From Fox News: Did Paramount run out of development money this month? A few days ago I was told by sources at the studio that production companies were instructed that if they wanted to option new projects, they had to take money out of their discretionary funds. Otherwise, the well, it would seem, has temporarily run dry.

“They said they’d pay them back in January,” a Paramount insider told me.

Now comes the news that Paramount has severed ties with Tom Cruise amid disputes over money and style. So little makes sense this morning about the stunning war between Tom Cruise and Paramount Pictures that it’s hard to know where to begin. That’s what my sources on the inside say, and I have to agree with them. But the budget problems at the studio – not helped by disappointing “Mission: Impossible III” numbers – could easily be at the root.

To catch you up: Last night, Viacom chief Sumner Redstone essentially told the Wall Street Journal that Cruise was fired after 14 years of doing business with Paramount. This despite published reports that Cruise’s films have accounted for 32 percent of Paramount Pictures’ revenues in the last 6 years.

True, “Mission: Impossible III” has been a financial disappointment. But Redstone went to great lengths to say he was ending Cruise’s production deal because of his “bad behavior.” The financial aspect was not emphasized. But let’s put finances first: Three weeks ago, it was revealed that Paramount wanted to downsize Cruise’s deal from $10 million to $2 million. Cruise’s lawyer Bert Fields told the press that he’d received a proposal from Paramount and was “digesting” it.

However, my sources say the current deal with Cruise’s production company, Cruise/Wagner, was only about $3 million, and that Paramount leaked the higher figure to make it seem more “egregious.” This was a good PR move. Cruise/Wagner certainly wasn’t going to dispute the $10 million number. It sounded too important. The $3 million would have sounded low and beneath Cruise, should it come out.

But back to the bad behavior: Redstone cited Cruise’s infamous Oprah couch jumping, his interview with Matt Lauer on the “Today” show as well as his attack on Brooke Shields over pharmacological drugs. All of these incidents occurred during the May 2005 promotion of “War of the Worlds,” a movie that turned out to be Cruise and director Steven Spielberg’s most successful project in a long time.

“If they were so upset with Tom’s bad behavior,” says one Paramount insider, “then why did they green-light “Mission: Impossible III” after that?” Indeed, the movie didn’t start shooting until July, a month after “War of the Worlds” opened. If Redstone didn’t like Cruise’s style, he could have pulled out of “Mission” then, at far less cost to the studio.

More significantly, Hollywood insiders are cackling over the “bad behavior” excuse in light of Paramount studio chief Brad Grey’s current legal headaches. For months, Grey has been a central figure in the ongoing Anthony Pellicano scandal. At least one grand jury as well as the FBI has interviewed him, and producer Vincent “Bo” Zenga is suing him.

Zenga, citing evidence in the case against Pellicano, claims he and his family were illegally wiretapped at Grey’s request in 2001, during another lawsuit. Grey is currently fighting against having to be deposed in this new case. It’s likely that he would invoke the Fifth Amendment if he has to be questioned by Zenga’s attorneys.

“So you have Grey lying, or Cruise lying … on a couch,” quipped one observer. “Which is worse behavior?”

All the complex and incestuous ties don’t help the whole Paramount-Cruise story. For instance, Cruise is represented by Fields, another main subject in the Pellicano investigation. At the same time, the government claims in its indictment that Pellicano illegally investigated Creative Artists Agency higher-ups Kevin Huvane and Bryan Lourd. This was done, they say, on behalf of their former boss Michael Ovitz.

To make matters more complicated, Cruise’s producer partner is Paula Wagner, wife of Rick Nicita, Cruise’s agent at Creative Artists Agency. If nothing else, Paramount now has the problem of CAA – with its huge roster of important clients – freezing them out.

One of those heavy-hitter CAA clients is Spielberg, and it is here that things get very murky. Spielberg straddles the fence, being both a CAA client and a Paramount principal, thanks to Paramount’s acquisition of DreamWorks. One might assume that Paramount would not sever its ties with Cruise unless Spielberg gave his blessing. After all, he’s made “Minority Report” and “War of the Worlds” with the actor, each a successful film in its own right.

But Spielberg may have chosen Paramount/DreamWorks over CAA in this case. There has been a sense in Hollywood for a long time now of a rift between the Cruise and the director, starting with Cruise’s installation of mini Scientology centers on the set of “War of the Worlds.”

Recently, Spielberg was surprised – no, make that shocked – when Cruise showed up unannounced in Chicago a couple of months ago to present him with an award. For Cruise, who is nothing if not calculating, it was a highly political move designed to repair a badly broken and much needed alliance.

But there’s more bad blood between Cruise and Viacom. The company took a PR hit earlier this spring over the “South Park” episode that lampooned Cruise for his Scientology beliefs. If you recall, Cruise threatened to back out of his “Mission: Impossible III” promotional duties if Viacom didn’t pull a repeat of the episode, called “Trapped in the Closet,” off the schedule at their Comedy Central cable channel. Viacom complied.

But more recently, when “Trapped in the Closet” was restored to Comedy Central, maybe someone should have seen it as a subtle sign that Cruise’s “days of thunder” were numbered. The piece de resistance? Paramount signing new deals today with the creators of South Park for more movies.

The next questions will be about Cruise. Is he finished in Hollywood? Absolutely not. Wagner says there’s a $100 million deal in place with two hedge funds to start an independent production company. No names were given, but you can be assured that all eyes will be on this deal to see if the money is coming from the Church of Scientology or anyone remotely associated with it.

At the same time, Cruise/Wagner doesn’t have to go the indie route at all. As one insider pointed out, Warner Bros. would take them “in an instant.” The deal might be the same as they’d gotten at Paramount, “but Warner’s would announce it as the biggest ever.” After the triple disappointments this summer of “Superman Returns,” “Lady in the Water” and “Poseidon,” Warner’s could do worse than to bring in Cruise.

Plus, Warner’s is facing the potential embarrassment of seeing Clint Eastwood – their long-time standard bearer – releasing an Oscar-hyped movie elsewhere this fall. The irony here is that “Flag of Our Fathers” will be distributed by none other than DreamWorks, which means Paramount. By signing Cruise/Wagner and putting Cruise into a hit, Warner’s could stick it to Paramount quite nicely.