The bizarre bad news keeps relentlessly rolling in: General Electric and its financial arm GE Capital threatened with the loss of their blue chip AAA credit rating, German business confidence plunging to record lows and the European Commission bending state rules to allow governments to replace banks as lenders to small and medium businesses.

Yup. Just another day and night of activity in the shrinking real economy where what was considered bizarre just a few months ago is becoming the norm.

Standard and Poor’s put GE and GE Capital on credit watch negative and warned that the cherished AAA rating could go within two years if the company’s new plans to meet the impact of the recession don’t help improve the business.

GE Capital’s “earnings deterioration in 2009 and 2010 could be greater than we previously assumed,” the S&P analysts wrote. “The outlook revision reflects the continuing risks posed by GECC’s reliance on confidence-sensitive wholesale funding, despite the benefits of temporary US government support programs and of management’s ongoing efforts.”

In Australia we know GE Capital is suffering: it has abandoned home lending, car lending and small business ventures. Wizard Home Loans is being sold and in New Zealand the rest of its business is lacking support from the US parent. There is very little GE Australia commercial paper floating around now because no-one wants to hold it.

Take job losses and cost cutting: normally it’s prudent to swing the axe like Sony (16,000) and Rio Tinto are doing (14,000).

But there are other ways to slash and burn — workers at UK construction equipment group JB Case are looking at cutting their own wages to save jobs and keep businesses going: employees at Corus Steel (owned by Tata of India) are looking at wage cuts in the UK to save a Welsh steel plant, and now Federal Express, the giant US air freight group, is cutting the wages of its CEO and all 36,000 salaried workers, who make up 16% of the company’s enormous workforce.

And banking giant Credit Suisse revealed overnight that it is to give its top employees shares in a new $US5 billion fund of illiquid assets in a move intended to link pay to the long-term performance of credit markets and limit the bank’s exposure to the securities. Now that’s aligning pay and shareholder value. Just the thing for the Commonwealth Bank to consider here after its bad debts bill blew out to $2.5 billion (which is what the fuss this week is really all about).

The new structure, announced overnight, is the most radical so far announced by any financial group to try and revamp their compensation policies in an effort to pacify shareholders, regulators and politicians upset by mortgage-related losses, widespread falls in share prices and taxpayer paid-for rescue schemes.

Credit Suisse bankers not involved in mortgages, leveraged loans and other loss-making dodgy deals might be upset, but it’s not a workers market out there for banks and brokers at the moment.

The announcement that has really attracted attention came from Fed Ex. The company has already cut some jobs, working hours, trucking time and other moves to trim $US1 billion from costs.

Economists have wondered why wages don’t fall more dramatically in downturns, and why many employees and companies don’t look at accepting widespread wage cuts instead of huge job cuts. In fact there’s a whole lot of research on this from the 1992 recession. The biggest US electricals retailer, Best Buy, this week circulated a voluntary redundancy scheme to all 4,000 salaried employees, giving them the option of putting their hand up first.

Fed Ex doesn’t have many union employees among its salaried staff, so it could be an exception, but the idea is gaining more traction and will be used more as the recession deepens next year.

Those employees at JB Case and Corus are fully unionised and they have considered and offered wage cuts to keep businesses alive, which is a significant change in the normally bolshie British labour market.

And with the possibility of price deflation around the corner, in 12 months’ time that 5% wage cut may have been offset by a big drop in retail and other prices (and of course a deeper recession!).