conspiracy in a June 2008 indictment that made them the first high-profile Wall Streeters to face criminal charges stemming from problems with subprime mortgages and overall market liquidity.

Cioffi is also accused of insider trading over the transfer, a charge his lawyer described as “ridiculous” in his opening statement on Wednesday. He said Cioffi was not required to give notice to investors over decisions about his personal investments in the funds he managed.

“I would have pulled my money out. Why? If he didn’t have faith in what he was doing, why should I?” Howard Brown, chief executive officer of Rentacrate LLC, said under questioning by U.S. prosecutor James McGovern.

Brown, the first witness called by the government, said he lost a little more than $3 million. He first invested with one of Cioffi’s funds in mid-2006. Statements from the fund did not show a negative month until a drop of 6 percent in May 2007, which he told the court was “quite a shocker.”

Cioffi and Tannin managed two hedge funds that collapsed in mid-2007, costing investors — some of them large banks — between $1.4 billion to $1.6 billion. The funds were crammed with collateralized debt obligations (CDOs), securities backed by pools of debt that included subprime mortgage-backed securities.

Neither man is charged with contributing to the demise of Bear Stearns Cos not long after the funds collapsed. The company was sold to JPMorgan Chase & Co in a government-backed deal.

FEARS IN EMAILS

Emails written by Cioffi and Tannin are key to the government’s charges that they intended to deceive investors at an early stage in the subprime market meltdown.

“No one can lie about what the future will bring because nobody knows what the future will bring,” Tannin’s lead lawyer, Susan Brune, told the jury in her opening statement on Thursday in U.S. District Court in Brooklyn.

“He tried to foster debate, think through all the options and he used emails to foster that kind of debate,” Brune said.

Prosecutors contend that by March 2007 — more than 18 months before the full extent of the global financial crisis became clear — the pair promoted the funds to investors while privately emailing their fears about a possible market calamity.

Brune addressed a lengthy April 22, 2007, email by Tannin to Cioffi and another colleague, one paragraph of which was highlighted in the indictment. Tannin presents two extreme positions: either closing the funds or aggressive investment following an internal company report on CDOs.

He wrote that if the report was at all accurate “then the subprime market is toast” and the funds should be closed. 

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It’s that time again.

Home price season.

In the last few days, real estate watchers have been treated to a feast of new numbers, the very latest data on where the housing market is heading.

It comes in a flurry every month about now, reports from the National Association of Realtors, the Federal Housing Finance Agency, something called the S&P Case-Shiller Index, and a host of lesser known outfits like First American CoreLogic, Trulia and Zillow.

And it can be enough to make your head spin.

Tuesday, for instance, Case-Shiller reported that home prices nationwide were up in the second quarter by the most in three years, but they’re still down 14.9 percent from last year. FHFA, however, said prices fell in the second quarter versus the first quarter, but were down just 6.1 percent year-over-year. Earlier this month the National Association of Realtors reported median prices down 15.6 percent from last year, to $174,100.

"There are lots of different indicators," said Richard DeKaser, president of Woodley Park Research in Washington and former chief economist at National City Corp. "And they’re not always in harmony."

These numbers matter because they influence what we think our home is worth, how much we’ll sell for and how much we’ll pay to buy one. And they matter because they’re the closest thing we have to a real-time readout on the housing market, which many say must show signs of life if the broader economy is to recover.

So how will we recognize those signs?

Actually, housing economists say, the various reports will start to look like they’re looking now, with the arrows pointing more or less upward, or at least less down.

"The housing market probably hit bottom this spring and is now in the early stages of a recovery," DeKaser said. "With each month we’ll get more data to either confirm or refute it. I’d say within a couple of months we ought to have a more firm picture."

Still, the reports all say slightly different things. Because they’re all asking slightly different questions.

The Realtors, for instance, track the median price of homes sold by their members nationwide. The median is the point at which half of homes are sold for more, and half for less, and it can be skewed by what’s on the market.

Right now, there’s a lot of homes being sold at bargain prices because of foreclosures, and a lot to first-time home buyers, who tend to spend less. Higher-end homes are moving slowly. Since cheaper homes make up more of the market, they’re pulling that median down — in the St. Louis region it’s off 10.1 percent over the last year.

The FHFA index tries to count repeat sales — how much a home that sold for, say, $250,000 in 2004 would sell for today. But it’s based on data collected from lending giants Fannie Mae and Freddie Mac, and doesn’t count so-called "jumbo loans" — anything above $417,000 in St. Louis. So, experts say, it can underestimate market shifts.

Case-Shiller also measures repeat sales, but it can have the opposite effect, overestimating swings at the high end. That’s because it weights sales by the price of the home. In its formula, a $500,000 house counts significantly more than a $250,000 one. And its 20-city index, which doesn’t include St. Louis, is skewed toward pricier coastal markets.

"In a sense they’re apples and oranges," said Kevin Kliesen, an economist at the Federal Reserve Bank of St. Louis.

Most economists recommend splitting the difference, and tracking other indicators like building permits, inventories of unsold homes and foreclosure rates.

But, real estate agents note, most homeowners don’t have that kind of time, or a Ph.D. in economics. Often, they’ll just catch a headline. Or maybe check out one of the many websites, like Realtor.com or Zillow, that try to estimate what a house is worth.

"That can set a false expectation," said Shawn Kelsey, general manager of the Kelsey Group Realtors in Chesterfield.

Indeed, Kelsey occasionally plugs his Ballwin three-bedroom into a half-dozen of those sites, just to see what they say.

Earlier this month, Realtor.com told him the house was worth $203,252. Home Gain came in nearly twice as high: $402,030. When he compared those numbers to February, three websites said his house had gained value. Three said it had lost.

"Who does the buyer choose to believe?" Kelsey said. "Who does the seller choose to believe?

"Whichever one benefits them the most."

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Moody’s Investors Service, already under fire over its role in the U.S. mortgage crisis, took another blow on Wednesday as it launched an external investigation after a report that it wrongly assigned triple-A ratings to complex European debt products.

Shares of Moody’s Corp (MCO.N: Quote, Profile, Research) closed almost 16 percent lower, the most ever in a single day, after the Financial Times newspaper said a coding error in a Moody’s computer model caused the products to be given a rating four notches higher than they merited.

Moody’s said in a statement it recently hired law firm Sullivan & Cromwell and initiated a “thorough external review” of its rating process for the securities and would take any appropriate actions after the review is completed.

The FT reported that internal Moody’s documents the newspaper had obtained showed the agency had discovered the error early in 2007.

Moody’s corrected the coding glitch at that time and instituted changes to its methodology, the FT said free credit report and score. But the products, called constant proportion debt obligations, or CPDOs, kept their triple-A rating until January 2008, when turmoil in financial markets worldwide led to hefty downgrades, the newspaper reported.

Moody’s said in a statement it rated 44 European CPDO tranches totaling about $4 billion.

A Moody’s spokesman said the company hired the law firm to conduct the review after it heard the FT’s story was in the works.

“This is a serious hit,” said Andrea Cicione, a credit strategist at BNP Paribas. “The FT is reporting that some people in (Moody’s) have known about the problem since early 2007. Clearly the (ratings) should have been lowered.” 

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