NYSE to Close in Ford's Honor (WSJ) We grew up believing that Gerald Ford was at best a joke and at worst an enemy. It's still hard to not think of Chevy Chase's pratfalls when we hear his name. And his choice of liberal Republican plutocrat Nelson Rockefeller as vice-president marked him as not only on the wrong side of history but on the wrong side, period. In the years since he exited the stage of national politics the best thing that can be said is that he stayed off stage, no small feat in the age of ex-presidents as global superheroes. But we'll give this to him: the man knew when to die. The NYSE, the America Stock Exchange, the Chicago Board Options Exchange and the CBOE Futures Exchange have all announced they will be closed on Tuesday in observance of a national day of mourning for Ford. And now the banks are sending out memos giving everyone the day off as well. Which means we hit this New Year's Eve weekend with four days off—and an extra day to recover from the damage we plan to do to ourselves, our loved ones, our livers and our souls on Sunday night. So here's to Ford. In the end, not such a bad guy.

Apple Probe Finds Jobs Recommended Some Grants (WSJ) Here's an Apple commercial you won't see—the one where Hodgeman comes on asking why the hell the Mac guy is always so effin smug, and the Mac guy replies that not only did he get backdated options but he's totally getting away with it. Look, we've said again and again that, for the most part, backdating was a phony scandal. And nothing illustrates this better than what happened with Steve Jobs' backdated options grants. You see, Jobs got two grants that were pegged to earlier dates, essentially giving him options that would be priced cheaper than if they were dated on the correct date. But these were later cancelled when the company gave Jobs a bunch of restricted stock. Now if you keep in mind that restricted stock is basically an option with an exercise price of zero, you can understand why scandalizing backdating is so silly. A cheaper option is a crime but a free grant isn't? It's a wonderful world.

Hedge Hogging (New York Post) The limits of the insider trading laws are a bit fuzzy, in part because so few of those charged actually go to trial. Except for the most obviously criminal enterprises—such as this year's Plotkin Plot—the SEC settles most insider trading cases out of court, which means that there actually isn't much in the way of legal precedent testing the limits of the laws. So you can bet on some legal fireworks in the case of John Mangan, a co-founder of Mangan & McColl Partners, who was accused by the SEC yesterday of insider trading. Mangan is accused of gaming a PIPE of CompuDyne stock, and plans defend himself by claiming it was just a bureaucratic mix-up. The outcome of the case could provide guidance for how banks and hedge funds can be held liable for screwing up trading executions.

Bringing Back The Brick (GrooveKing) Nothing says classic Wall Street like the old brick cellular phone. Now someone has gone and figured out how to get one of these babies working again by tearing out the insides and using Bluetooth technology to bring it up to date. Bess, we finally found a Hanukah gift for you.

And That Was 2006: The entire DealBreaker team wishes you a happy New Year. We'll be back on a full schedule next week. See you in 2007.

Bernanke Recovers From Missteps to Earn Inflation Credibility (Bloomberg)

After early doubts about the Fed chief's commitment to fighting inflation and charges that he was too candid about policy, investors are now giving the 53-year-old Bernanke a vote of confidence. The yield on the benchmark 10-year Treasury note has fallen to 4.65 percent -- from 5.25 percent in June -- even though he stopped raising interest rates in August with inflation above his declared comfort level.

SEC Charges Trader (The Street) The SEC has filed a suit against John Mangan Jr., a former hedge fund manager, for the alleged insider trading of shares in a small company involved in private placement. The lawsuit is the “latest in a long string of regulatory actions to stem from the investigation into allegations of improper trading in [a 2001 investment in PIPE], which raised $12 million for Compudyne, a Maryland security-services company.

Apple ‘falsified’ files on Jobs’ options (Financial Times) Stevie-boy Jobs was reportedly given 7.5 million stock options back in 2001 sans the pesky little “required authorization” from Apple’s board of directors.

Records that purported to show a full board meeting had taken place to approve Mr. Jobs’ remuneration, as required by Apple’s procedures, were later falsified. These are now among the pieces of evidence being weighed by the Securities and Exchange Commission as it decides whether to pursue a case against the company or any individuals over the affair, according to these people.

Still adamant in his desire to “F the S.E.C,” Jobs apparently continued today barraging reporters with threats pointed toward the government organization in regards to his purported might as bizarrely derived by a recent series of television ads produced by Apple. “Have you seen our ‘I’m a MAC/I’m a P.C. commercials?” he was heard asking a reporter in a tone that was best described as sounding “psychotic.” “If you’d seen them you’d know the S.E.C. don’t have shit on me.” “No, really, I’m not kidding you, if you can’t agree with the statement ‘That Hodgman get my goat every time,’ you haven’t seen the commercials. Most people think the one with them in the boxes is the best but I think the best one is when P.C. and MAC are at a “marriage counselor” and they’re talking about how P.C. feels inadequate compared to MAC and oh my god it’s just hilarious, they’re pretending to be like a husband and wife, I kid you not, I’m in stitches every time I see that one. STICHES! I’m not kidding. I love those ads. I love them. I love them. [whispering] I love them. I love…[trails off].”

Seagate CEO apologizes for porn remark (Fortune) We just like that headline. Sue us for living.

PAYOLA SCORES ANOTHER $4.25M (NYP) Shocker: Hurricane Spitzer strikes again.

Lindsay gets a visit from Mr. Flash (WallStrip)

Dow Runs to New Record (The Street) Despite light trading, the Dow closed at a new record today, finishing at 12,511, thanks to gains in Alcoa, Citigroup, and GM. Over the past two days, only 1.67 billion shares were traded on the NYSE, while the NASDAQ only traded 1.24. Tomorrow could be the last day in 2006 for Wall Street, as trading may be cancelled in light of former President Ford’s death. Four-day weekend? Yes please.

Merrill brokers get plum (NYDN) Merrill Lynch’s 2007 Focus on Growth bonus program will very sweetly reward brokers who bring “lots of revenue into the firm,” while still increasing fee-based business.

Brokers who are growing their business can achieve a much greater award under the production-based program than under the current scheme, according to an internal memo. Bonuses of 10%, 20% and 30% of the commissions and fees produced over the past 12 months are available, according to people briefed on its specifics. Since advisers at Merrill Lynch on average take home about 40% of the revenue they produce as base pay, those who win the top bonuses theoretically could end up taking home more than 70% of their production.

Trump mortgage chief inflated resume (Money) Not that the whole “Miss Teen USA is a cokehead, Trump, arbiter of all things moral and not etc may or may not pardon her, TONIGHT! on things we're too educated well-bred coked-out ourselves to work up the energy to get our panties in a bunch over but will watch because, honestly, who knows where the remote is Network” and Big D and Big O’D, Live at the Garden were getting stale but…you know how it is. We needed some fresh meat. Apparently the big guy heard our prayers and said, “I think I’ve got something you might like, if you’ll just step over here, and take a look in the trunk of my car, I’m sure we can find something you’d be interested in.” E.J. Ridings, the man brought into Trump Mortgage to “inject integrity into an industry that has the reputation for giving customers a raw deal” may have given old Donny-boy the “raw deal” himself.

First, Ridings' initial bio stated that before joining the company he was "a top executive at one of Wall Street's most prestigious investment banks." Second, the bio had said that Ridings was an "established leader" at one of New York's leading mortgage boutiques. Third, the bio said he had 15 years of experience in the financial industry. All three claims appear to be false, according to regulatory documents obtained by Money and interviews with former colleagues of Ridings.

Ridings, 42, has never been a top professional on Wall Street. Ridings, in an interview with Money in September, said the "top-executive" reference in his bio refers to an 18-month period in which he was a retail stockbroker at Morgan Stanley.

Absence of Reports Keeps Trading Light (AP) C'mon, you know the drill-- lower oil prices.

Report: Apple Probed on Stock Options (Forbes)

Shares of Apple Computer Inc. fell almost 5 percent in early trading Wednesday after a legal publication reported that federal prosecutors are probing whether former company executives forged documents to maximize executives' stock option profits.

U.S. regulator does turnabout on stock options reporting rule (International Herald Tribune)

The U.S. Securities and Exchange Commission, in a move announced late on the last business day before Christmas, reversed a decision it made in July and adopted a rule that would allow many companies to report significantly lower total compensation for top executives.

The change in the way grants of stock options are to be explained to investors is a victory for corporations that had opposed the rule when it was issued in July, and a defeat for institutional investors that had backed the SEC's original rule.

Finally, justice for corporate America. [fist pump] Finally. [chest bumps all around]

Philip Morris Altria rebrands Lindsay [WallStrip]

Ex-Trader Tells Story as a Warning (NYT)
After you’ve lost $1.3 billion in Japanese stock futures and bonds, run your employer into the ground, provoked the ire of the Queen of England and served four years in prison, there isn’t much left to check off on the Things To Do Before I Die list, save for serving as the general manager of an Irish soccer club, is there? Nicholas W. Leeson, a 39-year-old Londoner who has the distinct pleasure of having accomplished all of the aforementioned, begs to differ. The “Rogue Trader,” who began working for Barings Bank in 1989 and had no small part in its ’95 $1 billion-in-losses-collapse, now tells his cautionary tale to the tune of £5,000 ($9,800) a speech, in addition to a book deal and the general contentment of being able to say Hey, I may have lost a 233 year old bank a pretty penny, but now I’m turning the tables on them and insisting “The British bank was culpable for failing to supervise [me] and for accepting the bluster of a young trader who was prepared to disguise his trading losses.” You can’t put a price tag on that kind of satisfaction.

Bernanke, Fukui, Trichet May Fail King's `Boring' Test on Rates (Bloomberg)
2006: skinny jeans, Aleksey Vayner, Jim Cramer bobble heads, predictability. 2007: mini-skirts, Valentin Mironov, Jim Cramer dashboard dolls*, volatility. Analysts are expecting a global economy with both slowed growth and inflation; Goldman predicts Bernanke will cut the Fed’s rate to 4.5 percent, Barclays thinks it’ll be kicked up to 6. John Lipsky foresees “reasons why you should worry that [things] could be dicier.”

Questions for Peter Singer (NYT Magazine)
In case you missed it, Peter Singer (the Ira W. DeCamp professor of bioethics at the Center for Human Values at Princeton University) answered Times Magazine readers’ questions about the ethics pertaining to spending and philanthropy over the weekend. Unsurprisingly, Singer is painfully principled (“Ultimately, I don't think my [minimal] indulgences can be justified. I know that I'm very far from being a saint. I should spend less on myself and give away more of what I earn. Of course, I give much more than most. But I know that that isn't the right standard. As for deciding how much is enough, I just do a little better each year”) and pragmatic (“I'm a pragmatist: whatever works”), but we’re pretty sure most of you will be willing to overlook such character flaws if only for the singular reason that Singer steps into the ring with Carney, Muhammad Yunis-style.

Winners and losers: Tallying a year of outsize successes and bitter disappointments (Bloomberg News via IHT)
“Where there’s a loser, there’s a winner,” is what our psychologically-damaging-to-an-11-year-old tennis coach used to tell us. But you know what? He was right. When somebody loses, somebody else wins. He was also right about the fact that there’s nothing wrong with seeking approval even if it brings one to the brink of a nervous breakdown, if it brings perceived satisfaction to those from whom we are seeking it. Maybe if Yahoo! had done a little more seeking and a little less sinking, it wouldn’t be watching YouTube get a pat on the back from Bloomberg on the other side of the court. We mean net. Internet. Why won't you love me?!

Biz-y day at some N.Y. shops (NYDN)
Having beat the dead horse that is the old “we’re out of ice” trick a few too many times, but still desperate to get out the house, consumers took to the streets and racked up nearly $16.2 billion in sales over the weekend. Too little, too late, however, for the economy’s sake, as sales are predicted to be up less than 5% nationally this holiday, the slowest pace since 2002.

New Year in Detroit (Forbes)
Jonathan Fahey’s tips for GM, Ford and Chrysler. Hint: turn a profit.

*like the hula girls? Don’t even try and act like you’re not psyched for those bad boys.

DealBreaker will be on a reduced publishing schedule this week. We'll be doing once-a-day news wrap-ups and the DealBreaker trifecta, Bess, Joe and Carney will return on January 2nd.

Happy Holidays from everyone at Dead Horse Media.

$$$The Holiday Emergency List [Banker's Ball]

$$$"I collect stamps, coins, and stones. And i have 6 cats...You should e-mail me." [Craigslist]

$$$ How to get an A on your 13-D. [Long or Short Capital]

"HOO-AH!!!" [copyranter]

DealBreaker spent some time with LX.TV up at the World Bar at the Trump World Tower.

The race to be Ron Perelman's fifth wife is still on, but Anna looks to be well in the lead.

Ronald Perelman is back with blond psychiatrist Anna Chapman, but there's another blonde on the scene. The Revlon billionaire had lunch Tuesday at Fred's with Elisabeth Roehm , who played the hot prosecutor in "Law & Order" a few seasons back and dated MSNBC's Dan Abrams. As much as Perelman enjoyed lunch, he is said to be very happily spending the holidays on his yacht in St. Barts with the brainy Chapman.

It might be hard to remember, but there was a time when James Cayne, the chief executive of Bear Stearns, enjoyed one of the biggest compensation packages on Wall Street. These days he barely qualifies for the finalist round, coming in with barely $34 million in total compensation. It's a wonder the man can make ends meet.

Bear Stearns Chief Gets $14.8 Million Stock Bonus [New York Times]

Ouch. So that's what "unlimited upside risk" means.

It never pays to bet against Santa Claus, especially around Christmas.

The same could be said, for that matter, for retail legend Mickey Drexler, too.

Hordes of investors lost their shirts by gambling that the stock price of Drexler's embattled casual-clothes chain J. Crew would tumble in his uphill battle to boost its sagging business.

The gloom-and-doom betting came from so-called "short sellers" who borrow shares and cash them out. When the stock falls, the shorts use their proceeds to buy new shares at an even lower price and then pocket the difference.

The stock was one of the most heavily shorted issues ahead of the holiday season, with one of every four shares traded in recent weeks in a short-seller play.

But the strategy blew up in the past several days when J. Crew said cash flows from the busy holiday soared to an eight-year high in Drexler's surprise turnaround.

Gawker reveals a help wanted ad for the hedge fund manager who has everything, except the time to raise hir or her own children.

A managing partner of a rapidly expanding $4 billion hedge fund (a multi-strategy credit opportunity fund that specializes in credit analysis and credit-related investments) located in Southern Fairfield County, CT is seeking an extremely organized, time efficient Personal Assistant/Executive Assistant who can take charge of the day-to-day functioning of the family and home office.

In addition to thriving in a business setting, the Personal Assistant must also enjoy working with children. You would work in the hedge fund office and also in the Managing Partner's home--both located in Southern Fairfield County, CT. Overall, the Managing Partner is seeking someone who feels intense ownership of the people she is supporting--and views herself as a professional who eagerly goes the extra mile.

The Totally Outsourced Hedge Fund Manager [Gawker]

$$$Mark Cuban thinks Donald Trump is a "chump." [Blog Maverick]

$$$A Home for Wall Streeters (Who Appreciate Beaver) [Banker's Ball]

$$$The Mad Money Mensch [Business Week]

$$$The Totally Outsourced Hedge Fund Manager [Gawker]

Normally, we try not to focus too much on the lives of journalists. But since we kind of made the "poverty of journalists" part of the bonus story with our quote in AM New York, we'll stretch our editorial scope a bit further in that direction in order to provide a bit of evidence to back up our claims.

Also, because his email is the "Email of the Day" (but, see our policy on these "of the day" features.)

To give you any idea of how totally crappy most journalists' Christmas bonuses are, if they even get one:

I was the business desk (editor, reporter, page designer) at a small chain-owned 30K daily. Christmas comes around and the company gives us certificates for $25 turkeys at the local grocery store. WTF am I going to do with $10/turkey, much less $25/turkey, I'm a single guy and if I turned the oven on in my bungalow it might blow up, I've never used it. And what really grinds me is that I know it’s a trade-out, meaning it cost management nothing. (For those who don't know: publications often "trade-out" ad space for services and crappy employee gifts.)

So, I before I go out drinking heavily with the copy desk when they get off at midnight, I slide on by the grocery store, because I know all the really ace cashiers work the night shift. Making up some story about how I'm allergic to turkey or something, I convince the cashier to let me swap out the turkey for $25 worth of wine. She noddingly agrees. After all, the certificate says $25, who cares what the $25 is, I can see her reasoning. I encourage this reasoning. I go to the wine section and get three bottles of their best stuff (it was a small community in the South, drinking wine was for Jews, Italians, and Communists), slip her my coupon and meet the night desk at Archie's. I don't share the wine and I don't share the secret (I was already in enough trouble with the powers that be for being at the top of salary scale ($28K, circa 1997) and still bitching about my paycheck.

There: arbitraged a useless piece of paper into 3 bottles of very average wine.

Maybe I should have gone to business school.

Two more notes:
1. Bess may be right that you are probably a douchebag. Bess is wrong on the bonus issue. This year they're up, next year they're Brian Hunter. In any year, we're the happier men. (and women, to include Bess.)

2. With the IM dialogues reprinted, I have now developed a huge crush on Bess. Pass it on

Send your bonus stories to tips(at)dealbreaker(dot)com.

This is the stupiest thing we've read all day.

"I wish I could pass some law restricting bonuses," said Councilman Charles Barron (D-Brooklyn), "or mandate that you have to give some money back to the people who made you rich in the first place."

The councilman called Blankfein's $53.4 million bonus, "capitalist greed at its worst." Goldman Sachs did not return calls for comment Wednesday evening.

This is pretty much tantamount to banning investment banking in NYC. Might as well just order the bankers off to Jersey City.

[Also, yes. This is from the same story we linked to earlier in AM New York. We just didn't notice it because we kept getting caught up in the part that quoted us.]

Big bucks on Wall Street stirs up outrage [AM New York]

ohbabyitsbess: what’s funny is, you said you were going to, and I quote, “choke on my own vomit” if made to write ‘goldman sachs’ or ‘bonus’ one more time. And yet, here you are, writing the shit out of both. You even went so far as to talk to another publication about those two vile weeds, you sick son of a bitch.
jfcarney: I know, I hate me.
ohbabyitsbess: I don’t read dealbreaker much myself, but just so I can quantify the depths of your outright lies and depravity, I went through your posts from this morning and, barring the Fifty Cent Reads The Wall Street Journal ditty (that was actually a pretty funny one, I meant to give you props earlier for that) and Lewinsky’s graduation from LSE (btw, I think you meant to put a picture of a blue dress not a black one, but I got where you were going with that, spermatozoalogically speaking), EVERY OTHER POST WAS ABOUT BONUSES [Editor’s note: at the time of this conversation, every other post was about bonuses. At publication, Carney had since put up a quote from Eddy Elfenbein and one about Merrill Lynch—big freaking whoop]. Why do you do this? WHY?
jfcarney: I don’t know, I’m a textbook sociopath. I get off on self-harm.
ohbabyitsbess: do you wear a hair shirt and engage in flagellation, or are you more a student of the Lohan school of cutting?
jfcarney: listen, underling, I told you yesterday I HAVE PINK EYE AND IT’S HARD TO LOOK AT THE SCREEN. So I had to just go with the grain and write about what was readily available. I don’t see you digging deep and finding out where Lloyd Blankfein flew this week, do I? Even though it would be quite timely of you to do so? No, I don’t. So step off, bitch.
ohbabyitbess: a. I don’t see why you’d bring up something that you know is a very sore subject. b. just because you called me “underling,” I’m going temporarily suspend my fatwa on actively trying to not earn my keep at this company and DELUGE YOU WITH LINKS TO INTERESTING BUSINESS-RELATED NEWS UNRELATED TO GOLDMAN SACHS AND OR BONUSES. That’s right-- deluge. (And then I’m going to throw in some planespottings—that’s right: planespottings).

Stuff tangentially related to Celine Dion’s sold-out concert series at Caesar’s Palace: A Quick Guide to the Major Gambling Stocks

A video of Donald Trump very menacingly threatening to sue Rosie O’Donnell for defamation of character: Trump Rails on Rosie

Evidence of clicking biological clocks in the Times’ business section: When It Comes To a Search for a Spouse, Supply and Demand Is Only the Start; To-Do List: Wrap Gifts. Have Baby.

Quasi-interesting news about private-equity: Apollo Makes Play For Giant Real Estate Concern

Quasi-interesting news about planes: Raytheon to sell aircraft unit for $3.3 billion

Bill Gates: Luis Munoz Marin Int'l to Fort Lauderdale Hollywood Int'l on his Cessna Citation X

Warren Buffett: Palm Beach Int'l to North Eleuthera on his Cessna Citation Excel

John Thain: Teterboro to Savannah Hilton Head Int'l on the NYSE’s Gulfstream IV

Merrill Lynch & Co. Inc. (NYSE: MER) inked a long-term lease extension and expansion in the Colgate Center, at 101 Hudson St. in Jersey City, NJ. The international wealth management firm now occupies 236,350 square feet within the 42-story, Mack-Cali Realty Corp. (NYSE: CLI) office tower.

The 1.24 million-square-foot, Class A building sits in the Hudson Waterfront submarket directly across from Manhattan.

We almost didn't even open the email tipping us off to this because it contained the spamerific words "extension and expansion." Remember, you can send your tips to tips(at)dealbreaker(dot)com. We're really good at keeping your identity secret.

"I watch CNBC in my office with the sound muted. Strangely, even with no sound, I can always understand what Rick Santelli is saying." --Eddy Elbenbein, Crossing Wall Street.

[Editor's Note: Every now and then we like to call a feature "... of the day." You know, like "Deal of the Day" or "Stock of the day." Usually we have every intention of keeping up with this and making it a daily feature. But, to be frank, when we call something a "daily feature" that usually translates into "when we get around to it." But if you have any suggestions for new daily or weekly features, feel free to drop us a line in the comments section below. We're looking to launch some new things in the new year, especially now that we've more or less dropped the Shorter DealBook.]

The Street reports that Coller Capital, a private-equity firm in London, may buy $1 billion in assets from Ritchie Capital's flagship hedge fund. RC announced last week that it would refund 80% of clients' money over the next 2 1/2 years and keep the fund open for at least three, after suffering "unforseen circumstances" (the circumstances apparently being "losing a truckload of money").*

Coller Gets Ritchie [The Street]

Earlier: 'Unforeseen Circumstances' Shutter Ritchie Capital's Multistrategy Global Fund

*Like you'd be so above recycling a joke you'd previously used that wasn't even that well-crafted in the first place, if the mood struck you? You would be above that? So I'm alone here? Whatevs. Just let me have this one thing.

Noel Sheppard at the Business & Media Institute runs through a long list of media outlets running envy-evoking boom year bonus stories. The worst offenders: NBC, the Washington Post, and the Boston Globe, according to Sheppard.

Evoking envy is certainly not a new affectation for the media. In fact, the class warfare card is regularly played throughout the year. However, this Christmas journalists have displayed Ebenezer Scrooge-like disgust, finding it unimaginable that people should be paid large bonuses.

The worst offender was certainly NBC. On the December 16 “Nightly News,” anchor John Seigenthaler drearily stated: “Most U.S. businesses – 66 percent – give no bonuses at all. Those employees lucky enough to receive a cash gift will get an average of $837. Compare that to the bonuses Goldman Sachs gives out, a jackpot so big they could give every employee more than $600,000.”

Mike Taibbi’s report followed, and he later expanded on the divide between rich and poor: "But to many, today's version of the haves and have-nots feels different. In the boom of the Clinton years – and I'm talking a chronological, not a political distinction – the rising tide of that bull market truly did lift all boats, or at least a whole lot more of them."

Perhaps more interesting, Sheppard points out that the dominant angle was very different seven years ago. In 1999, the media seemed to celebrate the big bonuses. So what happened?

Media Scrooges: 'Bah, Humbug' To Wall Street's Christmas Bonuses [Business & Media Institute]

If your office is anywhere near the financial district, prepare to be inconvenienced by the incursion of New York City’s still-imitating-the fiction-of Tom-Wolfe racial politics at noon today, when the moveable Sean Bell protest hits Wall Street.

After thousands of protesters filled the city's famous Fifth Avenue, activists angry about a fatal police shooting have turned their focus to the financial district.

Protesters were set to gather at noon Thursday at the corner of Liberty and Nassau streets. Organizers were calling for the resignation of Police Commissioner Raymond Kelly and the prosecution of officers involved in last month's shooting of Sean Bell. Bell, 23, who was unarmed, died in a barrage of 50 police bullets on his wedding day.

"No more business as usual," Omowale Clay, a spokesman for the organizers, said in a release.

Sean Bell protesters to rally in financial district [Associated Press via AM New York]

We spoke to AM New York's Justin Rocket Silverman yesterday about what fuels the media's bonus backlash. You can find the story in the hands of people who lurk just outside your subway station. Our contribution:

In New York City alone, securities employees will earn almost $24 billion in bonuses this year. Those bonuses are being condemned in the press, including editorial cartoons depicting Wall Street bankers as common criminals.

"One of the reasons there has been so much negative press is that journalists are obsessed with their own poverty," said John Carney, editor of financial blog dealbreaker.com.

"Three hundred days a year they are happier than investment bankers. But when bonus season rolls around the journalists realize there is a price to pay for their career decisions. The highest paid editor at The New York Times makes less than what the lowest paid analyst at Goldman Sachs makes."

Carney pointed out that the press and the public tend to be more shocked by Wall Street bonuses because unlike high-paid athletes, little is generally known about how investment banking actually works.

Big bucks on Wall Street stirs up outrage [AM New York]

The English have a strange thing for Monica Lewinsky, and vice-versa. Maybe it's just that they've got their own sex scandals to worry about, scandals involving genuine royals, and can't be bothered to worry about whether the president of the United States was messing around with a White House interns. We actually ran into Monica in Oxford once, back when she was touring around with her memoirwriting Brit ghost writer. Seemed nice enough, if not terribly bright.

Well, she just got a degree from the LSE:

Former White House intern Monica Lewinsky, whose sexual relationship with U.S. President Bill Clinton led to his impeachment, has graduated from the London School of Economics, her publicist said on Wednesday.

Lewinsky, who was 21 when she became involved with Clinton, is interviewing for jobs in Britain, publicist Barbara Hutson said.

When Lewinsky, 32, received her Masters of Science degree in Social Psychology last Thursday "the audience of students and parents erupted in spontaneous applause. ... It was a very emotional moment for her," Hutson said in a statement.

Hutson said Lewinsky spent the past year studying and "staying away from the London social scene."

Lewinsky graduates from London School of Economics [Reuters]

via our boys at Complex.

Thompson Financial published the M&A league tables yesterday, just on the heels of the bonus mania for the past couple of weeks. Outsiders may not appreciate just how seriously the investment banks take these rankings. Seriously enough to ignite a vicious fight and engage in all sorts of chicanery in an attempt to get big deals counted toward their ranking.

From the New York Post:

A squabble is erupting among the giant Wall Street banks over which one should rightfully hold the No. 1 spot in their league of deal-making this year.

Just as the formal rankings were revealed yesterday by data outfit Thomson Financial, putting Goldman Sachs on top with nearly $1.049 trillion in deals - just barely ahead of Citigroup's $1.021 trillion - officials at Citigroup were said to have contacted Thomson by letter to cry foul.

Citigroup complained that the rankings failed to include a major piece of a Citigroup deal in Europe involving Statoil ASA's $30 billion acquisition of Norsk Hydro ASA's energy assets.

That particular piece of the Hydro deal, combined with other possible uncounted advisory fees, could likely boost Citigroup past Goldman Sachs for the top spot, according to a report in the Financial Times.

Deals & More Deals [New York Post]

Sponsored by Bloomberg.com

FedEx 2Q Profit Up, Share Price Falters (Forbes)
So goes FedEx so goes the nation. That's the saying right? So revered is FedEx as the ultimate bellwether for the US economy, that apparently top economists and fed governors like to consult with FedEx management about the trends they're seeing. You know, it never hurts to get a little more real-time data to slip into the latest beige book. And it make sense. The company isn't just a proxy for what consumers buy, it's basically the logistical glue that holds many companies together, which you know if you've ever worked in an office that revolves around the hourly visits from the FedEx guy. So, the company says its latest profits are up, but that its outlook is tempered by weakness in the US economy. Scary stuff, much more so than any inflation report.

IBM Ends Director Stock Options, Spotlighting Popular Perk's Decline (WSJ)
All those backdating directors seem to have ruined it for everyone else. IBM has announced that directors will no longer receiver pay in stock options, but will be paid a flat $200,000 a year salary. It really is amazing how radically the consensus seems to shift on corporate governance issues. For awhile, it was thought that without options, there was no way for directors to have an incentive for companies to succeed. Now the incentive is, if the company doesn't succeed, shareholders are gonna sue your ass. That's actually a good motivator.

EU investigation grounds Ryanair bid (The Guardian)
One day before its bid to acquire Aer Lingus was to expire, the EU announced an investigation into the offer, which means that this round is all but officially dead. It's not clear what exactly the EU wants to check out, but you know they like to investigate things, just in case. Ryan Air promises to launch another bid as soon as the investigation winds up, which should be in 5 months.

The Cautious U.S. Boom in Oil Shale (NYT)
...and every six months or so, newspapers have to do an article about shale, wondering whether it's the next big thing. Well, Canadian oil sands are still the next big thing, but shale can't be far behind. Apparently, there's some new technology to make it marginally cheaper to refine. Next...

$$$Nouveaux Hedgie Riche Make the Just Wealthy Feel Bad. But Who Are They Really? [Banker's Ball]

$$$Relationship exchange rates. [Long or Short Capital]

$$$Going Private takes out her red pen. [GP]

The New York Post reports on yesterday's NYSE trading floor brawl:

Veteran floor trader Bob Tomasulo, a 57-year-old grandfather, was assaulted and barraged with obscenities in front of stunned co-workers after kidding with Stephen Mara about the Giants' embarrassing 36-22 loss to the Philadelphia Eagles on Sunday, witnesses and Tomasulo told The Post.

"Mara started screaming, 'I'm gonna f- - -ing kill you! Don't f- - - around with my family! Don't insult my family!' " one broker said.

"Bob was like, 'Hey, what is your problem? It's just a game!' And Mara yells, 'No, it's not just a game, it's my f- - -ing family!' "

Fighting on the floor: it's not just for basketball players anymore.

Giants' Revenge on Brawl St [New York Post]

ohbabyitsbess: if I have to write ‘goldman sachs’ or ‘bonus’ one more time I’m going to kindly ask you to run a sharp object across my throat.
jfcarney: I was just going to say that. except I was going to say “if I have to write ‘goldman sachs’ or ‘bonus’ one more time im going to choke on my own vomit.”
ohbabyitsbess: same sentiment, different accoutrement.
ohbabyitsbess: make something else happen that we can post about.
jfcarney: I’m trying
ohbabyitsbess: try harder
jfcarney: lay off me, I’ve got pink eye, it’s hard to look at the screen for too long
ohbabyitsbess: pink eye, pink eye. Is that what you're calling your hangover these days? You may be on to something there—can you think of a business angle for that?
jfcarney: I’ll work on it

That conversation occurred over an hour ago. In that time, we’ve received 12 emails pointing us to articles about bonuses and Goldman Sachs, described by senders as being “new” (lie), “interesting” (lie), and “provocative” (LIE!). I was about to have to go and collect some of the pieces of broken glass on the sidewalk outside our office and John was on the brink of seeing this afternoon’s lunch again. And Subway doesn’t tend to look as pretty the second time. Then, a vision! AS IF FROM GOD. A mêlée the likes of which we could only hope to see in our wildest dreams—a brouhaha between the Times’ DealBook and the oft-linked-to-in-Write-Offs Long or Short Capital, per the similarities (of which LSC’s “Drinky McDiligence” thinks there are many) and differences (of which the DealBookies think there are more), between hedge funds and love. The roots of this catfight seem to date back to a post by Mr. McDiligence, in which he called DealBook out for referencing a line from “All My Children,” wherein “Ryan” tells “Kendall,” “Love isn’t like a hedge fund, you know?”, a springboard from which the DB scribe offered, “For the sake of lovers everywhere, let us hope not.” On LSC, McDiligence wrote, “Obviously, the writers have no idea what a hedge fund is. In reality, love is exactly like a hedge fund.” BURN.

Not about to be the only ones on the online financial commentary block without their claws hanging out, today, DealBook responded.

Mr. McDiligence even includes a graph, whose shape would be familiar to any securities analyst, suggesting that a pre-nuptial agreement can work like a “put” option for the wary husband- or bride-to-be. “It floors your downside, and there is unlimited upside,” the post reads. “If the love falters or a better substitute arrives, you can walk away with no marginal pain.” We are left wondering whether there is a Mrs. McDiligence.

You can’t buy that kind of satisfaction.

Love and Marriage, Hedge-Fund Style [DealBook]
Hedge Funds and Love [Long or Short Capital]

That’s a big Yes, according to Kenneth Starr (yes, that Ken Starr). We’ll leave it to others to discuss the legal reasoning behind Starr’s argument. Something to do with the method by which the members of the all-powerful Public Company Accounting Oversight Board (PCAOB) are appointed. What’s really interesting, as Larry Ribstein points out, is that SOX was written so sloppily that it doesn’t contain a constitutional savings clause—a section of the law that says if one part is struck down, the rest of it can remain in force. In other words, if the PCAOB portion of SOX goes, so goes the whole thing.

A Verdict on Sarbanes-Oxley: Unconstitutional [Walll Street Journal]

At some point we promise we'll get around to writing about something other than bonuses. But not yet. We can't resist a good Michael Lewis column. And today he's giving some helpful rules on what to do now that you've got your year end bonus.

Rule #1: Acknowledge that your family has become a distraction. Now that you have made some real money you can see your siblings, cousins, and in-laws in a clearer light. They seem somehow...poorer. Less relevant. Ill-designed for the modern American economy. For instance, their time is so cheap that they can apparently afford to spend it complaining to pollsters about your money.

Armed with this understanding -- that the ``issue'' isn't that you have so much, but that they have so much less -- you can move rapidly beyond the guilt you might otherwise feel, and attack a more serious problem: the hope in the hearts of all those related to you by blood or marriage that you intend to share your incredible new wealth with them.

He adds that "Your assignment is to prevent the natives' feelings of resentment from becoming outright hatred. The sad truth about a rich man in a democracy is that he remains vulnerable" and provides some helpful tactics for keeping the poor in their place.
Pain for the Richest Guys in the (Living) Room [Bloomberg]

Far more interesting than the faux-economic populism of the gazillionaire-owned New York tabloids to Wall Street bonuses, is the reaction from the financial community itself. There is, at least at the top level (you won’t hear any complaining about bonuses being too big from analysts or junior vice presidents), a bit of a sense that things are getting out of hand. Of course, this is usually heard from executives at other investment banks complaining about Goldman Sachs, or Goldman Sachs executives complaining about hedge funds. Blackstone’s Steve Schwarzman has a refreshingly unenvious take on this year’s bonus awards, as evidenced by this interview with the Financial Times.

FT: There’ve been some big pay days on Wall Street recently. Are you seeing that have an impact on your ability to have people come work here?

MR SCHWARZMAN: It hasn’t affected the private equity business because apparently pay is pretty good here. After this interview, actually, we have a meeting that’s going to be finalising compensation for the people at the firm, so I have some idea of where we are, and nobody’s crying for private equity people or other people on Wall Street. I think it brings up a larger issue, you know, of inequality of pay for work in this society, because people in the financial business have been on an incredible run. It’s been one of the few industries in the States that is ideally adapted for globalisation. And think that, looking forward, this publicity around Goldman Sachs’s earnings, and publicity of what individuals are making - you know, America’s a place where people like to have the American dream, everybody’s successful - you know, Wall Street’s doing so well now, it’s certainly not an object of any sympathy for anyone.

FT: Do you see this as becoming a political or social problem going forward?

MR SCHWARZMAN: It’s hard to know, but it’s got more of a potential to be a problem than less. You know, going forward, the middle class in the United States hasn’t done as well over the last twenty years as people in the high end. Part of the compact in America is that everybody’s got to do better. Part of that is caused by globalisation, which really can’t be stopped. You can’t run from that.

FT: Does there have to be some sort of political action?

MR SCHWARZMAN: There doesn’t have to be. Better to deal with this by having the middle class do better rather than just sort of whacking somebody on either side of that. There are a lot of different ways addressing a problem.

Also, DealBook today points toward Schwarzman’s explanation for why there is so little competitive bidding between private equity firms. Hint: he doesn't think its collusion.

View from the Top: Stephen Schwarzman, CEO of The Blackstone Group [Financial Times]

You'd think that there would be one newspaper in this town defending Wall Street bonuses. And there is: the New York Sun. Today's editorial defends Goldman Sachs and takes some nice swipes at the bonus bashing from the Post and the News.

News of a good year, performance-wise, at Goldman Sachs and of compensation to match for the firm's employees and executives has set some of our competitors — and no doubt, plenty of other New Yorkers — into singing carols of socialism. The New York Post's Sean Delonas, one of the great humorists in town, drew a cartoon, published in the paper, depicting the Goldman bankers as common criminals, complete with bandit masks.

It's something to imagine Rupert Murdoch reading that over his cornflakes in the apartment on Fifth Avenue for which he reportedly paid $44 million. The Daily News ran an editorial declaring, "Something is wrong when one firm's bonus pool is big enough to end poverty in America's largest city." We wonder under which one of Mortimer Zuckerman's Picassos the News' proprietor was sitting when he read that screed.

Well, if no one else will defend Goldman Sachs, let us have a try. Our view is that while it may be fashionable to disparage success, succeeding deserves celebration, especially when, as at Goldman, it comes at a meritocracy. The Goldman Sachs chief executive who earned about $54 million this year, Lloyd Blankfein, grew up in the far reaches of Brooklyn, the son of a postal worker, and attended Harvard on a scholarship. His rise represents what is right about New York and capitalism, not what is wrong with it.

Goldman $achs [New York Sun]

Not to be undone by the bonus hating New York Times Business Section, Washington Post business columnist Steven Pearlstein dedicates todays column to complaining about "Wall Street's Season of Excess."

Here's Pearlstein's explanation for why Wall Street firms have so much money to throw around:

Wall Street is a classic example of an oligopoly, a cozy club of competitive firms that manage somehow not to compete on price. There are lots of reasons. Because the fees are, even now, a small fraction of the money at risk, clients are less focused on price than on the reputation of the firm and its key employees. Nobody ever lost their job hiring Goldman Sachs. Because of this reality, it is difficult for new firms to enter, while existing firms know they can get more business by bidding up the price of talent than by cutting fees.

To find the evidence of this less-than-robust competition, look no further than the bottom line. In the fiscal year ending in November, Goldman was able to report an after-tax profit margin of 25 percent, and an effective return on equity of nearly 40 percent. Those results are well above the comparable figures for other industries and raise the obvious question that why, in a free-market economy, have they not been competed away over time?

That's a good question that deserves an answer but Pearlstein doesn't even attempt one. It really isn't enough to say that the established banks have a tremendous advantage over newcomers. The question is why this should be so. Pearlstein thinks i'ts timidity of clients in the face of the great reputation of the established investment banks. But the last century is of long-standing Wall Street firms of good repute that no longer exist. So why isn't their more competition on Wall Street? One word: regulation. Banking and capital markets regulation stifles competition, and helps explain why so many newcomers to the financial world are concentrated in private equity and hedge funds.

That said, Pearlstein closes with something that bonus bashers should at least worth keep in mind when they lament this year's bonus numbers.

But don't get too exercised about the Wall Street bonus orgy. It turns out that these big paydays are not quite as big as they appear. For residents of New York City, the marginal rate for federal, state and city income taxes is 51 percent (although I doubt very many pay that amount). And because all these masters of the universe are competing for the same Park Avenue co-ops and sailboats and reservations at hot restaurants, a portion of the rest is lost to above-average inflation in the price of things people crave rather than the things they need.

What we have, then, is form of rough economic justice. The beneficiaries of an arms race in compensation are themselves the victims of an arms race in the price of luxury goods and services. It couldn't happen to a nicer group of folks.

Wall Street's Season of Excess [Washington Post]

If someone were to hand us a bonus of $53.4 million ($27.3 million in cash, the rest in stock and options), chances are we probably wouldn't turn it down. You can buy a lot of things with 53.4 million dollars, and we're not saying the odds are high that something like that might happen in the next couple days but, for the purposes of this post, if it did, our response would probably be along the lines of, "Wow, that's fantastic, now we can finally buy all those Cramer bobble heads, our plane ticket to Mexico for the Oaxaca World Series of Cockfighting Championship Match, our all-access pass to the Andrew Ross Sorkin Pleasure Palace, that puppy our parents promised us if we stayed at summer camp the entire month that year we were 11 and really homesick, and a hodgepodge of other equally great things" and not-- "You know what? Thanks, but no thanks. Do you have any respect for us at all? Obviously not, or you wouldn't be trying to hand us a bonus that's missing about, and we're ball parking it here, 14.6 million dollars. We're so offended by this affront that you know what we're going to do? We're going to walk out that door and never come back." But we probably won't be in the position to offer either of those responses, any time soon. Probably. Lloyd Blankfein, on the other hand, is in that position, and Peter Cohan thinks he should go with the latter.

I think he should get $68 million. Goldman's net income rose 70% in the last year but Blankfein's compensation is only 46% higher than that of his predecessor who oversaw 23% net income growth. When his predecessor increased Goldman's 2005 net income 23% over the 2004 level, he got a 29% boost (6% above net income growth) in compensation over 2004. So I figure Blankfein should have gotten 76% more -- $68 million. In other words, Goldman stiffed Blankfein by 21%.

If Goldman's board underpays its CEO, how can shareholders be sure he'll stick around to boost the value of their investment in the future?

Goldman's grossly underpaid CEO [Blogging Stocks]

Peter Cohan today looks at the decision of Morgan Stanley as another step in the exorcism of the ghost of former Morgan Stanley CEO Phil Purcell. And, incidentally, a rebuke to Sandy Weill's vision of the future of banking.

Former Morgan Stanley (NYSE: MS) CEO Phil Purcell started his career as a management consultant who jumped to his client, Sears Holdings Corp. (NYSE: SHLD), which implemented a "stocks and socks" strategy. After dumping Purcell in June 2005, his successor John Mack has finally decided to sell Discover on the heels of a 72% increase in its pretax income.

Sears' idea was that people could buy everything from clothing to financial services in a one-stop-shopping experience. To implement the strategy, Sears acquired stock broker Dean Witter in 1981 and in 1986 started a credit card business called Discover. But the strategy did not work, so in 1993 Purcell helped spin out Dean Witter from Sears. In 1997 Purcell merged Dean Witter with Morgan Stanley. The impetus behind the original merger between Dean Witter, a down-market stock brokerage, and blue chip Morgan Stanley always eluded me. But there was a significant amount of discussion -- led by Sanford Weill of Citigroup (NYSE: C) -- that one-stop shopping for financial services was a great idea.

Purging Purcell as Morgan Stanley spins off Discover [BloggingStocks]

Despite ourselves, we still can't get enough of these bonus binge stories of spending excess.

Here's the latest from Bloomberg:

One New York wife is getting a $50,000-plus diamond ring thanks to hubby's Wall Street bonus. An executive is giving $1 million in private jet time, or 150 hours, so his family won't have to fly commercial. And plenty of $7,000 mink coats and $20,000 necklaces are being boxed up, too.

"I haven't seen such excess displays of wealth and extravagance during the holidays since the 1980s,'' said Samantha von Sperling, a New York-based image consultant and personal shopper. "This is the most prosperous, most lavish, most extravagant season I've ever seen.''

Please keep in mind that some of this is the old retailers trick of talking up a big shopping season and hoping it comes true. That's why so many of the items are gifts, to create the impression of a peer group that your spouse/lover/offspring (or all three) can compare you against and find your gifts lacking.

Minks, Private-Jet Time Get Gift-Wrapped as New Yorkers Splurge [Bloomberg]

We were looking forward to reading Selling Women Short Gender and Money on Wall Street, the new book by Louise Marie Roth about why women continue to underperform men on Wall Street. A good book on Wall Street sexism should have enough outlandish stories--women eating pickles soaked in moisturizer on the trading floor--to get you through any dinner party. These are great because you can tell a funny story while deploring the underlying facts. For once, you get to be liberal and funny at the same time.

Unfortunately, it seems that Roth's book is boring, full of numbers and explanations but without the raunch.

The book started as Roth’s dissertation and at times gets bogged down in the background that she must have felt was necessary for academic readers. It is excessive to spend 13 pages explaining what bankers, traders and analysts do. Her sample size is also small and a few tales of wild Wall Street excess would have leavened the book’s earnest tone. But overall, Selling Women Short is a thoughtful examination of how ostensibly merit-based systems can result in unequal outcomes.

Selling Women Short [Financial Times]

We're not sure how we overlooked this until now. On Sunday, Andrew Ross Sorkin, DealBook editor for the New York Times, penned an essay complaining that bonuses at Goldman Sachs were too high. Since we're on record as defending Goldman bonuses, it only seems fair to bring you the other side of the argument.

...Goldman’s pay seems completely out of whack with its peers’.

Goldman’s compensation per employee, as mentioned earlier, is about $623,418. That’s nearly double what the average employee at rival firms earns. Lehman spent the equivalent of about $314,000 for every employee, and Bear Stearns spent about $320,000.

You could argue that Goldman Sachs makes its money more efficiently, and it does. You could argue that Goldman Sachs is in a different business than its rivals, and in some sense, it is: its biggest profits come from trading, not from investment banking.

But are its employees so much more talented than the rest of Wall Street that they deserve a “Goldman premium” of such huge proportions? That’s a tough case to make.

Well, yes. That might be true. But the opposite is also true.

Presumably Sorkin thinks some of the money being paid out in bonuses should go to shareholder equity. But we could ask the same question: are Goldman shareholders so much more talented investors than the rest of the investment community that they deserve a "Goldman premium" of such huge proportions. That's a tough case to make.

Trying to find an objective measure of how much talent is worth is a kind of silly question. The reason why both are tough cases to make is that they aren't possible to make. They ask us to point where on the big score board in the sky it says Goldman Sachs executives deserve so much money. But the big score board in the sky isn't visible from down here, where we have to guide ourselves by market forces and the decisions of individual firms and investors.

Goldman’s Season to Reward and Shock [New York Times]

Sponsored by Bloomberg.com

Stock market closes, share prices rebound after government reverses track (Bangkok Post)
Apparently, even the coup can respond to price signals. After imposing strict capital controls on foreign investment and the Thai baht, the Bangkok stock market plunged terribly. Ok, that didn't work, capital controls rescinded. This prompted a big spike in the market, as well as gains across emerging market (apparently investors in these other countries were optimistic that should they ever be subjected to a coup, then the new leaders will promptly rescind price controls after they're imposed). You have to hand it to them for their, throw-it-against-the-wall-and-see-what-sticks economic policy. There's something very, oh, Bernanke about it.

Ericsson Offers $2.1B for Redback (Light Reading)
A bubble-era mega-darling buys out a bubble-era darling. Ericsson announced that it will buyout networking equipment player Redback networks, in a deal that will pay Redback shareholders $25/share. The move will enhance Ericsson's product suite, enabling them to sell full IP-based communication systems. This specific tie-up had actually been speculated on earlier this year.

To-Do List: Wrap Gifts. Have Baby.
David Leonhardt at the Times goes all Freakonomics on us, and ponders whether there is any connection between tax breaks for new parents and the timing of birthdays. Basically, there's been a spike in Birthdays, in recent years, in the week between Christmas and New Years, leading some to conclude that mothers have C-sections, so that the baby can be had to make them eligible for end-of-year tax savings. It's a good deal. The little brat saves you money, before costing you anything. And some academic research supports this notion. We've always held a very similar theory, actually, though we have yet to see it backed up anywhere (Steve Levitt, are you reading?). We suspect that the death tax contributes to longevity. Taxes on anything reduce the frequency of that which is being taxed. Why should death be an exemption? And if you're a parent thinking of doing this, remember to take a second and ask whether your kid will like having a birthday so close to Christmas. You're going to have to get them two sets of gifts, you know, so there won't be any cost savings there.

Hefty Discounting Of Flat-Panel TVs Pinches Retailers (WSJ)
The plummeting price of HDTVs is turning into a bloodbath for retailers. We can speak from firsthand experience on this one, having just joined the HD revolution in the last 10 days. For one thing, price are down enormously since just this summer, like 35% or more in many cases. Not just that, many sets are down since last week, like on the order of %10, no joke. It's taking a major toll on the likes of Best Buy and Circuit City, which reported earnings for its last quarter that sent the stock tumbling after hours. If you want to find one stock, that's emblematic of the whole problem, check out the purest play on the panels themselves, Corning, which now hovers near a 52-week low, after a multi-year rally.

$$$Rocky v. Aleksey [Gawker]

$$$When Goldman Sachs gives out bonuses, everybody wins? [Herald Tribune]

$$$Former-model-turned-hedgie whose "cookies have evoked marriage proposals" seeks date. [Craigslist]

Barry Diller: Norman Y Mineta San Jose Int'l to Licenciado Adolfo Lopez Mateos Int'l on his Cessna Citation X

Eight words: The Oaxaca World Series of Cockfighting Championship Match. Why? Why not? Don’t even try and pretend to act like you wouldn’t be all over that, given flextime in your schedule and that jet-ownership provided the necessary accoutrements. Barry doesn’t pussyfoot around when it comes to such things—the wise ones never do.

Former head of Amaranth Advisors' portfolio financing in Europe, James Scully, has "emerged at Lehman Brothers," Financial News reported this afternoon.

He has been hired into the prime services group, which services hedge funds and other institutional asset managers. A spokesman for Lehman Brothers confirmed that it has had hired Scully and said he will report to Matt Pinnock, head of financing sales and marketing for Europe.

Got any other postmortem personnel news? Let us know!

Lehman hires from Amaranth [Financial News]

A story in Reuters today raises the possibility that the run-up in private equity activity this year may have some of its traditional investors tapped out.

The massive funds raised by private equity firms and the faster-than-expected speed with which they're spending them are stretching some of their investors thin, causing concern that there won't be enough money to go around in 2007.

The crunch on institutional investors is being fueled by a 32 percent drop in the number of sales by private equity firms, known as exits, in the last two years, while the number of buyouts has skyrocketed.

What is worrying institutional investors is that funds are coming back to them too quickly for money, without a track record from their prior fund.

A drying up of institutional capital would be a major setback to private equity firms raising funds next year and would likely prompt a slowdown in the torrid pace of deals sparked by the sector in the last two years.

Another thing to keep in mind is that the growth of in-house private equity arms within investment banks is probably soaking up capital that might otherwise be available to the independent firms.

Money drying up for some investors in buyout firms [Reuters via Infectious Greed]

The Pirates have been launching broadsides at Brink's for months, demanding that the company install Pirate Capital founder Tom Hudson on the board of directors. Now they want two nominees, according to FinAlertnatives.

Activist hedge fund manager Pirate Capital yesterday filed regulatory documents stating that it may propose two new nominees to be elected to the board of The Brink’s Company, which has already been under pressure in recent days from another hedge fund, MMI Investments.

In the regulatory filing, Pirate, which holds an 8.5% stake in the armored car manufacturer, states that is has yet to hear from the company regarding its request that Pirate founder Thomas Hudson be appointed to its board of directors.

“The Issuer has not responded to Pirate's request that Thomas R. Hudson Jr. immediately be appointed to the Issuer's Board of Directors other than to indicate that Mr. Hudson's nomination for election to the Board will be considered in due course,” states the firm in the Schedule 13D filing. “Pirate is now contemplating proposing two additional nominees for election at the upcoming annual meeting.”

Pirate May Push Two To The 'Brink's' [FinAlternatives]

The Discover Card advertisement above encouraged consumers to get rid of their credit cards by asking, “What if you could get rid of the things you don’t like about credit cards? The hype. The confusion. And this time do it right?”

Today Morgan Stanley announced it was doing exactly that, cutting off its troubled Discover credit card business. The card had always had a low rent feel to it, its growth potential was seen as very limited and investors had been calling on the investment bank to jettison the business for some time. Last year the John Mack had frustrated some investors by seeming to close off the possibility of a sale. But this past Spring, the bank eased its stance and said it would explore the possibility of the spin-off. The definitive news of the spin-off will probably reassure investors that the bank is flexible and responsive to shareholders, which is sending stock prices higher today.

Morgan Stanley to spin off Discover, profit falls [Reuters]

There are no words except: thank you Shmuel Tennenhaus. You are a, uhm, brave man.

The Possibly $87 Million Man will finally get his moment in the sun this afternoon. "Big Lloyd I (.6 Billion)," the companion portrait to "Big Dick I (Hundred Million)," will be on display today in the Financial district, and available for purchase on e-Bay. "Unlike the Grasso painting, I painted Mr. Blankfein's portrait in a straight-forward, almost corporate manner, as befits the subject and his standing on Wall Street," Geoffrey Raymond, the artist, noted. "It's really meant to be a celebration of a big year on Wall Street rather than the ironic commentary offered by 'Big Dick I.'." Eliot Spitzer is rumored to be next up in the series.

Bigger Blankfein, after the jump.

With Wall Street bonus season upon us, it's time start spending. Maybe you loosen up, blow some at the craps table, score everyone in your family one of those great chairs at the Sharper Image, have some nice dinners and spring for the dwarf-toss at your best buddy's bachelor party. Now what? Real estate. In that spirit, DealBreaker.com and Curbed.com have joined forces to create Penthouse Forum, a new weekly series that reviews properties suitable for blowing even the biggest of bonuses. (Curbed picks the properties, and Dealbreaker reviews 'em.) Let's begin.

Today's property is a penthouse found at 213 West 23rd Street. In Chelsea, obviously. Chelsea's not really our jam but it does have the distinction of being above the riffraff that run around below 14th street and below the abomination that is midtown. If you work on Wall Street it's a bit of a hike, but be honest now-you're getting home most nights in the towncar anyway.

The duplex is equipped with, as the broker puts it, "drama through-out." Oh yes. May sound odd at first, but say it a couple of times and you'll realize that this is pretty fantastic-you know how when you're hosting a dinner party and it's always more fun if a couple of your guests get into a brawl of some sort? Now you don't have to worry that everyone will just tritely "get along," because this space itself is guaranteed to provoke problems.

On Suday, the Business Section of the New York Times ran an article complaining about the "dearth of female bosses"—only about 16 percent of corporate officers at Fortune 500 companies are women.

Included in the long list of lamentations is the fact that even the few women who do make it into the top ranks of corporate America are sometimes mistaken for secretaries. Here's the story of Autodesk's chief executive:

Despite her hard-won reputation as an astute businesswoman, Ms. Bartz found herself repeatedly skipped over during a recent meeting of business and political leaders in Washington. The reason was that the men at the table assumed that she was an office assistant, not a fellow executive. “Happens all of the time,” Ms. Bartz says dryly, recalling the incident. “Sometimes I stand up. Sometimes I just ignore it.”

Horrors! Or maybe not. Ever the contrarian, Steve Sailer reads this in exactly the opposite way the Times does:

Of course, the NYT interprets this as proof of male bigotry. But another interpretation would be that Ms. Bartz, and possibly many another female executive who otherwise has the requisite smarts and work ethic to make it to the top, lacks what the Marines call "command presence."

Some men and a few women have the kind of personal bearing that advertises to others that you are in charge and that they should follow your lead.

So why aren't there more women at the top levels of corporate America? A perfect question for a reader poll.

The latest issue of New York Magazine is devoted to "reasons to love New York." According to the Mad Money Mensch,* one is because the good times of 2006 (the Dow clearing the 12,000 bar for the first time, the city's unemployment low, huge year end bonuses, record breaking sales of bobbleheads, etc) are a harbinger of what Cramer predicts are great things to come.

Usually good things have a habit of not lasting, but I think this latest boom will continue for a while. The atmosphere is perfect for the investing casino: low interest rates, a weak dollar to lure foreign purchases of everything that’s not nailed down, low inflation, and a mayor—and soon a governor—who understands how businesses work and who will move aggressively to lower taxes now that the good times are back.

Alternatively, Justin Fox, Fortune's editor-at-large, anticipates a more grim future. What do you think?

Because Happy Days Aren’t Just Here Again. They’re Gonna Stick Around for a While [NY Mag]

*We don't know why, we've just had soft spot for him for the past few weeks. It'll pass.

Andrew Ross Sorkin and Michael Barbaro reported last evening that American Apparel will be bought by Endeavor Acquisition Corporation, owned by Jonathan J. Ledecky, for $382.5 million. AA is known for its solid-colored and emblem-free clothing, and, perhaps moreover, for making its customers feel uncomfortable with its not-exactly-soft-core-porn-but-on-that-track ads that appear on the website and in the stores. (Like the one for dresses in which a girl faces away from the camera, hands on the wall, head turned toward us with a look on her face that's a mix of "come a little closer" and "I'm scared." It's not Maxim but you're still kind of thinking to yourself, "Um, I'm a little uncomfortable here," "Who the hell switched the American Apparel pics with the stills from Boogie Nights again?" and "Does that thing come in black? Because that's something I could get behind. Blue's just not my color").

Apparel became an overnight hit when it was founded in 1997 in LA, spawning 145 stores. However, whereas those that opened in 2005 saw 45% revenue growth, new stores in 2006 grew a measly 7%, Sorkin and Barbaro note. Nonetheless, Endeavor is confident that AA has the potential to open 800 stores, a prediction that might not be too far off base-- those T-shirts are prettty sweet (this one being our most recent purchase). Mr. Charney, the steward of this sordid ship, agrees too, (strangely) commenting, "I think we will get beyond that number...It's all about manifest destiny. Wherever FedEx goes, we will go."

Perhaps with Endeavor's help, he'll be able to do just that. And this association just might actually be the thing that'll save American Apparel from the creepiness of its one-man masturbation show. After all, as a wise man once said, "Trust me Bart, it's better to walk in on both your parents than on just one of them."

American Apparel to Be Sold to Investment Firm [NYTimes]

The U.S. Office of Federal Housing Enterprise Oversight has filed a notice of charges against three former Fannie Mae executives, accusing them of misconduct and recklessness. Former chairman and CEO Franklin Raines, former vice chairman and CFO J. Timothy Howard, and former senior vice president and controller Leanne Spencer are named in the suit, which seeks restitution and civil money penalties.

OFHEO made the announcement on Monday and noted that its general counsel is continuing to review other employees of the mortgage giant, which has disclosed $7.9 billion in accounting errors stemming from its derivatives and hedging activities and has undergone a massive restatement process over the past few years.

Feds Charge Three Ex-Fannie Mae Execs [CFO.com]

*or what Howard calls "a work of unsubstantiated fiction."

Sponsored by Bloomberg.com

American Apparel to Be Sold to Investment Firm (NYT)
American Apparel CEO Dov Charney is the poster boy for compassionate capitalism. The company has become the largest-t-shirt maker in the US, with a factory in downtown Los Angeles that pays a so-called living wage to all its employees. Its clothing is fairly cheap, and its advertising is minimal, usually smartly targeted to local hipster rags. Like other retail counterparts, the company's advertising relies heavily on featuring attractive girls, but instead of airbrushed models, the girls look more like 'the really hot girl you saw at the show last night', which is a pretty smart angle. Now, shockingly, it's selling out to a small publicly traded investment firm, which means we might actually get a peek inside its financials. This is great. We'll really get to look at the nuts and bolts of the company's operations, to see how profitable it is, and to see how it manages to make clothes in the US, when so many companies have gone abroad to do it. We have to imagine that all of the various "Democrat" funds, that currently own Google, Apple and Costco, will hastily add this on to their portfolios.

Stocks tank in chaotic day, down 15% (Bangkok Post)
A couple months back, when the coup happened in Thailand, most people barely noticed, and the markets didn't seem to care. The coup-sters were capitalist coup-sters, which made everyone a lot more comfortable than if they had been some Maoist junta. But maybe it's not all cool. Stocks in Bangkok took it on the chin, after the central bank imposed strict price controls on the baht, hardly the actions of a government steeped in free market ideology. For the first time in the market's history, the "circuit breakers" kicked in, as at one point stocks were down 18%. Hey Thailand, don't worry about it. Currency controls work great in Thailand. Just be scared when Hank Paulson comes knockin'.

NYSE-Euronext Wins Crucial Support (AP)
The NYSE-Euronext merger just got a little more likely, as the proposed deal won the consent of the Dutch government, French business group Paris Europlace, and the public shareholders. It took the NYSE some time to woo these parties, in what was an impressive courting ritual that seems to have paid off. One condition that the Dutch government insisted on was that there could be no spillover of American laws onto European soil. In other words, ain't no SarbOx gonna apply to European companies. What a day it is when European governments express concern about American regulatory creep.

Ex-Fannie Mae officers sued (Chicago Tribune)
The Fannie Mae fiasco has been going on for quite a long time, but you get the impression that we're just starting to crack open the book on this one. It's like, where are the indictments? Well, we don't have any of those yet, but at least we have a lawsuit to report. The main regulator of Fannie Mae has sued ex-CEO Franklin Raines on 101 counts of fraud, and demands payment of over $200 million. Of course, because it's Fannie Mae, there's all kinds of politics involved. Attorneys for the defense insist that the plaintiff is politically biased, and is using the lawsuit as a way of urging congress to enact stronger oversight over Fannie Mae. Makes you pine for a good old shareholder suit.

$$$Finding Love on the Road [Banker's Ball]

$$$Greenspan needs some money. [The Onion]

$$$ Additional Ways to Raise the Bar at Bonus Time [Long or Short Capital]

$$$Lindsay Goes Gold

From DealBook:

Eli Lilly raised its offer to buy the maker of impotence drug Cialis by $2 a share to $34 a share, bowing to pressure from the target’s shareholders and outside experts. Lilly’s latest offer, which values Icos at $2.28 billion, will be evaluated by Icos shareholders at a meeting on Jan. 25.

*Lay off us, it's Monday.

Lilly Raises Offer for Cialis Maker [DealBook]

John Connolly will be writing a piece on everyone's favorite towel-boy/massage afficiaonado, Jeffrey Epstein, for an upcoming issue of Vanity Fair, Page Six reports. Epstein was no doubt inspired to sit for the mag's questions by Warren Buffett's recent foray into print media.

MAXIM-UM NUISANCE FOR VF [Page Six]

Broadcom, the semiconductor manufacturer, has announced plans to cancel nearly $37 million in "unexercised options" by three individuals involved in backdating over four and a half years. Broadcom announced today that its audit committee "found that-- particularly with respect to several companywide options grants--allocations of grants to some employees occurred after the grant dates for the total shares awarded had been established." It also noted, that the SEC had rammed up its "informal probe to a formal investigation."

Broadcom Cancels Backdaters' Options [CFO.com]

Local employees have established a branch of the Communist Party at [Wal-Mart's] China headquarters. The party branch was set up in the office in the southern city of Shenzhen where Wal-Mart runs its fast-growing China business, said Jonathan Dong, the company's spokesman in China.

Wal-Mart's acquiescence to the party cells – a decade after it opened its first store in China – reflects a stepped up effort to ingratiate itself with a country that it sees as increasingly vital to its future growth. The establishment of party branches follows a similar retreat for Wal-Mart in July, when the company – which has remained largely union-free elsewhere – caved to strong pressure from China's All-China Federation of Trade Unions to allow union branches in its stores.

Fascism to remain at U.S. and European stores, for the time being.

Wal-Mart Workers in China Set Up Communist Party Branch [WSJ]

At Blogging Stocks, Peter Cohan examines why traders are putting their bosses to shame this bonus season. Lloyd Blankfein, for one, will probably earn a measly $50 million (loser), whereas Morgan Sze (big man on campus), head of GS's principal strategies group in Hong Kong will go home with a check around twice that. Why? Cohan thinks it's a matter of the banks recognizing hot v. hotter commodities, and their respective Plan B's. Blankfein is, Cohan says, "stuck in his lousy $50 million job. He can't go to another bank because the next highest payer, Morgan Stanley's CEO, received 20% less-- a mere $40 million." But Sze, oh, the world is Sze's oyster. He and other traders of his ilk are "prone to leave to start their own hedge funds where the average of the top 100 made roughly three-and-a-half times his bonus-- or $363 million in 2005." Goldman knows it can't afford to lowball Sze, but has some leeway, in regards to his boss.

(Quasi-unrelated but too good to not mention:)

This kind of relative pay comparison is a source of real unhappiness. At Goldman, for example, 15% of the employees are unhappy because they got only a 20% increase in their bonus, rather than the 30% to 50% increase the top performers got. If that's not bad enough, employees have to put on a good face because their managers add their reactions to news of their bonuses to their personnel records!

Why top traders outearn investment bank CEOs 2:1 [Blogging Stocks]

In yesterday's New York Times Magazine, Peter Singer crunched a few numbers and found out that Gatesie-boy et al could actually be pitching in a tiny bit more.

The rich, then, should give. But how much should they give? Gates may have given away nearly $30 billion, but that still leaves him sitting at the top of the Forbes list of the richest Americans, with $53 billion. His 66,000-square-foot high-tech lakeside estate near Seattle is reportedly worth more than $100 million. Property taxes are about $1 million. Among his possessions is the Leicester Codex, the only handwritten book by Leonardo da Vinci still in private hands, for which he paid $30.8 million in 1994. Has Bill Gates done enough? More pointedly, you might ask: if he really believes that all lives have equal value, what is he doing living in such an expensive house and owning a Leonardo Codex? Are there no more lives that could be saved by living more modestly and adding the money thus saved to the amount he has already given?

Yet it was not until, in preparing this article, I calculated how much America’s Top 10 percent of income earners actually make that I fully understood how easy it would be for the world’s rich to eliminate, or virtually eliminate, global poverty. (It has actually become much easier over the last 30 years, as the rich have grown significantly richer.) I found the result astonishing. I double-checked the figures and asked a research assistant to check them as well. But they were right.

(Of course, we're only talking about the super, super rich here, not like the peon's getting a mere $100 million in bonuses, who have much better options for spending their cash).

What Should a Billionaire Give – and What Should You? [NYTimes]

Winner: Ken Griffin -- The Amaranth Advisors LLC corpse was still warm when Griffin took advantage of the hedge fund's disastrous $6 billion loss to scoop up its distressed natural gas, crude oil and power positions. With Amaranth investors still reeling from the devastating plunge and founder Nick Maounis scrambling to offer an explanation, Griffin's Citadel hedge fund enjoyed a 3% bounce within weeks. Thank you ...
Loser: Brian Hunter -- The wily Canadian energy trader for Amaranth was the envy of everyone on Wall Street with his bold bets on natural gas reaping $2 billion in profits in just over half a year. But what a difference a month of sunshine and no hurricanes makes. Hunter went from hero to goat in the span of about two weeks, delivering a loss the likes of which has not been seen since the legendary Long Term Capital Management implosion of 1998.

Related:
Winner: MarketWatch, for this Ted Haggard-inspired tour de force, "Come on, what's a handshake and few drinks among friends? OK, if we're splitting hairs, it was more like a rubdown from a gay whore."

Winners & losers
Commentary: Piles of cash, pop culture, hardware wars [Market Watch]

Morgan Stanley, the world's second- biggest securities firm, promoted 228 employees to managing director, a day after awarding Chief Executive Officer John Mack a record $40 million bonus.

``Everybody who joins Morgan Stanley right out of business school as an intern or associate aspires to become a managing director,'' Higdon said. ``Those people have a lot to celebrate.''

Managing directors make $1-25 million. New class after the jump.

Morgan Stanley Names 228 to Become `Senior Stewards' [Bloomberg]
Morgan Stanley Names New Managing Directors [DealBook]

The bonus kings of Goldman Sachs are said to be in the principal stretegies group and Asia, according to the New York Post.

From the Post:

Several members of the $100 million club are in Goldman's Asian offices. Morgan Sze, a head trader in Goldman's principal strategies group based in Hong Kong, is mentioned by several sources as a possible member of the club.

Goldman's principal strategies group makes bets on stocks and other securities using nearly $10 billion of the firm's own capital.

Pierre-Henri Flamand, Sze's counterpart in London, is also rumored to be receiving a $100 million bonus, as are some traders in Tokyo.

Raanan Agus, who is the New York-based head of the principal strategies group, could receive a bonus north of $70 million

As we noted on Friday, Goldman is actually paying historically low bonuses if measured as a percentage of total firm revenue. And the percentage of total revenues paid our for compensation is less than many of its competitors. This probably makes Goldman's shareholders happy, especially the double-dipping alumni-employees who were partners when the firm went public. As we noted, this is leaving a few junior level people less than elated.

While some of the top traders and bankers at the firm raked in bonuses that were 30 percent to 50 percent higher than last year, some of the junior staffers were upset at receiving bonuses that were just 20 percent higher than last year.

"The discontent is pretty widespread among the junior ranks," said one source. "About 15 percent of the firm is unhappy with their bonuses and 45 percent are just content."

Bonu$ Baby Buzz [New York Post]

Sunday's New York Times Magazine carried a story on something that sounds like it came straight out of a Tom Wolfe novel--the church of Wall Street. Okay, it's not exactly worshipping the stock market. It's allegedly some sort of Christian outfit. But you judge for yourself exactly what it's about. Here's how the Times describes the conversion of church leader Dan Stratton, Yale college, Skull & Bones, Goldman Sachs commodities trader turned pastor of the Faith Exchange Fellowship:

The next stop on Dan Stratton’s Road to Damascus came on April 27, 1987. His official church biography tells the story: “For many months prior to this date, the precious-metals futures markets had been slow, prompting Dan to distribute his résumé. But on this day, God chose to confirm Dan on the Exchanges and launch his ministry by enhancing his reputation. It was on this day that God chose to rain $453,000 into his life.”

What happened next is recounted in “Divine ProVision.” “Just a few months later, Dan became a full member of the New York Futures Exchange. Then again, in May 1989, God blessed him to become a member of the Coffee, Sugar and Cocoa Exchange. And again, in January 1991, YHWH himself opened the door for Dan to join the membership of the New York Mercantile Exchange. Now that Dan had the power of God’s spirit working with him in his business labors, the increase was no longer just gradual — it was supernatural.”

Stratton began evangelizing among his fellow traders. “During lulls in the action, they would mostly sit around reading betting sheets and porno magazines, or having silly conversations,” Stratton says. To counter this moral sloth, he began publishing a weekly Faith Exchange newsletter. Most copies wound up in the trash. But gradually Stratton found appreciative readers. “The newsletter birthed the church,” he says.

Preaching to Wall Street [New York Times Magazine]

On Friday, Goldman named a new head of its asset management group. Mark Spilker is moving over from his position as co-head of US equities trading to a slot which has been empty since his predecessor left in May for Lehman brothers.

Goldman Sachs Group Inc., the most profitable investment bank in Wall Street history, named Marc Spilker to oversee its team of money managers that invest in hedge funds and private equity funds.

Spilker, 42, will report to Eric Schwartz and Peter Kraus, co-heads of Goldman Sachs Asset Management. He moves from the securities unit, where he was co-head of U.S. equities trading and global head of volatility trading. Spilker has also held positions overseeing currency options and Japanese fixed-income, according to an internal memorandum to employees that was confirmed by spokeswoman Andrea Raphael.

Spilker, a 16-year veteran of the New York-based firm, will assume responsibilities previously held by George Walker, who left in May to run asset management at Lehman Brothers Holdings Inc. He won't oversee the $10 billion Global Alpha fund, part of a separate quantitative strategies unit managed by Mark Carhart and Raymond Iwanowski.

Goldman Moves Spilker to Oversee Hedge Funds, Buyouts [Private Equity]

Sponsored by Bloomberg.com

Express Scripts Tops CVS With $26 Billion Caremark Bid (Dealbook)
Prescription drug benefits manager Express Scripts has launched a rival bid for Caremark, toping CVS' proposition. Between cash and stock, the offer clocks in at 15% higher than what CVS was offering. Caremark is twice as big as Express Scripts, so the deal, as you might imagine is highly leveraged. Regardless of who turns out to be the big loser in this war, Express or CVS, we can only imagine that there will be more consolidation in the space, particularly as Wal-Mart singlehandedly seeks to reduce margins for the whole lot.

Study Finds Outside Directors Also Got Backdated Options (NYT)
We're not surprised one iota that outside directors also received backdated options. According to the Harvard professor who performed the study, the findings don't have a big financial impact, but they are important from a governance perspective. Maybe. Probably the most important thing we can say -- and we could've said it already -- is that those who worship at the altar of outside directors, as if their mere presence were some sort of panacea, can cut it out with the genuflecting.

Stock Strategists Raise Alarms With Unanimous Call for Rally (Bloomberg)
It's official, optimism is the new black, and pessimism is the new mauve. Everywhere you look, people are calling for a 2007 rally. That includes newsletter writers, chief strategists, and even an options-based index, that measures investor sentiment. Of course, as hurricane forecasters know well, unanimity and recent results don't guarantee anything going forward. And the pessimists -- what few there are left -- are equally sure that this is a an easy contrarian call, so down we go. According to the piece, the last time Wall St. strategists were this much in agreement was at the start of 2001, which was, well, not a good year.

Tate & Lyle sees higher margins, but shares dip (Reuters)
With all the enthusiasm over Tate & Lyle, over the last few years, you'd think they had invented some sort of alcohol-free alcohol. But no, it's only the leader in sugar-free sugar, aka Splenda. Those tiny packs of yellow stuff, that now go in the dish that Sweet & Low used to occupy have been a major boon for the English company; it's apparently convinced heavy Americans to try it in their coffee, and stuffy Brits to put it in their tea. The company sees continued good times for itself, though the stock's corrected on some over-optimism.

$$$Just How Does Goldman Do It?

$$$Is the Forty Million Dollar Man Actually Worth Forty Million Dollars? [Fortune]

$$$Banker looking to spend some upcoming bonus money TONIGHT. [Craigslist]

$$$Lindsay and MeetUp Co-founder and CEO Scott Heiferman

+Employee Stock Options... But Better!

+How to Start a Price War

+Will Google Plant a Seed In Apple's Market?

+"Tell Us Everything Or Else" Vs. "Tell Us Everything... Please?"

+Branson Watch: Don't Blink or You'll Miss His Ego

Sponsored by Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today – the ultimate stocking-stuffer.

We spent the past week debating the merits—the value added and the risk factors—of Hank Paulson, Patrician Dunn, Brian Hunter, backdating, Phil Goldstein and John Mack. And now the crucial moment has come to name the person we think is most deserving of the title DealBreaker of the Year.

Well, not actually right now. We're giving the award on Monday. But stay tuned.

Sebastian Mallaby starts off his article arguing that "fear of hedge funds is overblown, based on a misunderstanding of their role in the international financial system" with an interesting jutaposition:

Imagine two successful companies. Both are staffed by very smart people; both are innovative; both have an impact far beyond their industry, improving the productivity of the capitalist system as a whole. But the first, based near San Francisco, is the subject of adoring newspaper profiles, whereas the second, based in the New York area, is usually vilified.

Actually, you do not have to imagine any of this, because it describes a double standard that already exists. The first company in the story is a technology firm; the second is a hedge fund. As any newspaper reader knows, technology firms are the leading edge of the U.S. knowledge economy; they made possible the productivity revolution of the past decade. But the same could just as well be said of hedge funds, which allocate the world's capital to the companies, industries, and countries that can use it most productively.

Hands Off Hedge Funds [Foreign Affairs via Marginal Revolution]

One of the most misguided notions about backdating holds that the practice typically worked in exactly the opposite way it typically did. Because of confusing accounts in the financial media, lots of people seem to believe that companies were first making decisions about how many stock options to grant their executives, and then sneakily inflating the value of those options by pretending they were granting them on an earlier date. In fact, some of you reading this probably thinks that’s how it worked.

But you know what? That’s not how companies grant options at the highest levels. They do it like Morgan Stanley did. And how’s that? Well, let’s look at it this way: do you think that Morgan Stanley’s compensation committee got together and said, “Hey. I think John Mack deserves 461,821 shares of common and options to buy 178,945. Get the accountants to figure out what that’s worth.”

Of course not. You know that what happened is this: the board decided to give John Mack a $40 million bonus, and afterwards figured out how many shares that equaled at the current stock price.

And that’s how backdating typically operated. A board would decide to give an executive a bonus worth a certain amount, and then figured out how many stock options it needed to dish out to equal that amount. Pushing the date of the grant back to a day when the stock was trading a lower price simply allowed them to grant fewer options—since those they were now worth more. What’s more, they showed up as lower cost on the companies balance sheets and didn’t provoke immediate taxes for the recipient the way an “in the money” option would have.

In short, backdating (for the most part, probably) wasn’t a way of inflating executive pay. It was a way of paying executives exactly what the board wanted to with less cost to the company and the executive.

Brock Fantasia is the only remaining person in the JPMorgan analyst class of 2002 to still work at JPMorgan, which is in no way testament to the work environment at JPMorgan. In fact, Brock likes to think of himself as the Highlander of his analyst class, wielding an indestructible claymore of corporate finance.

After “totally wrecking” (in his own words) the Analyst-to-Associate program in the M&A group, Brock was briefly moved to the Natural Resources group, due to increased deal flow in the M&A group. Brock graduated from the prestigious University of Pennsylvania Wharton with a degree in Finance and is working in investment banking until he can find a buy-side job. Brock has been interviewing for buy-side jobs throughout the past 3 years and has not been a “good fit” anywhere, despite his ever-burgeoning skill-set. [Editor's P.S.,- Some of this is true. But only some of it. Previous Ask Brocks are here. Send your questions to : brock AT dealbreaker DOT com]

It’s that time of year again, and by that time of year I mean the time of year in which your investment banking superiors are about to grant you a whole 24-48 consecutive hours off in a mere two weeks. Not only will you soon be basking in a luxurious swath of free time in which you can catch up on 1 or maybe 2/365ths of the total sleep deprivation you’ve suffered in the past year, but sometime in the next couple of business days, your group will have its annual holiday party. The holiday party is a party so important that it must be held several weeks before the actual holiday it is celebrating (answer – Boxing Day, because someone has to spend actual Christmas in the office – you) to give senior bankers a chance to blow it off before taking a proper 2 to 3 week late December vacation that you will never know.

The holiday party organizers and your de facto superiors lull you into a mode of easy acceptance by appearing on the floor when you’re actually working as opposed to catching you in the middle of your Staubach-esque release from throwing a Nerf football with a random tech company logo on it to someone across the bullpen. Thrown off guard from not having to rush to close a window of Freecell, a game of no-limit online poker with $50 blinds, a blurred view of Britney Spears’s mons veneris doing an impression of Telly Savalas, Monstertrak.com, an updated version of your resume, your Yahoo! Fantasy Football league page, some prohibited day trading on E*trade, your suicide note/explanation for impending killing spree in Word, a video of someone failing to execute a back flip while wielding nunchucks and most frivolously some silly columns on Dealbreaker.com, you continue cranking away on your rather elementary model, knowing something is not quite right.

John "$40 Million Man" Mack isn't the only one having a good day. Carl Icahn and Bruce Wasserstein are probably pretty pleased with life this morning, too: Time Warner shares were up over 1.3% yesterday, closing at $21.65, a high not seen since 2002.

Icahn, who owns 55 million Time Warner shares, is now up over $200 million since waging a contentious proxy fight against chief Dick Parsons earlier this year.

Wasserstein and Lazard, which took big hits for advising Icahn on his failed proxy fight in February, is set to rake in over $28 million in fees if the stock stays at this level and more if it goes higher.

Lazard gets paid about $6.5 million for every $1 that Time Warner shares rise above $18.

Happy Hanukkah, indeed.

CARL'S GOOD TIME [NY Post]

In business journalism, there are certain kind of articles that get written and rewritten every year. There’s the “How To Behave At An Office Party” article that always comes with the holidays. There’s the “Office Romance” piece which usually hits around Valentine’s Day. And, of course, there are those “How To Spend Your Bonus” articles that have been popping up all week.

We’re not going to write one of those. (Unless you count this.) Instead, we’re asking you to write one. Well, not a whole article. But we’d like to hear your ideas for bonus purchases. We’re interested in everything from the mundane (paying off your student loans) to the ostentatious. Imagined or real-life stories welcome. We’d just really like to hear what you are or would shell out for with your hard earned bonus bucks. So go ahead, click that comment thingy below and let it all out.

Yesterday's DealBreaker of the Year candidate, John Mack, received a year end bonus of $40 million of stock and options.

From MarketWatch:

Morgan Stanley CEO John Mack, who received a standing ovation from staffers on the firm's trading floor when he made a triumphant return to the brokerage last year, got a bonus of almost $40 million this week. A filing with the Securities and Exchange Commission late Thursday showed that the firm awarded Mack 461,821 shares of the firm's common stock this week. At today's share price of roughly $80, that's just shy of $37 million.

The filing also said he was granted options to buy 178,945 Morgan Stanley shares at 78.40 a share, a package worth about $4 million.

Next up: Goldman Sachs honcho Lloyd Blankfein.

Morgan CEO Mack pockets hefty bonus [MarketWatch]

At the risk of appearing completely narcissistic, we’re posting an embedded version of the video from this morning. Our ostensible excuse is that certain browsers have trouble with the new CNBC videos. Firefox, for instance, doesn’t seem to play anything but the sound of the video. And we still think CNBC’s got to loosen up a bit and start making all the videos on their site easily embeddable.

Thanks to TVEyes.com, we were able to grab this video, throw it up on YouTube and post it here. (And that’s way too much process for you. Better quit while we’re ahead.)

"What Do OPEC and Hanukkah Have in Common?" asks Stephen J. Dubner on the Freakonomics blog.

He answers:

The Jewish festival of Hanukkah, meant to commemorate a long-ago miracle, begins tonight at sundown. What is the miracle being celebrated?

Not, as you might think, the Maccabees’ very unlikely military victories against the mighty Syrian-Greek army. While that used to be the miracle that Hanukkah was built around, many years ago and for a relatively short time, it was ultimately replaced by a different miracle: that when the Maccabees recaptured their temple and found only one day’s worth of pure olive oil, the oil miraculously burned for eight days. In other words, the Maccabees miraculously overcame a potentially devastating oil shortage.

And so it seems worth noting that today, on the eve of Hanukkah, comes the announcement that OPEC has decided to cut oil production by 500,000 barrels a day as of February 1. This will create our very own oil shortage—admittedly a very minor one, whose intent is to regulate its price. And when it happens, it will probably take a miracle to prevent Americans from flipping out over the cost of gas.

What Do OPEC and Hanukkah Have in Common? [Freakonomics Blog]

The Wall Street Journal reports that more hedge fund managers are taking themselves out of the now completely voluntary SEC registration. The real question isn't why so many hedge funds are backing out but why so many have remained registered. Why potentially subject yourself to additional SEC oversite if it's not required? As far as we can tell, there is just about zero investor demand or premium for registered hedge funds.

Oh, wait. Now we remember why. It's because you probably have to get the lawyers on the phone to deregister. And why talk to lawyers when its not absolutely necessary?

From the Journal:

Dozens more hedge-fund advisers withdrew from registration with the Securities and Exchange Commission in the past three months, adding to the effects of a June court decision that tossed out an SEC rule requiring registration.

Some 275 hedge-fund advisers have withdrawn from registration with the SEC since an appeals court said the rule was arbitrary and couldn't stand, according to SEC statistics gathered as of Dec. 7. That is up from 106 that were withdrawn as of Sept. 14.

Federal regulators for now are taking small steps instead of pushing for oversight powers associated with registration. Wednesday, the SEC proposed raising to $2.5 million the amount in financial investments held by an individual before he or she invests in a hedge fund. The SEC also proposed barring hedge-fund advisers from defrauding investors as the agency seeks to regain some powers called into question by the appeals court's decision.

More Hedge Funds Leave the Ranks Of SEC's Registry [Wall Street Journal]

If any other asset class had its price shooting up in value as much as the price of employing investment bankers, we’d start to wonder what was causing the shortage. In light of all these stories about multi-million dollar bonuses, why aren’t there more investment bankers than there are?

Eddy Elfenbein points to the following theory: most people don’t want to be investment bankers because they have too much self-respect.

I think you have to come up with a story about barriers to entry. One plausible story that occurs to me is that some highly-remunerated aspects of investment banking require experience. For example, if a corporate client is involved in a megabucks merger, the client cannot afford a mistake. So the client would pay a premium to have an experienced M&A (mergers and acquisitions) team.

The scarce resource in M&A is the experienced investment banker. The barrier to entry is that you cannot get experience without doing big deals, and you cannot do big deals until you get experience.

What that suggests is that if you are young and greedy, you would pay an investment bank to give you experience. And in fact, young investment bankers do feel exploited--working incredibly long hours, doing tedious stuff, and toadying up to people in a way that no self-respecting intelligent person would otherwise be willing to do. In return for that exploitation, you earn a decent living, but more importantly, you get the experience that gives you a chance to work/luck your way into the ranks of the truly rich.

A Theory of Investment Banking [Econolog]

More animal spirits of the free market, crocodile hunter style from Columbia Business School. Apparently it is now officially not too early.

This morning CNBC talked us out of our usual Wall Street morning haunt with promises of a automobile tour of scenic Englewood Cliffs, New Jersey. In return, all we had to do was talk about Wall Street bonuses with Joe Kernen, Becky Quick and guest host Alan Murray. And now CNBC has gone and put the whole thing on line. We knew this new website thing would be trouble.

Another financial firm opted to hold it’s holiday party in the presence of semi-wild animals. This one was the Southwest Securities Group’s Dallas office, which held it’s holiday party in the Dallas World Aquarium Zoo. We’re told by a source “familiar with the party” that it featured a januar, flamingos, sharks, a Mayan performance group and a mariachi band!

Rawr! Animal instincts and all that.

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Apple Delays Filing Its Annual Report (AP)
After the first Gulf War, we remember seeing those bumper stickers that said, "Saddam Hussein still has his job, do you?". Someone needs to print one up that says "Steve Jobs still has his job, do you?". After all the man appears to have been involved in backdating to the same degree that other CEOs, many of whom got canned. The company is still dealing with the issue. It says it will delay its annual report filing, due to ongoing investigations into stock options. Also Dell, which has an investigation of its own, said it would delay the filing of its next quarterly report.

Talks With China End With Few Signs of Progress on Currency Issue (NYT)
The US says that Chinese currency manipulation unfairly gives an advantage to its exporters. Ok, but then it must also be a subsidy to American importers. Why is our government taking sides in this fight? And why do we think that if we just send more trade reps over every few months, and issue more stern warnings, the problem will be solved. Once again, it looks like little "progress" has been made, but the two countries have promised to explore the further issue and set up more working groups. While there, Ben Bernanke urged the Chinese government to fly a helicopter over the rural parts and drop Yuan to the poor.

Report Calls for Overhaul Of U.S. Education System (WSJ)
One of the things that Alan Greenspan said, while he still mattered, was that the best economic decision the US could make would be to improve the education system, and ensure the future workers were armed with top skills, particularly in the math and sciences. Unfortunately, what Greenspan seemed to forget is that the more we seem to do to improve our supposedly awful education system, the worse things generally seem to get. Better to just not think about the problem, and hope it goes away.

Things to Be Nervous About in 2007 (Infectious Greed)
It's that time of year again: list time. It's when everyone makes lists like, Top 10 Political bloopers for 2006, or Top 20 Celebrity Fashion Disasters, or 5 Things To Be Thankful For During the Holidays. Paul Kedrosky passes along the World Bank's list of things to be worried about in '07. They are: oil shocks, unwinding of global imbalances, housing market, economic overheating, avian flu, marine fish and climate change. As Kedrosky notes, they've all been talked about a lot, so one might say the worry is all "priced in". As usual it's the black swans that get ya.

$$$Let the Banker Envy Continue: Lehman, Bear Comp News. [Banker's Ball]

$$$25 yr old I-Banker, 5' 11", a full head of "beautiful red hair" (compliment of a museum receptionist at the MOMA), looking for a fun date this weekend. [Craigslist]

$$$Stanford GSBers … Behaving Badly? [Banker's Ball]

$$$ Accounting in my Refrigerator [Long or Short Capital]

Bill Gates: LaGuardia Airport to General Manuel Marquez De Leon Int'l on his Cessna Citation Excel

Big deal Bill Gates, so you have the money to flit off to Mexico on a moment’s notice, or Tangiers whenever the urge strikes you and you went to Harvard (but dropped out—a ha!)—you’ll never have the distinct pleasure of receiving an email like this:

From: redacted

Sent: Thursday, December 14, 2006 3:27 PM

To: Bess Levin

Subject: You're Killing Your Mother

Bess,

We didn't spend $160,000+ for you to work in the manatee porn industry.

Love,
Dad

You can’t buy that kind of satisfaction.

Sponsored by Chicago Board Options Exchange

Who wants to be the interviewee for the final installment-- finally!-- of our BKAT series? Anyone? Anyone? Bueller? E-mail us at tips at dealbreaker dot com, john at dealbreaker dot com, or bess at dealbreaker dot com-- your call! The "winner" will receive drinks with Carney, on Carney. Jamesons only.

We've finally completed our survey of the official candidates for the DealBreaker of the Year award. Now DealBreaker's committed staff of experts is busy debating who should be the winner. While the debate behind the scenes continues, we're giving you the chance to influence the outcome. Although the final outcome won't actually be determined by this DealBreaker Reader poll, we're certainly taking that into account as a factor. So cast your vote below for DealBreaker of the Year.

An old friend of ours used to say you had to choose in life between sex, money and drugs. Drugs ruin your sex and work life, sex or (to be gentler) love interferes with the pursuit of money, and, as a recent study in the Harvard Business Review purports to show, the pursuit of money interferes with your sex life. Pay attenition: we picked this Harvard Business Review study up from the Harvard Crimson. If it’s got Harvard stamped on it twice, it’s got to be right.

Here’s the bad news:

The study, published in the magazine’s December issue, polled high-earning professionals with “extreme” jobs to examine how their work affected their private lives. The results showed that roughly half of those polled felt that their work interferes with a satisfying sex life, and 46 percent said their job negatively impacted their spousal relationships.

An “extreme job,” by definition, involved working at least 60 hours per week. “Extreme” workers also tended to follow unusual and unpredictable schedules, travel frequently, and hold responsibility for profit and loss.

(Thanks to Eddy Elfenbein for the tip.)

‘Extreme Jobs’ Threaten Sex Lives [Harvard Crimson]

Sponsored by Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today – the ultimate stocking-stuffer.

It was not that long ago that it seemed Morgan Stanley was in meltdown mode. It had recently paid out $54 million in a sex discrimination suit, it was bleeding money in SEC fines and a Florida court had leveled a $1.450 billion judgment against the bank. The stock was underperforming, and shareholders were in rebellion, calling for the head of CEO Phil Purcell and a break-up of the company. Top bankers were clearing out of Morgan Stanley faster than day workers from a Home Depot parking lot when the INS shows up.

The man brought in to fix Morgan Stanley is today’s candidate for DealBreaker of the Year, John Mack. And there is little doubt that he has fixed his firm. The exodus of senior bankers has stopped. Morgan Stanley has been acquiring hedge funds in order to remain competitive with its rivals. The stock is up over 40% this year. Profits are up. And very few people are looking to breakup Morgan Stanley.

Mack, the son of a Lebanese immigrant,was born in the last years of the Second World War in North Carolina, and went to Duke University. After college he went to Smith Barney, where he worked on the muni-bond desk. A few years later he landed at Morgan Stanley, where he rose through the ranks of the fixed-income division. In 1993, Mack succeeded Robert Greenhill as president of Morgan Stanley. He gained the nickname “Mack the Knife,” although stories very about exactly why he had this name. One colorful tale from this period has him screaming over the trading floor, “There’s blood in the water. Let’s go kill!”

When Morgan Stanley merged with Dean Witter in 1997, the top job at the combined firm went to Phil Purcell. Mack spent close to four years working under Purcell, leaving his beloved Morgan Stanley only when it became clear that Purcell was not planning to step down or anoint a successor any time soon. For the next few years he served as CEO of Credit Suisse First Boston. When Purcell was eventually forced out at Morgan Stanley, Mack made a triumphant return to the bank where he had made is reputation.

Value Added: There was a time when nearly everyone who wanted to be a bond trader wanted to be a bond trader working for Mack. That was where the action was. And in the last few years, he’s remade Morgan Stanley into a place that was clearly a Wall Street loser into one of the Street’s top firms.

Risk Factors: Mack was known as a ferocious competitor and an intimidating guy to work for. Not for nothing is he called Mack the Knife. (An alternative, even less complimentary name we’ve heard used is “Lady Mackbeth”—for Shakespeare’s lethal woman who always had blood on her hands.) A cloud was cast over him earlier this year when a former SEC investigator claimed that he was fired by SEC officials intimidated by Mack’s political connections. The former investigator had been looking into the possibility that Mack had tipped friends at Pequot Capital about a transaction involving Heller Financial while he was running CSFB, which played a role in the deal. Mack has since been cleared.

Should Mack be the DealBreaker of the Year? So far, Mack is up against challenges from Hank Paulson, Patricia Dunn, Brian Hunter, backdating and Phil Goldstein. He is our final nominee. Tomorrow we will unveil which one of our nominees will win the title of DealBreaker of the year. We invite you to let loose with your inner-most feelings in the comments section below. The best comment to this post will win a copy of Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today.

ABC earns its keep today with 1,000 Variations on How to Spend Your Goldman Sachs bonus. They don't dirty their hand with the plebes who will only be earning around $600k but, rather, skip to the good stuff-- those scoring a cool $100 mill. Theirs here, ours after the jump.

You could feed about 800,000 children for a year ($60 million), recreate the Tom Cruise-Katie Holmes and Brad Pitt-Jennifer Aniston weddings four times over ($16 million), buy one of Mel Gibson's private islands ($15 million), and still remain a millionaire nine times over.

You could provide immunizations for more than 40,000 impoverished children for a year ($37.5 million), then throw a birthday party for your daughter and one million of her closest friends ($60 million). You'd still have enough to buy a different color Rolls Royce for each day of the week ($2.5 million).

You could pay Harvard tuition for more than 1,500 students who couldn't afford it ($70.5 million), provide health care to over 1,000 Americans for a year ($7 million), and still have enough to buy a different Brioni designer suit for every single day of the year ($6,000 suits for all 365 days would cost $22 million).

You could take everyone in the country of Grenada to a Broadway show, then buy the most expensive apartment in New York City (a triplex penthouse at the Pierre Hotel, $70 million), and still have an extra $15 million dollars in your pocket — over 300 times the median income of the average American household.

You could buy every person in Kansas City a pair of Manolo Blahnik shoes (147,000 pairs of $400 shoes comes out to about $60 million) and still have $40 million dollars left — that's more than 500 times the average doctor's salary in the United States (about $80,000).

You could buy 1,000 gala tables at your favorite charity's ball ($10 million), provide winter blankets for 350,000 children in developing countries ($14 million), personally pay Derek Jeter's salary for a year ($21 million), and still buy your own private Boeing jet ($55 million).

What To Do With Your Goldman Sachs Bonus [ABC News]

The pretexting scandal claims another victim, Silicon Valley super lawyer Larry Sonsini. This won't come as a surprise to anyone who watch Sonsini at the Congressional hearings earlier this year, where he came off as at least a bit evasive. Particularly frustrating was the fact that he seemed to be giving board members advice based on the legal work of Hewlett-Packard's general counsel. Kind of makes you wonder what part of outside counsel Sonsini didn't understand.

After the resignation, Mr. Sonsini, in his role as outside counsel, immediately interviewed Mr. Perkins. But he did not find that Mr. Perkins had resigned because of a disagreement with the company, which would have prompted the board to disclose the circumstances to the Securities and Exchange Commission. That has prompted an S.E.C. investigation.

Mr. Perkins also alerted the board to the use of pretexting, calling it illegal. In a response, Mr. Sonsini told him that the pretexting was “within legal limits,” though that opinion turned out to be based on the advice of the H. P. lawyer, now facing charges, who in turn had received the opinion from a Boston lawyer sharing an office with one of H. P.’s private investigators.

The Sonsini firm in late August interviewed people involved in the spying, as well as Mark V. Hurd, the company chairman and chief executive, and concluded again that nothing illegal had occurred. In early September, the company filed a statement to the S.E.C. disclosing the pretexting and stating that it was “not generally unlawful.”

A Congressional subcommittee asked Mr. Sonsini to testify during its investigation of the spying. He was called to testify alongside Ms. Dunn and had to sit in the witness seat for more than five hours, though she got the brunt of the queries. He defended his law firm’s work during the hearing and said that he considered pretexting to be unethical and improper.

H.P. Board Cuts Its Ties With Lawyer

The Daily News today runs the inevitable story on the trickle-down effect of Wall Street bonuses. They interview a BMW salesman, a golf club salesman, an officer of the Bayonne Golf Club, a spokesperson for the city's Office of Management and Budget, a jewelry saleswoman, a couple of caterers and a bartender. For most, they give the name, age and occupation. But for that bartender, well, apparently there's more information you need to know. Like her marital status and the fact that she comes with luggage.

Mona Vijolan, 27, of Glendale, Queens, tends bar at Nebraska Beef, a Stone St. steakhouse in the shadow of the Goldman Sachs building. Lately, brokers haven't blinked at the $63 price when ordering "The Stockbroker," a hunk of aged prime rib served with a half-pound lobster tail.

"This is the month for bonuses and when the market's been good, our customers are even more generous than usual," said Vijolan, who's married and has a 4-year-old daughter. "This year has been great," she said, adding that $100 tips are commonplace.

Emphasis added by DealBreaker. Gratuitous reference to the bartenders marital status provided by the News.

Unbelieva-bull spending spree [Daily News]

More former Amaranth guys landing jobs in London, according to the Financial Times:

US alternative asset manager The Carlyle Group becomes the latest firm to hire staff from Amaranth Advisors, the US hedge fund manager that collapsed in September, according to Financial News, who quoted the news source as HedgeWorldNews. Scott Davidson, a former Amaranth structured product portfolio manager, John Bailey, an ex-long/short energy equities manager at the firm, and Jaime Gualy join Carlyle Blue Wave, the firm’s new hedge fund unit.

Someone suggested that we start keeping track of where Amaranth's orphans end up working. Below we've linked to to previous items on the subect, and we're initiated a new tag to cover this: "After Amaranth." If you've heard anything more about Amaranth orphans getting jobs, not getting jobs or interviewing somewhere, please email us at tips@dealbreaker.com. Thanks!

People: Lehman Brothers, Carlyle Group, Fleming, Robeco-Sage Capital [Financial Times]

Previously on DealBook:Amaranth's London Squad Landing On Its Feet
Goldman Scoops Up Amaranth Bond Traders

We cannot remember a time when there wasn't concern about possibly widespread insider trading in the credit derivative market. Today, the Wall Street Journal is prompted to cover the story by a statement "12 trade associations for the U.S. and global financial markets" who are promising "to promote fair and competitive markets in which the inappropriate use of material nonpublic information is not tolerated."

Twelve! Must be serious.

But the Journal does a good job of covering the mechanism for how inside information may be leaking out into the markets.

The potential misuse of confidential information is a significant concern as more banks and institutional investors now have access to private information through their participation in the booming market for syndicated loans, which are financed by groups of lenders.

A number of companies and private-equity investors are using syndicated loans to finance major acquisitions or refinance old debt, and typically provide lenders with more information and financial projections than they share with stock and bond investors.

One deal mentioned in the Credit Derivatives Research report was the acquisition of Freescale Semiconductor Inc. by a consortium led by private-equity firm Blackstone Group. In the weeks after Blackstone approached the company about a possible acquisition in May, prices of derivative contracts tied to Freescale's debt climbed more than 25%, according to data from Markit Group. When news of a $17.6 billion buyout deal became public in September, those contracts more than tripled in value.

Since we used to work in the syndicated loan business, we can safely say that it is impossible to underestimate the level of inside information the lead banks on a syndicated loan deal get during the diligence process. We've been on deals where the bankers arranging the deals probably knew more about the company than the chief financial officer. It would be surprising if some of this information didn't occasionally leak out.

What's more, the syndication process involves getting on the phone with a lot of potential lenders to sell the debt and spread around the risk. This is certainly a tip-off that something is happening at the company, and often it's something that will probably increase credit risk.

That said, it's important to emphasize that securities laws do not make all trading on non-public information. The Journal quotes Larry Ribstein on this point.

"There's definitely a lot of trading on nonpublic information, and that's only going to increase with the growing clout of hedge funds," says Larry Ribstein, a law professor at the University of Illinois.

But he notes there is a distinction between that and insider trading on information that is illegally obtained. "There's all kinds of information floating around that could signal merger activity," Prof. Ribstein adds.

Trading Groups Are Agitating Over Apparent Leaks on Street [Wall Street Journal]

We've been known to make a run for the border ourselves. Despite our proximity to such gems of cheap, fast New York taco spots as San Loco, every now and again we like to drop by Taco Bell just to bring back the memories of being an impoverished student in a taco starved town. But just know we saw a Taco Bell executive on CNBC talking about the E.coli incidents. When asked whether he still eats Taco Bell, he replied that he eats it every day. Every day! Ugh. Just the thought of it...There were reasons why we always called it "Toxic Hell" in our college days.

[In case you missed them: Reason #2 was: E.coli. And, of course, Reason #1 it sucks to be a Taco Bell executive: You're an executive at Taco Bell.]

Goldman's London investment banking partners ponied up £6000 a piece for last night's Christmas party. It definitely must make the champagne taste a bit sweeter knowing that the party is coming out of a PMD's wallet instead of, say, being considered a firm expense therefore taking a chunk out of the bonuses available to the lower level troops.

Goldman Sachs celebrated its record year with a lavish Christmas party in London last night, paid for by its investment banking partners.

The US bank asked its 22 London-based investment banking partners each to contribute up to £6,000 towards it.

"The bankers paid for it as a thank you to their people," an insider said.

The party was for Goldman's investment banking division in London, after the bank's merger and acquisition deals hit a six-year high.

Remember to get your holiday party stories in to us at tips@dealbreaker.com. Those who submit the best stories will receive a copy of Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today by Jack and Suzy Welch.

Goldman Sachs toasts record year [The Guardian}

Sponsored by Bloomberg.com

Northwest likely to veto Continental/United merger plan - report (AFX)
You can almost add Continental/United to the list of airline mergers that could have been. Turns out that Northwest airlines owns a "golden share" in Continental, that allows it to veto any proposed mergers until the year 2025. And word is they're going to use it. Golden shares are a popular concept in Europe, as countries try to keep a small bit of control over formerly state-owned enterprises that have gone private. But you don't hear about them as much here. Did Continental even think about this, or had they totally forgotten? And seeing as how we have yet to see even one of these talked-about mergers go through, doesn't it seem a little premature to talk about how the 'wave of consolidation' will lead to higher fares in '07?

Bankers Report More Mortgages Being Paid Late or Not at All (NYT)
Naughty naughty America. You're not getting your bills paid on time. Chinese investors are getting lower rates on purchases of mortgage-backed securities, because you're spending your cash on flat-screen TVs, instead of your home. According to a survey, the rate of delinquencies for home mortgages is up to 4.7%. Not surprisingly, low-income earners and those with bad credit are the most likely to get into mortgage trouble.

Merck Wins Another Vioxx Trial (WSJ)
12 down, 27,000 to go. Can you believe it's already been a couple years since the Vioxx story broke, and we've only made it through 12 trials, most of which have been wins for Merck. With every win, the company's decision to fight the cases on an individual basis looks more brilliant, rendering the who Vioxx affair to be a regular, quarterly charge with only minimal impact on the company's bottom line. The big problem for the prosecution in most of these cases is that the plaintiffs are often alive -- no widow to speak of -- which means the case has to be argued on merits and science, as opposed to emotion.

Chinese Stocks Close at Record High (AP)
Around the world, stocks are at record highs. First, in China where the Shanghai composite index turned in its highest all-time close, gaining 1.2% for the session. Then in Europe, the Dow Jones Stoxx 600 index rose to its highest level in six years, marking the ultimate vindication for Old Europe, as much of the gains are due to a re-invigorated Germany. In the US the S&P 500 also approached a six-year high, in yesterday's session. If it hits, we might say that the move is a "confirmation", to use trader parlance. All of this supports the thesis that we're finally in the post-post-Enron era, market by the end of major criminal prosecutions, the rollback in securities regulation, and the boom times, in terms of stock market performance.

$$$RAB Capital's holiday party: likely better than yours, more fishy. [Telegraph via Banker's Ball]

$$$Hedge Funds and Love [Long or Short Capital]

$$$Question of the day: would an investment banker or a pharmacist take part in group sex (or mushrooms)? [Craigslist]

Sponsored by Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today – the ultimate stocking-stuffer.

One of the biggest stories in finance this year was going to be the rule that hedge fund managers would be required to register with the SEC. Instead, it turned out to be that this regulation was surprisingly short lived, thanks to the bold lawsuit filed by Phil Goldstein, the founder of Bulldog Investors and today’s candidate for DealBreaker of the Year. Many in the hedge fund industry had complained about the rules but despite having the wealth to sustain a lawsuit, none of them put their money where their mouths were except Goldstein. This might have been testimony to the industries fear of angering the regulators, or to the lack of interest on the part of people who run hedge funds from engaging themselves in anything that doesn’t involve making money.
Goldstein’s suit argued that the registration rules were arbitrary and not based on existing securities laws, and a federal appeals court agreed. The SEC set about reconsidering its rules, and decided it would not—at least for now—attempt to find a creative way around the court’s ruling by adopting some other registration rules. Instead, it took several months to consider the rule and just today adopted a rule requiring raising the financial bar for “accredited investors” permitted to invest in the funds. Recently Goldstein launched a second lawsuit, contending that rules requiring funds to disclose assets violate the intellectual property rights of hedge fund managers by revealing their investment strategies to others.

Goldstein was raised in blue-collar Brooklyn, and worked as a New York city civil engineer for 25 years before moving into money management. With $225 million under management, Bulldog may be small compared to some funds but it’s clear that Goldstein is anything but small time.

He’s also very modest, referring to his investing strategy as “investment for dummies.” He comes off as witty and friendly in person but he can be absolutely devastating in arguments. When confronted by one supporter of the SEC disclosure rules who kept insisting that nothing of value was being disclosed because the information was often dated. This was Goldstein’s trap. If the information was worthless, collecting it was an arbitrary exercise, and all the more reason for the courts to overturn it, Goldstein replied. Ouch!

Goldstein’s lawsuit changed the hedge fund world this year. And that is why backdating is a candidate for DealBreaker of the Year.

Value Added: Goldstein stood up where no others would, daringly risking provoking the wrath of the SEC. The entire hedge fund world owes Goldstein a debt of gratitude.

Risk Factors: The end of registration for hedge funds helped provoke a world-wide cry for new regulations in the industry, and has most recently resulted in the SEC imposing stricter requirements for hedge fund investors. One day we might look back on the old registration process and wonder if it really was worth overturning.

Should Goldstein be the DealBreaker of the Year? So far, Goldstein is up against challenges from Hank Paulson, Patricia Dunn, Brian Hunter and backdating. But we’re not done yet. We invite you to let loose with your inner-most feelings in the comments section below. And if you have other candidate you’d like to nominate, please feel free to email us at tips@dealbreaker.com. (If you can use the format we’ve laid out above, all the better. If it’s a hassle, we’ll take ‘em as we get ‘em.) If we use your nomination, you’ll get a free copy of Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today.

More on Phil Goldstein:
A David Toppled Hedge-Fund Rule, But Was Goliath Really So Bad? [Wall Street Journal]
Do Hedge Funds Hold 'Trade Secrets'? [Business Week]
Hedge-Fund Hero? Maverick Attacks SEC Restrictions [Wall Street Journal

Thanks to Crossing Wall Street we’ve discovered the treasure trove of Jim Cramer’s scribblings for the Harvard Crimson. This one—describing Cramer’s job as a hot dog vendor at a ballpark—seems to tell us a lot about where Cramer developed his signature style, and also where he learned to work for commissions.

A ball park vendor has to create a style to survive the competition of a hundred other barkers, for he gets no salary. He works strictly on commission, usually about 16-per-cent of his sales. In most stadiums this minute cut yields about six cents per hotdog, and two and one-half cents per coke.

Creme dela Cramer [Harvard Crimson]

Skilling arrived at the low-security prison a little after 1 p.m. EST [today] in a small silver SUV. The vehicle pulled up to the front gate, and at least four people got out. Skilling hugged a woman who arrived with him, and the entourage walked into the prison. A few minutes later, everyone except Skilling emerged and the SUV drove away.

The indentity of the woman Skilling hugged was not known.

No word on whether or not she's in on his scam.

Skilling Starts Longest Prison Term in Enron Case [AP via NYTimes]

A long, long time ago we had dinner with a prominent federal appeals court judge who was known to be a proponent of the idea that regulatory agencies tend to be controlled by the very interests they are meant to regulate. To show how smart we are, we explained how this kind of regulatory capture happens—the standard public choice stuff about how industry has an immense and concentrated interest in the operations of the agency, while the broader public it is supposed to protect has only a slight, passing, and disparate interest and is largely too ignorant to follow the debate.

“Wrong!” the judge told us. Describing the agencies as “captured” he said implies that they were ever independent, when in fact the entire process of agency control by special interests operates right from the start. “Agencies are not captured, they are created at the behest of special interests and operated to meet the goals of those interests,” he said.

Since then, we’ve tried to tamper our cynicism about agencies but to little avail. Because things like this keep happening: yesterday JPMorgan Chase hired Stephen Cutler, the former head of enforcement at the SEC, to be it’s top legal counsel.

And of course, this is hardly the first time an SEC hotshot has landed in a Wall Street sweet spot:

The appointment makes Cutler the third former SEC enforcement chief on Wall Street, following a path cleared by former government regulators, including Deutsche Bank AG General Counsel Richard Walker and Gary Lynch, the top lawyer at Morgan Stanley. Cutler will succeed Joan Guggenheimer, who was among the closest advisers to JPMorgan Chief Executive Officer Jamie Dimon before she died of cancer in July at age 54.

It’s no news that our top hedge fund guys are going in big for high-priced art but it is news that some of them are starting to move from private collections to taking larger roles at our public museums. We’ve already touched on Citadel founder Ken Griffen’s endowment of the “Kenneth and Anne Griffin Court” at the Chicago Art Institute. Today the New York Times focuses on Stevie Cohen protégé David Ganek, who went on to found Level Global Investors. It seems Ganek has been recruited to be a Guggenheim trustee and a recently succeeded in raking in $4 million, making him the museum’s top fundraiser.

Getting hedge fund kings to raise money for you is probably not a bad idea. For one thing, these guys know how to get the wealthy to open their wallets. What’s more, they have lots of other rich guys who work for them. And it never hurts to throw some dollars at the bosses favorite charity.

But what’s in it for them? The answer to that question is also the answer to the question asked by DealBook in response to a New York Observer feature on New York’s most powerful families—namely, “Where Have The Wall Street Dynasties Gone?” There’s not one prominent Wall Street or hedge fund family—other than a few names with historic ties to finance but not really actively involved—on the list. And don’t you believe for a second that its because guys and gals pulling in $25 million or more a year don’t want to be considered prominent or powerful. These art museum wings, rotundas and board memberships are all about getting on the list of important families.

It’s kind of nice to know that even in this day and age of money culture, sometimes just earning it isn’t enough. It’s what you do with it.

Bloomberg reports that RC (which manages approximately $2.8 billion) will refund "80% of clients' money over the next 2 1/2 years and keep the fund open for at least three years." The Multistrategy Global Fund lost more than 2% from the beginning of 2005 through this past August, the "unforseen circumstances" apparently being "that we'd lose a ridiculous amount of money."

Ritchie Capital to Shut Flagship Multistrategy Fund [Bloomberg]

One of the things that has helped us endear us to Jeff Skilling—other than our fanatically contrarian hearts that attach themselves readily to public enemies and our appreciation of the fact that much of what Enron has been vilified for really that different from the practices of much of corporate America—has been the repeated stories of his problems with alcohol. There was that incident in New York City, where he may or may not have gotten into some sort of brawl in a bar. And the more recent arrest for public drunkenness in Texas. How can you not like a guy like that?

But today's news accounts have got us second-guessing Skilling. And so we are at least considering a charge so serious that it has as far as we know, never been leveled in American history—the charge that Jeff Skilling is a fake drunk. You see, today we learned that Skilling could have as much as a year reduced off his jail term if he enters an alcohol treatment program. So could these very public alcohol-related incidents, all of which occurred after his legal troubles began, have been a plot to create this tunnel to an early escape from the Big House?

We, of course, have no idea about the secrets of Skillings heart, much less his the alcohol content of the blood pumping through it. But would you put that past one of the "smartest guys in the room?"

Bonus season officially got underway yesterday when Lehman Brothers announced the restricted stock bonuses of it's top executives. Chairman and Chief Executive Officer Richard Fuld is getting $10.9 million in stock for 2006, and five other top executives at Lehman will divide up another $25 million of stock bonuses.

Fuld's stock bonus is actually less than last year, when he got $14.9 million, which has left some scratching their heads. But this probably reflects two things. First, Fuld's compensation package at Lehman was recently re-negotiated to guarantee him $180 million of stock on top of his annual salary and bonus, to be paid over the next ten years provided he stays with Lehman. And really, how much Lehman stock does any one person need.

Second, some of Wall Street's top executives are becoming wary of stock bonuses due to the critical attention they get from analysts when they sell the stock. Such insider stock sales get reported to the SEC, and can provoke concerns about the financial health of the company. So, at the top levels of investment banks, these stock awards can become very illiquid.

One thing that seems certain is that Fuld's total compensation for 2006, a year in which Lehman performed very well even in comparison to its high-flying rivals, will not be lower than last year's $34.5 million.

Lehman Awards Fuld $10.9 Million in First Stock Bonus [Bloomberg]

We've been pointing out for a long time that the really (potentially) explosive issue raised by former SEC investigator Gary Aguirre was not the now-officially dismissed suspicions on insider trading by Pequot Capital or illegal tipping by John Mack, but the still largely univestigated charges of favoritism at the SEC. Recall that Aguirre claimed he was fired from the SEC for trying to subpoena John Mack, who was then about to become the top man at Morgan Stanley. Now the mainstream media, for reasons of its own, has enjoyed playing up Mack's connections to the Bush administration but a more relevant fact is probably his status as the head of a major Wall Street bank. This raises the fear that the SEC has been captured by the very industry its supposed to regulate. (By the way, even this might be too optimistic, since the words "been captured" imply that the regulatory agency was not created, owned and operated by the largest investment banks right from the start.)

In today's Wall Street Journal, the Senate's Finance Committee chairman Charles Grassley says that this is precisely the matter on which the committees investigation is focused.

Your Dec. 8 editorial "The Pequot 'Scandal'" leaves the impression that Gary Aguirre and I are the only two people concerned about the way the SEC handled the Pequot investigation. In fact, Mr. Aguirre's concerns have been echoed by both former and current SEC officials, who provided candid testimony to our committees.

The focus of the Senate investigation I'm conducting with Sen. Arlen Specter (R., Pa.) isn't John Mack and Pequot; rather, it is whether the SEC retaliated against one of its lawyers and whether it wields an even hand in looking out for investors big and small. Our review is evidence-based, and so far the evidence suggests the Pequot investigation was fraught with problems, Mr. Aguirre's termination is suspect, and the inspector general failed in his duty to conduct a thorough and independent inquiry.

Sen. Chuck Grassley (R., Iowa)
Chairman
Committee on Finance
Washington

An SEC Investigation Fraught With Problems [Wall Street Journal]

The Daily News is reporting that New York Attorney General (he's not governor yet) Eliot Spitzer is accusing UBS Financial Services of moving clients into a brokerage program that charged clients fees based on the value of their assets rather than a per-trade fee. Sounds like the sort of program designed to serve hedge funds started getting applied to indivduals, allegedly because UBS created a financial incentive for brokers to move accounts into the program.

The News lists three of the worst abuses/mom-and-pop type investors that Eliot Spitzer likes to be seen defending:

A 91-year-old client who paid $35,000 for four trades over two years. They would have cost her about $2,000 in a traditional brokerage program.

Another client who was charged $24,000 for one transaction.

A couple who were charged more than $23,000 each for two trades, a sum that totaled about 20% of the income from their family farm.

David Stockman is under investigation for his role running Collins & Aikman, an autoparts company. You might recall the name Stockman. it became a household name when he was appointed budget director in the first Reagan administration. Before that he had been a member of Congress with a reputation for being allied with the tax-cutting supply siders.

Shortly after he started working on the Reagan budgets he voiced his complaints about the budget process built around cutting taxes while deficits mounted to a reporter named William Greider, and that conversation became an article titled "The Education of David Stockman." Despite the scandal of this article, which referred to the supply-siders tax-cuts as a "Trojan Horse," Stockman managed to stick it out in the administration for several more years. After leaving in 1986, he published a book claiming that the "Reagan revolution" had failed because Congress had refused to embrace spending cuts.

After leaving politics, Stockman spent the next dozen or so years running around the finance world, first at Salomon Brothers then at Blackstone. Eventually he left Blackstone to start his own private equity firm, Heartland Industrial Partners, L.P., which specialized in buying up companies in decidely unfashionalbe industries, especially the auto industry. A few years ago, Stockman installed himself as CEO of Collins & Aikman. And, apparently, that's where the trouble really started.

From the New York Sun:

Federal investigators and prosecutors are preparing a case against Mr. Stockman and other corporate officers from Collins & Aikman and expect to present the findings soon to a grand jury in New York City, the official said.

The investigation is focused on whether Mr. Stockman and other corporate officers at Collins & Aikman misled investors about the financial health of the company by artificially inflating stock prices. ABC News reported on the case Monday.

Reagan Official Is Investigated For Possible Fraud [New York Sun]

They are the anti-Brian Hunters. In a year when a volatile energy market brought down the hedge fund Amaranth, Goldman's energy traders did so well that they are said to have added points to the firm's bottom line. And now the Post is reporting that some energy traders may get bonuses as high as $100 million.

At the top end of the pay scale, it has been reported that Goldman was likely to pay a "golden 25" managers, bankers and traders at least a cool $25 million each.

But a source close to the firm told The Post that some of the top performers may actually get four times that.

The $100 million bonus babies are in charge of making big bets with Goldman's money on the direction of the prices of commodities, including oil and natural gas. And this year, they won big.

So anyone want to guess who exactly might be a candidate for the $100 million bonus?

$16 Bil Sachs of Loot [New York Post]

Sponsored by Bloomberg.com

Skilling's reprieve short-lived (Houston Chronicle)
Do not pass Go. Do not collect $200. Go directly to jail. That's what a court told Jeff Skilling, just hours after it appeared to open the window on the possibility that he might remain free on bail during his appeal process. But, check this out. The court noted that there were "serious frailties in Skilling's conviction". That's got to give him some hope. Perhaps he could get a handful of his convictions overturned on appeal, not enough to let him free immediately, but enough so that he might one day walk out of jail a free and healthy man. Might be a more interesting appeal than we thought.

Google's Options Option (Forbes)
Those Google guys are at it again, always thumbing their nose at financial tradition. First they tried their alternative IPO, which angered the street and ended up costing them billions because they didn't have the investment banks acting as boosters for the stock. Now they're creating their own options market for Google shares, in hopes of helping employees better manage risk, and to better determine the accurate price of employee stock options. It's something of an alternative to the Black-Scholes method of doing it. Although Google may be the first to implement something like this, they're not breaking new ground academically speaking. Cisco's John Chambers has proposed things like this before, as have other academics.

United Air, Continental in Merger Talks, People Say (Bloomberg)
According to people, who have sources, who have been apprised of rumors, discussions are underway for yet another airline merger. Well, not yet another airline merger; there haven't been any yet, just a lot of talk. This time it's United Air and Continental, which if they combined would make for the largest domestic airline, measured by passengers. If it actually happens, and that's a big 'if', then it will be interesting to see how it goes, seeing is there isn't much precedent for this sort of thing.

Home Depot says buys China's The Home Way (Reuters)
Best Buy recently announced the purchase of a Chinese electronics retailer, leaving some to wonder whether the business model of selling Chinese-made goods at a solid markup will work in China. It looks like Best Buy isn't the only company opting to buy instead of build in the country. Home Depot announced the purchase of The Home Way, which will give it a modest footprint of 12 stores in six cities. That leaves Wal-Mart as one of the only big box retailers to go it alone, building their own stores from scratch. Although, we still think they should buy out Wu-Mart, just to avoid any brand confusion down the road.

$$$Verizon: Simple arithmetic throws us for a loop. [YTMND]

$$$ Wishing You a Very WASPy Christmas [Banker's Ball]

$$$Thespian needed to play Greg Montgomery: 58, Caucasian. A successful investment banker, Greg is the father of Logan and Dylan, a fit, confident, silver-haired upscale man of wealth and privilege, in "Brooklyn to Manhattan, "a new independent thriller. Consider this your chance to finally meet Carney, as he, in his own words "will OBVI be trying out of the part." [Craigslist]

Barry Diller: Licenciado Adolfo Lopez Mateos Int'l to William P Hobby on his Cessna Citation X
NB: This flight has not departed yet; it is scheduled to take off/arrive tomorrow at 05:23AM GMT/12:47AM CST. All you rabid Diller fans out there, bust out the head shots and get yourselves an autograph worth putting under glass (we're looking at you, Nicky Kristof. Drew Pinsky, you're also being watched. You know why).

Stevie Cohen: Austin Bergstrom Int'l to Collin Co Regional At Mc Kinney to Miami Int'l to Palm Beach Int'l to Brussels Natl on his Gulfstream IV
Somebody's trying to (somewhat gauchely) rack up some last minute miles.

Warren Buffett: North Eleuthera to Palm Beach Int'l on his Cessna Citation Excel.
Next year in Jerusalem!

Sponsored by Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today – the ultimate stocking-stuffer.

No list of the biggest movers and shakers of 2006 would be complete without including Brian Hunter—the once esteemed and envied energy trader who move and shook the hedge fund Amaranth right out of business. Hunter came to Wall Street from Calgary, where he had worked for a pipeline company that was getting into the energy trading business. After a tumultuous few years at Deutche Bank that ended with Hunter suing his employer, Hunter was hired by Amaranth founder Nick Maounis and Amaranth's top energy trader Harry Arora (who had come to Amaranth after the collapse of Enron to start the energy desk). For a couple of years, the Hunter and Arora team did extraordinarily well, becoming the primary source of gains for Amaranth during a period when its equity investments are said to have lagged behind its competitors.

Hunter was richly rewarded, reportedly pulling down $75 to $100 million in compensation in a single year. SAC Capital's Stevie Cohen attempted to hire Hunter away from Amaranth, and Maounis responded by making Hunter the co-head of energy trading and allowed him to move his operation up to Calgary. That was the year that Hunter bet big on natural gas futures, and won big when hurricane Katrina struck and disrupted energy supplies. Some reports say that Hunter made $1 billion for Amaranth in 2005.

Things changed in 2006 but Hunter stayed the same. Arora left to start his own energy trading fund, leaving hunter as the undisputed head of energy trading at Amaranth. He once again bet that the spreads on natural gas futures would widen. All the best forecasts were predicting another stormy summer. Al Gore had a hit movie explaining that global warming was more or less permanently transforming the Caribbean into a cauldron of hurricanes. But the storms never came to pass. The margins on gas futures contracted. Amaranth found itself forced to sell off assets to meet margin calls. Before long it was clear that the losses from Hunter's trades would bring down the hedge fund altogether.

If Hunter's story just involved the collapse of one fund, he probably wouldn't be a candidate for DealBreaker of the year. But Amaranth's collapse gave new life to calls for hedge fund regulation. Regulators were relieved that Amaranth didn't turn into another Long-Term Capital Management, the hedge fund which famously failed and required action by the Federal Reserve to bail out its creditors. But talk of "systemic risk" from hedge funds started to emerge from the mouths of regulators in the US and Europe. If the European Central Bank gets its way and creates a global regime of hedge fund registration, hedge funds everywhere will have Hunter to thank.

Value Added: It's been said that in finance that you're only as good as your last trade. But that's not true. Over the years Brian Hunter made quite a lot of money for a lot of people. Even his last, disastrous trades can be seen as providing two important lessons—that even the mighty can fall and that capital markets can thrive in the wake of a multi-billion dollar collapse.

Risk Factors: One word—Amaranth.

Should Brian Hunter be the DealBreaker of the Year? So far, Brian Hutner is up against challenges from Hank Paulson, Patricia Dunn and backdating. We invite you to let loose with your inner-most feelings in the comments section below. And if you have other candidate you’d like to nominate, please feel free to email us at tips@dealbreaker.com. (If you can use the format we’ve laid out above, all the better. If it’s a hassle, we’ll take ‘em as we get ‘em.) If we use your nomination, you’ll get a free copy of Winning: The Answers: Confronting 74 of the Toughest Questions in Business Today.

From Gawker...

Viacom's holding money back to look good for Wall Street Producers and talent are calling and complaining to MTV Networks about past due invoices. Ever since Tom Freston was ousted a few months back MTVN has tried to look healthy for Wall Street. With this in mind MTVN hasn't issued payments for 2 weeks and rumors are circulating that no payments will go out for the rest of the year. This might help MTVN look more successful at the end of a very difficult year (companies split and Freston fired). Employees have been told that if they tell those seeking payment that money is being held back that they will be fired.

This tactic might actually work. Wall Street can never resist a (BS)D.

Irresponsible Rumormongering: Stiffed By MTV? [Gawker]

We've been getting some good reports of holiday parties, and today's best came in the comments to our item this morning asking for more information about this years parties. Go ahead and leave more like this, or email your stories to tips@dealbreaker.com. The best stories will be promoted from comments into full DealBreaker posts. So, so 2.0.

First up, Eustacia Vye (named for our second favorite Thomas Hardy character) thrills us with a tale of Credit Suisse's holiday party from just before the tech boom came to an end.

The asset management division of Credit Suisse celebrated its simul-cuisitions of Warburg Pincus and DLJ in December of 2000 with a black tie affair at Chelsea Piers. I had just started in the business with a junior level analyst position - I skipped out on rent that month and squandered my salary on a knockout YSL dress for the occasion. large cap growth and tech paid the bills that year. Champagne flowed at every table, all night. A portfolio manager actually made out with his assistant on the dance floor. I got hit on egregiously at this and future parties...political incorrectness was definitely a fact of life - the fund guys referred to themselves as rock stars and acted accordingly.

Over the past 6 years, $80 billion in assets and 500 employees have walked out the door. The term "holiday" party was changed last year to "end of year" party because someone was apparently offended by the word Holiday. (Jehovas Witnesses, I think.) And in an hour, today, the annual party will actually be held in a CONFERENCE ROOM. I don't think there will be a carving station.

It's okay, though, because 75% of the guys who quit this place started their own hedge funds and I've been invited to crash three more parties. (Plus I still have the dress.)

Lately, you can't pick up a newspaper go online without reading about how great Goldman Sachs is. Goldman Sachs has the best bonuses! Goldman Sachs' fourth-quarter profit practically doubled! Goldman Sachs employs 83 and 47%, respectively, of the men and women who belong to my temple. Goldman Sachs this. Goldman Sachs that. It's not like we don't love ourselves some good GS now and then, it's just that their "Everything Is Coming Up Roses!" campaign was starting to get into our craw, a little bit, of late. Which is why we'd be lying if we said it wasn't a little gratifying to learn that former NJ postal worker Jason Smith was just sentenced to 33 months in a federal prison for his role in the "worldwide insider trading ring orchestrated by the former Goldman Sachs employees, David Pajcin and Eugene ["twinkle toes"] Plotkin." It's not like Lloyd Blankfein's going to lose sleep over this. But it might just spoil his 4 o'clock cavier snack and cat nap, just a smidge. We'll take what we can get.

Ex-postal worker gets jail time for insider trading [Reuters]

One of our favorite bloggers, Leveraged Sell-Out, today takes a photo tour of the financial district, complete with quotes...er, well, quote bubbles and thought bubbles...from various folks he encounters. The photo above is taken about half a block away from DealBreaker's Wall Street branch office.

My Midday Stroll [Leveraged Sell-Out]

Matt Goldstein over at theStreet.com reports today that the SEC has filed civil securities fraud charges against Gryphon Partners, the Dallas-based hedge fund.

The securities fraud charges against Gryphon, led by Edwin "Bucky" Lyon IV, arise from a more than two-year-old investigation into allegations of manipulative trading in the $22 billion-a-year market for PIPEs, or private investments in public equity.

The Securities and Exchange Commission, in a civil lawsuit filed Tuesday in New York federal court, allege Gryphon and Lyon "realized more than $6.5 million in ill-gotten gains" from 2001 through 2004.

Regulators allege Gryphon illegally shorted shares of at least 35 companies that sold discounted stock in PIPEs, a type of financing favored by small-cap companies in desperate need of cash. The SEC contends Gryphon "employed a variety of deceptive trading techniques" and misappropriated inside information to carry out its scheme.

SEC Sues Gryphon [thestreet.com]

The Federal Reserve kept interest rates unchanged Tuesday for the fourth straight time as worries about inflation continued to trump concerns about the slowing economy.

B.B. will, however, be losing the beard before January 1, sources say.

Fed Keeps Rates the Same for 4th Time [AP via NYTimes]

We haven't seen details of this plan yet but it already sounds scary. Apparently the Europeans want to set up some sort of registry that would be updated daily, although it's unclear exactly what kind of information would need to be updated. But, you know, it might not be a bad time to get in the business of advising hedge funds on regulatory compliance.

The European Central Bank (ECB) called yesterday for an international register of hedge fund activity to fend off the possibility of a global financial crisis emanating from the rapidly expanding industry.

The bank’s backing for a central register — which could be updated daily or perhaps more often — came as Germany, which takes presidency of the Group of Eight industrialised nations next year, said that it had received “very encouraging” signals from London and Washington in support of its initiative to increase the transparency of hedge funds.

International regulators have agreed that direct control of the $1,500 billion (£766 billion) hedge fund industry would be difficult to implement and that the highly leveraged funds’ involvement with all “significant” regulated financial institutions, such as banks, should be monitored.

ECB calls for hedge fund register to fend off financial crisis [Times of London]

Nuvelo Inc. top investors Wayne Holman of Ridgeback Capital and Wendy Commins of Ziff Brothers Investments lost a combined $125.6 million yesterday. Nuvelo dropped 80% yesterday when the company ceased trials on an experimental blood-thinning drug, due to failure to meet goals in two studies. The Post refers to Holman and Commins as "lovers" and imagines that the one "lover" (pronounced 'lov-ah') will likely say something along these lines to the other "lover," this evening:

Not tonight, honey. Really. Not tonight.

Maybe, maybe not. Poverty is, after all, one powerful aphrodisiac.

DOOM FOR 2: $125M: HEDGE HONEYS HIT [NY Post]

The Federal Reserve is meeting for the last time this year today. A statement is expected a quarter past two this afternoon. So we thought we'd take a quick reader poll in advance of the statement on the question of what the Fed will do.

Yesterday the full DealBreaker crew hit a Manhattan watering hole in honor, among other things, of Jeff Skilling's last night of freedom. The former Enron honcho was scheduled to report to jail, and we decided to raise a couple of glasses to the end of his freedom. Apparently, we were drunkdrinking without cause--late yesterday a federal appeals court pushed off the day when Skilling has to report to prison.

From the Wall Street Journal:

Late yesterday, Mr. Skilling's lead criminal defense attorney, Daniel Petrocelli, said he received notice that the Fifth Circuit Court of Appeals had ordered a delay in his client's scheduled report date to a federal prison in Waseca, Minn., where he was to begin serving a more-than-24-year prison sentence. Mr. Skilling received that sentence as the result of being convicted earlier this year in a Houston federal court on 19 criminal counts, including conspiracy and fraud, arising from Enron's December 2001 collapse into bankruptcy. Mr. Skilling, who has consistently maintained his innocence, had been planning to fly to Minnesota this morning to report to the prison, Mr. Petrocelli said.

Skilling's Check-In To Prison Delayed Over Bail Request [Wall Street Journal]

Perhaps we forgot to mention this earlier, but DealBreaker is putting together a guide to holiday parties. The word on the street is that the nearly universal theme at holiday parties is: the return to decadence. And this clearly is something we need to cover.

We won't be able to get to all the parties, but we want information about all of them. The where, the who, the what and the when. We want to share this information with you. But you know how this works. It takes two to tango, and whole room to throw a ball. So email what you know to tips@dealbreaker.com. Soon we'll publish our list. (Which will also be useful to plot your own crashing strategies.) Thanks!

The New York Post's Roddy Boyd reports that Amaranth has claimed another victim, BONY's Ivy Asset Management's Adam Geiger:

The chief investment officer of hedge fund outfit Ivy Asset Management, who led the firm into its ill-fated position in Amaranth Advisors, stepped down yesterday.

Ivy, a unit of Bank of New York, lost about $50 million when Amaranth, a former high-flying hedge fund based in Greenwich, Conn., lost over $6.5 billion when one of its traders made a series of disastrous natural gas bets.

One of Ivy's customers invested in the busted fund was the $73 billion New Jersey state pension fund.

Adam Geiger, who took over the reins of Ivy's $16 billion portfolio of hedge fund investments less than a year ago, left the fund

Amaranth Tainted Ivy Boss Resigns [New York Post]

But now you can do in solidarity with protestors against the most recent race charged police shooting.

Black New Yorkers demanded the police chief's resignation at a rally today and unveiled plans to shut down Wall Street after police killed a black man on his wedding day when they fired 50 bullets at three unarmed men.

Sean Bell, 23, who was out for a bachelor party, was killed on November 25, hours before he was to marry the mother of his two children. Two friends with him were wounded, one critically.

The Queens District Attorney is investigating the incident.

The December 12th Movement, a human rights group that organised the protest, wants Police Commissioner Raymond Kelly to step down and called for a "Day of black outrage'' on December 22 that would "shut Wall Street down''.

Black community rallies over police shooting [Courier Mail]

The British press are full up with stories of some American intelligence agency bugging Princess Diana, although this seems to have been only incidental to the bugging of Ted Forstmann. We know it's hard but try to follow along at home. Princess Di was dead long before 9/11 so this wasn't some War on Terrorism Bush administration paranoia. It was the Clinton administration spying on Forstmann. What exactly were they afraid Ted was telling Di? Anyone care to venture a guess?

American intelligence agencies were bugging Princess Diana's telephone over her relationship with a US billionaire, the Evening Standard has learned.

She was even forced to abandon a planned holiday with her sons in the US with tycoon Teddy Forstmann on advice from secret services, who passed on their concerns to their British counterparts.

Both US and British intelligence then forced Diana to change her plans to stay with Mr Forstmann in the summer of 1997, saying it was too "dangerous" to take her sons there.

Diana was bugged by secret service in US [This Is London]

Sponsored by Bloomberg.com

Nasdaq launches hostile $5.3 billion bid for LSE (MarketWatch)
The NASDAQ won't take no for an answer. After trying in vain to sweet talk the London Stock Exchange into hooking up, the NASDAQ has turned to brute force and coercion to satisfy its needs. It already owns much of the LSE, and put a price of $5.3 billion for the whole thing. Shares in the LSE are trading higher than the offering price, on optimism than another bidder will emerge. But for this to happen the bidder would need to wrest away NASDAQ's stake in the company, which sounds tough.

LCD price-fixing probe spreads; LG.Philips shares sink (Reuters)
If it's tech, and some Korean companies are involved in producing it, there's going to be a price fixing investigation, it would seem. First it was DRAM, and the investigation focused on companies like Hynix and Elpida. Then the nefarious SRAM cartel came under investigation, even though nobody knows what SRM is. Now it's LCD screens, the kind used in a range of devices, like cameras and cell phones. The alleged infractions took place around 2004, apparently. Well, obviously, since any jaunt over to Best Buy will reveal that the price of screens and monitors is plummeting.

Paulson in China: Tread softly, forget the big stick (Asia Times)
Hank Paulson says the way to deal with China, in terms of trade issues, is to convince and cajole rather than to threaten. But on his trip to the country, he brought along a dozen Cabinet secretaries, to help him gang up on Chinese officials during meetings. Going to China to have them fix our trade imbalances sounds a little bit like going to Mexico to get help on fixing our drug problem, which our leaders do all the time. How is the President of Mexico going to break our celebrities of their coke habit? How is the Chinese Premier going to stop me from buying a Lenovo laptop? Not gonna happen.

Toyota Review Reveals Need for More Quality Checks (WSJ)
Reputations can be hard to shake. Ask most people about the quality of American cars, and they'll say they're a bunch of low gas mileage clunkers that are designed to fail five miles after the warranty is expired. Then they'll wax eloquently about their new Toyota, which has never been to the shop (not even for an oil change, miraculously). But in fact, according to mechanics, US cars are getting much better in terms of quality, and last year, Toyota has to recall more cars than it sold in the US. Most of the recalls were probably or minor things, but the company is now realizing that it needs to rededicate itself to quality, noting that several models have been rushed into production, without having done a proper analysis.