The American journalist was once a notoriously hard-boiled character with sharp elbows and a press pass tucked into the band of his fedora.

In the era of the classic film The Front Page, set in the 1920s, reporters from rival city dailies used their most devious means to get the drop on the rest and claim a scoop.

Now those local stories may be “outsourced” to be written by a low-paid journalist in India and posted on the internet instead.

The US newspaper industry is in a full-blown crisis that has seen its business model dynamited by technology and its dwindling prospects threatened by the financial meltdown, which has, in effect, forced advertising revenue off a cliff.

In the past week the Tribune Company, which owns the Chicago Tribune and the Los Angeles Times, has sought bankruptcy protection from its creditors.

The sense of gloom emanating from staff at the two newspapers was heightened by prosecutors' allegations that the disgraced Illinois Governor Rod Blagojevich had tried to force Sam Zell, the new owner of Tribune Company, to dismiss Chicago Tribune editorial writers who had called for his impeachment.

As the FBI issued subpoenas, Mr Zell said - to some scepticism - that it was news to him.

The atmosphere at the Los Angeles Times was already so sour that a group of current and former reporters had filed a suit challenging Mr Zell's acquisition of the company. An insider set up a blog for disgruntled staff entitled “Tell Zell”.

Post-bankruptcy, the columnist Joel Stein began his piece yesterday by writing: “This column may not meet the high levels of quality to which I have made you accustomed. That's because I haven't been getting paid.”

He went on in similarly acerbic tone: “I immediately e-mailed Zell's office and offered to let him work off the debt. My first choice, I explained, would be to have him do stuff around my house, because I'm two years into a six-month renovation and no one is showing up any more. But I also gave him the option of doing something that plays to his talents: accounting work.”

Also this week, The New York Times, the venerable “Old Gray Lady” of American journalism, announced that it would mortgage its prestigious new Renzo Piano-designed headquarters in Times Square in an effort to raise money.

“There is no quick, easy response to the sea changes already disrupting our industry before the financial meltdown of this fall,” Katharine Weymouth, the Washington Post publisher, said in a bleak memo to her staff. At least 30 daily newspapers are up for sale around the country, including famous names such as The Miami Herald. Some local institutions, such as the 149-year-old Rocky Mountain News in Colorado, are in danger of folding altogether. The revived New York Sun has already closed its doors and the Christian Science Monitor has decided to print only once a week.

The Paper Cuts blog, which tracks redundancies, counts 15,153 newspaper lay-offs in America so far this year. The prognosis is so bad that some say the industry has reached a “General Motors moment” when it can no longer be profitable and needs a car industry-style bailout.

Writing in the New Republic magazine Mark Pinsky, a former Orlando Sentinel reporter, proposed that Barack Obama revive the Depression-era Federal Writers Project to put unemployed journalists to work.

“Today, there are many dislocated ‘old media' journalists from newspapers, radio and television on the street - here I declare my personal interest, as one of them - who could provide a skilled pool to staff a new FWP,” Mr Pinsky wrote.

It is all a far cry from the heyday of swashbuckling press barons a century ago, such as William Randolph Hearst, the model for Orson Welles's Citizen Kane, and New York World publisher Joseph Pulitzer, who gave his name to the prestigious prizes.

The era gave birth to the pejorative term “yellow journalism” because of a Hearst-Pulitzer war to get control of a popular comic strip called Hogan's Alley, featuring an urchin named The Yellow Kid. Hearst enjoyed so much power that he is once, famously, said to have cabled an artist on assignment for his New York Journal in Cuba in 1898: “You furnish the pictures and I'll furnish the war.”

The golden age lasted half a century, from 1880 to 1930. At its peak, America boasted 2,600 daily newspapers, with at least half a dozen in every large city. New York alone once had nearly 30 daily newspapers.

David Laventhol, the respected former publisher of The Los Angeles Times and president of Times-Mirror, said newspaper industry leaders had failed to confront the challenge of new technology. “It's never happened before at this level and they have not handled it well at all. They have put so much emphasis on the cost side they are losing their product,” he said.

A rare exception is last year's $5 billion purchase of Dow Jones Co, which owns The Wall Street Journal, by News Corporation, parent company of The Times. After a bitter takeover battle, the acquisition has earned Rupert Murdoch - News Corp's chairman and chief executive - a determined critic of the newspaper naysayers - some grudging respect among the American journalistic establishment for daring to invest in the troubled sector. “One of the key people is Rupert Murdoch. He thinks newspapers can function in this new society,” Mr Laventhol said.

The industry faces an insurgency on the internet from news portals such as the Drudge Report, the Huffington Post, and the Daily Beast, founded by Tina Brown, the former British editor of the New Yorker and Vanity Fair.

Perhaps the most controversial upstart, however, is a “mom-and-pop” news site in Pasadena, California, called PasadenaNow.

James Macpherson, the site's founder, has outraged journalistic purists by “offshoring” stories to news writers in India, who are paid $7.50 (£5) for 1,000 words. Mr Macpherson admits that he does not know where half of his six Indian news writers live; he sends them raw material such as press releases, web video or transcribed interviews, which they turn into news stories .

“I have reinvigorated the way in the 1920s and 1930s legmen worked with a rewrite desk, with a technological bent. The rewrite man in this case might be in Bangalore,” he said.

“The technology today allows us to cover Pasadena and send it to writers in India, the way the conflict in Afghanistan is covered and the drones are controlled from Nevada.”

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