$$$The Problem With Planting Spyware. [gary-weiss.com]

$$$We Know These Wings, Will Make You Happy - Trump In [SuperMogul]

$$$Blackberry Shoot-Out (RIMM) [WallStrip]

Specialists at certain posts on floor of the New York Stock Exchange have been told not to close up shop yet, according to NYSE CEO John Thain, who spoke moments ago to CNBC's Maria Bartiromo and Bob Pisani. It seems that the floor trader nightmare we described last night as "the death of the God of the Closing Bell" continues.

"Well, Maria, what you saw a little bit today and also yesterday was we had record message traffic volume through our system and several of the servers experienced queues. Which means that they don't fail but they're a little bit slow and they build up a traffic jam of messages. And so what we wanted to do today, as we did yesterday, was let that traffic jam, that cue clear," Thain said.

Thain played down the significance of this afternoon's delays, emphasizing that orders could not be entered after the 4 P.M. closing bell.

"Many times when there is an order imbalance at the end, it take a few minutes for the stocks to actually come up with a closing price. And that's really what we were doing today. There were some orders we wanted to make sure it got to the post and then we closed the price," Thain continued.

He estimated that it would take only a few extra-minutes to complete the process, telling Maria Bartiromo that the posts should be closed by 4:15.

If he was in charge of his own graphics it probably would have read "Business As Usual" instead of what CNBC tagged him with: "Specialists Told To Keep Trading Books Open After 4:00 PM ET."

When it rains, it pours, as they say. Yesterday we treated you to a little update on everyone’s favorite Wall Street Warrior, Tim Sykes. Today, he was good enough to offer us some insight on The Dow, Punxsutawney Phil, and his friend/housekeeper’s feelings on the scrutiny the media’s placed him—the housekeeper—under, of late.

Let’s talk about yesterday. What are your thoughts?
Who cares! Its a small percentage move in the overall scheme of things and we've been long overdue for a correction. Hopefully this puts back some fear into the marketplace because everybody has gotten used to stocks moving gradually higher over the past few years.

The character Dow 道 (or Tao, depending on the Romanization scheme) means "path" or "way", but in Chinese religion and philosophy it has taken on more abstract meanings. Explain.
In Taoism, one cannot force their destiny, they must be receptive to the path laid before them. The Dow is the Tao of our country as we look to it as a guide to the overall health of our economy. While this is somewhat of a ridiculous notion since there is no way to tell exactly how long the Dow lags the economy or vice versa, it has become an overarching symbol rather than an exact indicator, much like the famous groundhog, Punxsutawney Phil.

Yesterday, everybody became very nervous very quickly because our economic groundhog saw a rather large shadow and scared everybody into believing that we are due for an economic winter. AKA recession. I believe it to be a little less than accurate than Mr. Phil.

How did the events of yesterday affect your live-in help?
My roommate is tired of getting shit on by the press that has inexplicably decided to focus on that part of my story probably because I have not done anything significant lately to warrant all this most recent round of attention. This should all change once the book that I am currently working on is published and blows the water out of people's perception about the hedge fund industry.

P.S. My roommate has no comment [of his own] regarding yesterday's market drop.

Do you think you've got what it takes to rally the Dow on pure Tim Sykes Juice (TM) alone?
No, all the juice and the Jews in the world are not enough to keep this super tanker from well, tanking. This will either be the beginning of a short drop, an extended drop, or some sideways action which would inevitably then lead to either a short drop, an extended drop, or a short pop or an extended drop. whether it is a short drop, an extended drop, or a short pop or an extended drop, that will surely lead to more sideways action before leading to either a short drop, an extended drop, or a short pop or an extended drop.

I hope you understand my sarcasm in that really anything can happen because it is overwhelmingly impossible to predict with any definitive accuracy if this is just a blip or a major change in direction for the nation's economic Punxsutawney Phil.

Wanda or Plum?
Crazy Eyes Killa.

Earlier: Tim Sykes Has The Gargantuan Cojones To Ask His Friends To Clean His Dirty Underwear (And That's Not Necessarily A Bad Thing)

You called today's market-action correctly in this morning's Reader Poll, reading the early signs of morning rise as an indicator that the Dow would close up for the day. It's up nearly sixty points as we post this item. Good work!

So now we'll turn to you to answer the only remaining pressing question of the day: what caused yesterday's downturn? If you want to do a little homework, feel free to peruse our Market Plunge archive. Or check out Abnormal Returns' post-plunge round-up.

One of the things we avoid like the plague (and other clichés!) over here at DealBreaker headquarters is trying to explain the markets. Sure, we'll link to an entertaining or surprising analysis. Say, like this one on Gawker from banker-turned-novelist Dana Vachon. But we don't put much stock in the business of journalists explaining why the market did this or that on a particular day. Mostly because the explanations are so humiliating. It's always "profit taking" or "liquidity coming back into the markets" or some such nonsense. Whenever we read this stuff we wonder: Oh yeah? If you're so smart, why aren't you rich?

One former journalist described the problem like this: "The problem is that people are paid to write these kind of stories. It's their job at the paper. And they can't just write the Dow went up because the stock of Company A did this, the stock of Company B did that, the stock of Company C did this. They have to write a theme. Find a pattern. And because the theme is basically imaginary, it means they have to turn on their internal bullshit generators. And it's no surprise that a bullshit generator generates bullshit."

Gary Weiss picked up on a particularly unfortunate bit of market mind-reading from the Wall Street Journal yesterday:

The Wall Street Journal reported a few minutes ago as follows:

Stocks declined sharply Tuesday, with the Dow losing more than 200 points, as weakness in China sent markets around the world into the red, durable-goods data disappointed and uncertainty increased about Iran and Afghanistan.

Now, I'm not picking on the Journal, and I used to write stuff like this myself, but does anyone really know why the market is down just under 2% as of this moment? (Actually the S&P cracked 2% during the time I wrote this item.)

That's the fundamental problem with writing spot news about the markets. Nobody really knows why markets go up or down. It may actually be more accurate to report that the Dow lost more than 200 points because "traders watched other traders watching other traders watching other traders... sell."

Felix Salmon is even blunter in his post entitled " No one knows why the market fell, and it doesn't matter anyway":

Dan Gross gets it. Andrew Leonard gets it too. In fact, any halfways-decent financial journalist gets it, and, if honest, would simply write a story saying "the market went down and we don't know why". But instead we're inundated with "explanations", from an assassination attempt on Dick Cheney (Daily Intelligencer: "Are investors balking because Cheney was attacked? Or because he wasn't hurt?") to a drop in one of the most boring economic series in the US. (Go on – quick – tell me what a durable goods order even is.)

The Wall Street Journal's editorial page notes the dangers of market mind-reading but can't resist it anyway:

Any equity selloff as large as yesterday's will produce a multitude of explanations. Among other culprits, we heard about "overbought" Chinese stocks that were due for a correction, a weak durable goods report, the Kabul explosion aimed at Vice President Dick Cheney (see below), and former Federal Reserve Chairman Alan Greenspan for declaring Monday that a "recession" was possible later this year.

Our own "whodunit" contribution would point to the mortgage-related markets, which sold off nearly as much as stocks. This reflects the cracks appearing in the housing credit markets, especially in subprime loans but with some damage up the income chain as well. Along with emerging markets such as China, this is where the excesses have been most notable. And when Adam Smith does a house cleaning like yesterday's, he sweeps the dirtiest corners first.

Even bolder, David Lat at Abovethelaw thinks maybe he caused the market crash:

As you can see from our Programming Note, we stepped away from the computer at around 3 PM today.

Which is just about the time the Dow Jones decided to take a 200-point plunge. The Dow ended the day down 416.02 points, or 3.29 percent -- in terms of points, the worst day since the market reopened after 9/11. (The S&P 500 fell 3.47 percent, and the Nasdaq fell 3.86 percent.)

Coincidence? We think not. Apparently the stability of world financial markets requires us to keep ourselves planted in front of our computer all day.

So does Paul Kedrosky, and for the same reason:

Whoa, sorry about the market decline. If I had known that spending the day in meetings and on airplanes and generally incommunicado would make the markets tumble like this, I would have stayed on blog sentry and posted reassuring thoughts. Too late now, apparently.

But everyone knows it was really Matt Drudge who tanked the market.

With nobody quite sure as to what happened yesterday—was it a ‘Glitch’? Two? Ten? Elves? Ben Bernanke, a couple of Quaaludes and a voodoo doll?—we figured it would be best to turn to a media and celebrity gossip site called Gawker.com for some answers (who do you think got us to understand Enron, huh? The geniuses over at the WSJ?). While we were totally confident in their abilities to explain the whole mess to us, they’d actually already contacted their resident Wall Street expert, former J.P. Morgan analyst-cum-Mergers and Acquisitions author, Dana Vachon, for some enlightenment.

So let's pretend I don't know anything about the stock market. Actually, there's no need to pretend: I don't know anything about the stock market. What the hell happened yesterday, and why should I care?

What happened is that a rumor got started that the Chinese government was going to clamp down on liquidity; i.e., the Chinese had too much money in the stock market, and were going to take measures to reign in speculation, investment, etc. So, for the first time...ever...the tail wagged to dog. Historically, the U.S. coughs and the rest of the world catches cold; yesterday, China hiccupped, and everyone had a heart palpitation.

And what happened today?

The Chinese government announced that this was just a rumor, positive U.S. growth news came out, and our government and financial establishment got the ducks in a row: announcements of confidence, etc., and everyone believes we are in for another 18 months of growth. But yesterday was a historic day.

Some of the wiser voices on the internets are pointing out that the Great Glitch story-line doesn't exactly pass the smell test.

Eddy Elfenbein at Crossing Wall Street says:

One more word about yesterday: The sell-off was not caused by a computer glitch.

The sell-off was already happening. The glitch was in the accurate reporting of what was happening. This is Wall Street going through the looking glass. If stocks are going down, and no one reports it, are they really going down?

When the computers finally caught up with the trades (see video), some traders thought it was an obvious misprint. No, everything until that point was incorrect. Only when they learned what they really had been doing did they start to panic. At which point, stocks started to rise.

And over at the Big Picture, Barry Ritholtz agrees:

First off, computer errors didn't cause the sell off -- they only delayed the reporting of the trades.

If anything, these delays made the sell off look more orderly than it really was. Contrary to what you may have read elsewhere, the glitch only made the selloff look more mild (orderly and less severe) until it turned more wild as the delays spooled out and unwound. I have seen several early news reports and comments that got this exactly ass backwards.

Anyone who will uses this as a false excuse for Tuesday is a weasel.

We've noted before that the faddish devotion to compliance-oriented corporate governance—encouraged by everything and everyone from Sarbanes-Oxley, it's attendant regulatory schema, some of the more opinionated-parts of the business press and the reigning corporate governance gurus—has serious costs that are all too often ignored. The whole corporate-spying pretexting scandal at Hewlett-Packard was probably the public example of this.

Now Tom Perkins, a veteran from the HP wars, has made his first public remarks since the scandal and directed them at exactly this problem. According to Perkins, too many corporate board members are so obsessed with compliance that they don't know much about the company on whose board they are serving. He draws a useful distinction between two-types of directors--the guidance geeks who understand the business and the compliance nerds who understand legal rules and regulations.

The San Jose Mercury News reports:

During his 35-minute talk, Perkins outlined two kinds of board members, placing himself in the category of an old-style venture capital-type who is extremely involved in the business. He called that type a "guidance director.''

In contrast is the new emerging director, whom he called the "compliance director.'' He described that person as someone increasingly focused on Sarbanes-Oxley requirements, who jumps from company board to company board, dispensing and heeding advice from consultants and lawyers.

Perkins, 75, derided the latter, which he called a "plug-to-plug compatible director'' who believes he or she is equally capable of serving on a bank board as on that of a technology behemoth such as HP.

And Perkins thinks things are only getting worse. The compliance nerds are beating out the guidance geeks.

But today, he said, with too few "geeks'' on its board, HP has evolved fully into a compliance board, "possibly untroubled by worries about technology and marketing strategy.''

"I think the guidance board will vanish and it will be replaced by compliance boards who just listen to lawyers and consultants,'' he said, referring to the general corporate trend.

Ex-HP director laments corporate board trend [Mercury News]

[Cross-posted from the original on SuperMogul.]

“Where were you the day the market sort of blipped?” isn’t necessarily an inappropriate question, considering the ‘once in every half-decade or so’ nature of yesterday’s “correction.” We’ve amassed some accounts of the bloodbath and its aftermath. It does kind of sounds like some sort of Civil War recount the way some people are putting it – with vivid descriptions of corpses everywhere, like that Goldman trader, although Bernanke’s comments today were hardly Lincoln-esque. In fact, Bernanke’s comments were like if Lincoln got up at Gettysburg and was like, “A better credit score and several hundred points ago…yadda yadda yadda…guns are still working well, our view on state’s rights hasn’t changed…carry on.” Anyway, here are some takeaways from various floors on the Street, which, to tell the truth, are much better if (at least mentally) narrated by David McCullough (the primary Ken Burns’ documentary narrator) with “Ashokan Farewell” playing in the background (just play this while you read).

As for this morning, an individual who works on a volatility desk told us the following:

People are just treading lightly (trying to cling to some semblance of a poker face)...I think most people agree with Bernanke in that there should really be no change in expectations i.e. nothing fundamentally has changed...but on the flip side no one seems to be taking any big bets (as far as I can tell)... The vix (volatility index) yesterday opened at 12.12 (previous day had a 10 handle), hit a high of 19.01 (which is crazy), and closed at 18.31...today it opened at 17.21 and has just gone straight down (currently in the 14s)...trying to price anything right now is comedic. Also the pick-off artists have come out of the wood-work...it is like Christmas for them.

Whereas vol traders like when there’s blood in the water (at least sometimes), some were having trouble treading. One derivatives trader (who’s made quite a bit in the last few years) yesterday could do nothing but croon Daniel Powter lyrics after market close:

People were taking it quite calmly to be honest, although we all lost a ton of money. Trust me, I was putting on a brave face, but I was losing my shirt. I had my worst pnl day in my career. Fortunately futures are up half percent or so.

His advice – if we're down another 2% it’s probably time to buy.

Not everyone was running around shirtless yesterday, scribbling orders and prices on the walls in human (and sometimes animal, don’t ask) blood and feces. Some people had a slower day than usual, recounted by an equity derivatives sales trader:

Well, a lot of options traded yesterday but a lot of it was customer to bank as opposed to broker dealer. Things were moving too fast, with people just going straight to floor as opposed to having us “shop,” not a lot of actual vol trading (which is what we normally deal with). A lot of people hitting bids or lifting offers on the electronic exchanges (ISE), thus me sitting with my thumb up my butt, yet my clients busy as shit. That's also why a lot of guys back in like ’99 and ‘00 who were market makers on the floor made beaucoup dinero, a ton of orders were just market order, like “where can I get done.”

Most I-bankers, however, remained un-phased by the market movement (in no small part because firewalls are starting to prevent access to everything but Excel and PowerPoint). One banker told us:

Yesterday? World events? No clue. But I can tell you what would happen if this one EMS non-client acquires almost every other company in its industry, not that it’s looking to. Our MD just had a pitch-gasm. I was just thankful it wasn’t during normal working hours. (please help me)

Color us skeptical when it comes to all the blather blaming yesterday's sell-off on a computer glitch. Or glitches. Why? Because it seems the main thing that caused the computer glitch was so many sell-orders pushing through the system at once. If selling caused the glitch, how could the glitch cause the selling? Okay, maybe there's a sequential, feedback loop thing going on here but isn't it a little too soon to confidently point the finger at the robots?

The Wall Street Journal has some interesting reporting about what happened when the electronic trading systems broke down. Most the the tale, of course, comes from floor traders who, of course, mostly fear and loathe the robotic masters who are threatening their jobs. So you probably want to discount some of the "manual process which never breaks down" talk for self-interest from the people new NYSE executive Duncan Niederauer once reportedly referred to as "five guys named Vinny."

After the Dow problem was resolved, other woes bedeviled traders. About a half hour before the closing bell rang at 4 p.m. Eastern time, traders reported having problems sending electronic buy and sell orders to the NYSE, which recently began converting to a largely electronic system.

At one post on the floor, traders resorted to writing buy and sell orders on a dry-erase board. Most of the letters next to the stock symbols said "S," for "sell."

"Go manual if you can," said Art Cashin, a longtime floor broker for UBS, to traders at about 4 p.m. "Take paper if you have to."

Traders were still negotiating stock closing prices 10 minutes after the 4 p.m. close. "You're done, 50 grand at 74.20," Michael Rutigliano, a floor broker at the NYSE, yelled into his headset shortly after the markets were supposed to have been closed.

Mr. Rutigliano reflected the frustration floor traders are feeling these days, as their role becomes diminished by the electronic age. "We were able to revert to a manual process that never breaks down," he said.

Louis Pastina, an executive overseeing trading systems at the Big Board, said "a rush of orders" in the last hour of trading overwhelmed the exchange's computers, leading to delays and an unknown number of orders that were never completed. Some trades may have been done on alternative markets or in an after-hours crossing session the NYSE extended by a half hour to 5:30 p.m., he said. He added that floor traders were finishing trades manually until around 4:25 p.m., about 20 minutes later than usual.

A spokesman for the NYSE said the new hybrid trading system -- which matches most trades electronically but sends some to traders on the exchange floor -- worked fine, but that another system that feeds it couldn't handle the onslaught of orders.

We've been trying to get to the bottom of exactly how many of these so-called computer "glitches" affected the market reporting and trading systems yesterday. Immediately after close, the Dow Jones Company was reporting one "glitch" in the system that calculates the various Dow Jones indexes while NYSE and NASDAQ were remaining mum.

But our trader friend was telling us about further problems, including a a slow down in getting trades processed. And now we've got the official report of a second glitch or a series of glitches caused by the high volume of trades.

From Bloomberg:

The sudden plunge fueled a wave of new orders that overwhelmed systems at stock exchanges in the final hour of trading. Warren Meyers, a managing director at NYSE brokerage Walter J. Dowd Inc., started scribbling trades on paper after the delays made it impossible to determine the fate of an electronic order. He ended up with more shares than he wanted.

So the official story seems to be that the high volume sell-off triggered problems with the Dow Jones systems, which then created an illusionary instant sell-off around 3PM, which triggered more selling and fouled up the electronic trading systems at the stock exchanges.

It's a nice story if they can get it to stick. Pay no attention to the sell-off behind the curtain. Keep looking at the malfunctioning electronic images. And for godsakes keep that yappy little dog under control, Dorthy!

Bad Data Spur Market Doubts Among U.S. Investors [Bloomberg]

If any of you out there coping with major losses as a result of that thing that happened yesterday were looking for a shoulder to cry on in the form of our Chairman of the Federal Reserve, keep looking. The Beard of Reasoning told Congress this morning that the U.S. financial markets are functioning normally and, also, that they seem to be “working well.” He also noted that the 416 point slump did not alter his view on U.S. economic growth and that “there is really no material change in our expectations for the U.S. economy since I last reported to Congress couple weeks ago.” After that rather blasé assessment, he proceeded to “give the crowd its money’s worth” with some material from his usual set, and harshly warned that a failure to do something regarding the upcoming retirement of the Baby Boomers “could lead to serious economic harm” and that “a vicious cycle may develop in which large [budget] deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits." That's right-- vicious!

[Ed.'s note: We tried really hard to find a picture of BB that said "meh," but apparently there are none. Who knew.]

Bernanke: Markets are 'working well' [Fortune]

Way back in January we broke the news that Wall Street Journal op-ed editor Tunku Varadarajan was breaking through the paper's version of a Chinese Wall, moving from the editorial to the news side. Today the New York Observer's Michael Calderone explains why this is such a big deal to people who think this sort of thing can qualify as a "big deal." (We're reminded of the quip about why academic battles are so fierce: because the stakes are so small. When it comes to journalism you can multiply that by ten. Minute stakes, fiercer battles.)

“Pedro Martinez moved from the Boston Red Sox to the New York Mets,” said Paul Steiger, the managing editor of The Wall Street Journal. “He’s not going to be loyal to the Boston Red Sox.”

Mr. Steiger was turning to the baseball analogy to explain another feat of switching sides: On March 1, Tunku Varadarajan is due to join The Journal’s newsroom as an assistant managing editor, after more than six years in the paper’s staunchly conservative opinion department.

But Mr. Varadarajan’s transfer is something more improbable than a pitcher changing teams. At the legendarily divided Journal, it’s more as if Major League Baseball were to announce that it was hiring Mike and the Mad Dog as umpires.

“He’s not just a guy who writes about the arts,” one Journal staffer said. “He writes opinionated, right-wing columns …. It’s hard to see how the news pages benefit from someone like that.”

The split between the parts of The Journal is both ideological and operational. Under editorial-page editor Paul Gigot, opinion writers freely dispute the facts reported in the rest of the paper, if so inclined. In return, news staffers disavow the contributions from Mr. Gigot’s side.

Op-Out: Varadarajan Hurdles Journal’s News-Editorial Divide [New York Observer, second item]

You really don't need an explanation for this video, do you?

I’d like to break from the royal “we” for a moment because I need to get something pretty serious off my chest. I woke up this morning in a cold sweat, my heart pounding and an overwhelming sense of dread coursing through my body. Could it be possible that I’d lost everything? All my money, my hopes, my dreams? Gone, vanished, in the blink of an eye? What would I tell my family? My kids, who I’d always planned on clothing and feeding and sending to college? How could I face them? And everyone else who depends on me? I wanted get under my bed and hide, if only to stop the quaking in my boots.

Just kidding! I have no dependents and even if I did, it wouldn’t matter, because all my money is invested in offshore accounts, frozen concentrated orange juice futures, and cocaine. Other people, however, may have not fared so well. Take the woes of this erstwhile Goldman trader, which a reader-friend was good enough to catch us up on, late last night:

“Not sure if this is on your radar, but a Goldman trader took a $1B (yes, that is $1 Billion) position in a sub-prime mortgage index last week. He was fired today after the position suffered a roughly 35% decline. I can’t verify if it was closed out yet, but the loss thus far stands at about $350M. Talk about a bad week.”

Those of you who miss Keith Hahn's writing on DealBreaker will probably want to head on over to our little brother SuperMogul, our site for c-level executives and people who aspire to view the world from the corner office. Here's Keith on Larry Summers Nostradamus act at Davos:

Maybe women are naturally bad at math and science (you can hear the screams of “That’s not what I said!”), because at least one of former US Treasury Secretary Larry Summers’ ominous predictions came to fruition yesterday. Summers and Jean-Claude Trichet (European Central Bank President) told us to beware the ides of March late February at the World Economic Forum in Davos a month ago, warning that risk in the current market was “ludicrously underpriced.” Harkening back to the “upbeat” summer of 1914, Summers warned that a re-pricing of risk in the market (or maybe even a global liquidity crisis) was looming, citing stock market volatility, narrowing emerging market vs. government bond yield spreads, historically high leverage multiples on European LBOs and hedge fund leverage reaching 1998 levels.

The former general counsel of McAffee yesterday became the eleventh person charged with criminal offenses related to stock-options backdating. The feds have said they are examining some 140 companies for backdating but its not hard to see why McAffee's former general counsel ended up high on its lists for criminal indictments.

First, McAffee was an early and somewhat easy target for the feds because the company has had to restated its financial results five times in the past five years. The company faced securities fraud charges in connection with an alleged scheme to overstate revenue from 1998 to 2000. It settled with the authorities by agreeing to pay a $50 million civil penalty, but neither admitted nor denied any wrong-doing. It's former controller, however, pleaded guilty to one count of securities fraud.

Kent Roberts, the indicted former general counsel, allegedly manipulated his own stock options grant date, as well as that of his chief executive. He then allegedly turned around and fired the controller for manipulating stock options grant dates. Nasty. His indictment has been expected for at least two weeks now.

Roberts seemed to have tripped the self-dealing alert that we've seen in other backdating indictments, and engaged in some corporate backstabbing that makes him hardly a sympathetic character. Here are the details on the indictment from the Wall Street Journal:

According to a seven-count indictment returned by a federal grand jury in San Francisco, Mr. Roberts in late 2000 became dismayed that an option grant made to him earlier that year was "underwater" -- that is, its exercise price of $29.62 was higher than the stock's price at the time. An option can only be cashed out for profit if the exercise price is below the open-market price of the stock.

According to the indictment, Mr. Roberts directed the company's then-controller, Terry W. Davis, to change the grant's record so it appeared to have been granted April 14, 2000, a day the stock fell to $19.75. That immediately made his grant more valuable, though he never later cashed out any of the options for a profit.

Mr. Roberts got Mr. Davis pushed out of his job, the indictment says. In 2002, Mr. Roberts headed an internal probe of irregularities at McAfee, which was then known as Network Associates Inc. Upon learning that Mr. Davis, who wasn't identified by name in the indictment, had among other things lowered the exercise price on some other options, Mr. Roberts recommended that he be removed from his finance-department position, the indictment said. It added that Mr. Roberts didn't tell internal auditors or the SEC that Mr. Davis had manipulated Mr. Roberts's own grant.

It's notable that the prosecutors seem to have concluded that the self-dealing trigger was pulled when Robert's manipulated his own grant even though he never cashed out the backdated options. This is important because the "no gain from backdating" has become a major line of defense for some corporate executives, including Apple chief Steve Jobs. So the question remains: will the feds indict Jobs or will the "Apple Rule" continue to protect him? (More on the "Apple Rule" from the man who coined the term here)

McAfee's Ex-Counsel Is Charged With Options Fraud [$$] [Wall Street Journal]
McAfee Ex-GC Indictment [pdf file via WSJ Law Blog]

The question of the hour is "which way is the market headed today?" The answer is obviously "no-one really knows." But don't let ignorance stop you from making your opinion heard. Let us know where you think the market will end up at the closing bell today. We'll keep this poll open until around noon.

Last night we stayed up late drinkingworking to bring you some extra coverage on the extraordinary plunge in the major market averages. Since many of you probably don't read past the "Opening Bell" in the morning, here's a quick guide to the afterhours posts.

• Moments of Terror. A trader tells us what it felt like to be at his trading desk when the Dow dropped over two-hundred points in a matter of seconds. One word: goosebumps.
• It Was A Glitch. A group of NYSE floor traders knock back a few and talk about the biggest one day sell-off in years, as well as the role of electronic trading in the sudden drop.
• CNBC: Five Minutes On A Tuesday Afternoon. Just in case you were napping at 3 PM yesterday, here is CNBC's coverage of those five minutes when the stock market averages fell faster than either the anchors or the CNBC graphic department could keep up.

Shanghai Shares Rebound Nearly 4 Percent (Forbes)
Now that the world takes its cues from the Shanghai stock exchange, we might as well keep leading off with its performance. After looking like it might plunge again -- it fell 1.3% on the open -- shares rebounded, leading to gains of 4%. The government did its best to make investors happy. It promised no major policy changes, no new taxes, or anything else that should upset the market. Instead, it simply renewed its commitment to stability. If you thought traders in the US had a rough day yesterday, the stress felt by Chinese government officials was almost certainly ten times worse. Not to denigrate our finest, but nobody wants to be in charge when a full-scale riot of a billion people breaks out, which is what would happen after a few more days of a market collapse.

World Markets Plunge Across Much of Asia for Second Day Amid Global Jitters (AP)
Meanwhile, the rest of Asia did not get its reflexive snap back. Several markets gave up at least 3%, following the drop in Shanghai and the US. Like the Chinese government, several other governments tried to sound bullish, but it was no use. Everyone knows that these people don't have the power that Chinese officials have. Who cares if the president of Japan says the economy is fundamentally sound? What's he gonna do about it?

Oil Falls on Concern Stock Market Drop May Signal Slower Growth (Bloomberg)
There are always bright spots during times like these. For one thing, if the economy goes in the tank, then it means Ben Bernanke is likely to cut interest rates -- always a popular move. And if the economy slows down, oil should continue to fall (just in time for summer driving season!). The crude stuff came off its highs of the year, lowering to just over $59 following the swift downward action in global markets. Seems like it could come a lot further, seeing as it was a lot lower not so long ago. Guess we'll need to take our stock market lumps for that to happen.

A Recession That Arrived on Cats’ Paws (NYT)
The great thing about a sharp drop in the market is that it can be incredibly clarifying. Suddenly, a lot of issues that you sort of kept in your periphery come squarely into view. And then you start to wonder why you weren't focusing on those things the whole time. So, for example, there's a lot of ugly stuff going on in housing right now, which is a real old story, but really got heightened a couple weeks ago when HSBC announced bad results. And traditional economic numbers aren't looking so hot. The manufacturing index has been veering towards contraction for some time, but nobody really noticed until yesterday, or today as the case may be, if you're reading the Economix column of the times. So all of the sudden, with the issues more clearly at hand, we can put on hold the talk about goldilocks and soft landings, and ask whether we can build a case for a recession.

Markets is Asia are opening down. Tokyo down. Shanghai opening down. There's some talk that Shanghai shares might rally. You can almost hear the sounds of all those fingers of the bulls in the China shop crossing.

And that will just about wrap things up for tonight's special Market Plunge coverage. But we still want your stories, of course. Make money on a bear raid on the market? Stare into the abyss as your long portfolio plummeted? Missed the whole thing because you were pondering how the durable goods report would affect the ten-year yield? Send your tales of the biggest downturn since 2001 to tips@dealbreaker.com.

[Thanks to TVNewser for putting the video up on YouTube.]

It was a day that went from ordinary to absolutely terrifying in a matter of seconds, according to a trader who spoke with DealBreaker earlier tonight on the condition that we not identify him or his workplace. The giant plunge in the stock market averages late on a chilly Tuesday afternoon had traders wondering if some sort of cataclysm had struck, the trader explained just three hours later.

"Our first thought was that they blew up Grand Central, or the Empire State building, or the GW," the trader said.

A Bearish Day Turned Terrifying

Just moments before the plunge it appeared to be a quite normal day, albeit one especially friendly to bearish traders such as the one we spoke with tonight. A few computer glitches seemed to be slowing down trades. The bears were running with comments about a recession from former Federal Reserve chairman Alan Greenspan and a market downturn in China. The market was on a steep sell-off, but there were few signs of what was to come.

"We're all at the desk, long, short, trading, trying to squeeze a dime from a nickel, watching the stock market tick down," said the trader. "We're at two hundred. Two-seventy. Two-ninety. Soon we start having software problems. Especially with NYSE stocks. It was the crazy volume they were having today. Everything is slow."

"Then we get a print out nowhere, saying Dow at 470. We couldn't tell whether this was for real or some sort of screw-up," he continued. "I'm on instant messaging. In a chat room with like 75 other traders. Everyone asking whether this was for real. Then CNBC comes on saying Dow down 500. In one tick the market dropped two hundred and fifty points."

Dow Jones would later blame the sudden downturn on a technical problem. The high volume in trading had apparently caused a slowdown in the computers which calculate the Dow Jones Industrial Average. When the secondary computer systems were brought online, the backlog of trades pushed through all at once, pushing the average down hundreds of points, Dow Jones said.

Fears Come Alive

Traders had heard a few hints that a possible terrorist attack or international incident was coming. But years of color-coded alert changes, high-profile press conferences warning of attacks that never happened and uncountable rumors of impending doom have taught many traders to filter this out as noise competing against real market signals.

"We had heard whispers of bomb scares on the subway," the trader told us. "But we weren't focused on that until we saw the Dow numbers."

"People were saying it was the Empire State building but I can see that from my office. I would have heard it. I knew that wasn't it. I thought Grand Central or the GW," he said.

Goldman Falls Off The Cliff

All of the components of the Dow Jones were down for the day. Stocks that had long been staples of the bull market saw their prices drop. Shares in Goldman Sachs were trading down several dollars.

"Goldman fell six bucks. People were going nuts. There were no bids for five or six points. We haven't seen that kind of thing for years. This was no high-flying tech stock. It was Goldman-fucking-Sachs," the trader said.

"For a minute I wondered if they had blown up Broad Street. Maybe Goldman Sachs no longer existed," he said.

A Profitable Day For Shorts

Even in the biggest downturns, however, a well-positioned trader can make money by shorting stocks and riding the downward momentum toward profitability. Sometimes money is made because of skill. Sometimes it's luck.

"It was a great day for some of us. I'm a bear. Some of us made more than we had in years. I know people who lost money, of course. It was that kind of day," the trader said.

"But, regardless of my positions, you know what I felt when I saw that drop of 500 points?" he said. "I felt goosebumps. I thought it's an attack. A building. A bridge. I'm a bear but this was a totally unexpected, out of left field."

In the moments after they saw the drop, the trader didn't rush to his terminal to push through new positions. He waited for news about what had caused the unexpected and unprecedented (at least in recent years) plunge.

"We were waiting for CNBC to flip to a CNN feed showing an attack. Looking at Bloomberg. Hitting refresh on DealBreaker. Waiting to see who would have the scoop with what was going on," he said.

As we concluded our conversation the trader asks us if we knew what had caused it. "Was it some sort of technically triggered sell-off?" he asked.

We told him that Dow Jones was blaming a computer glitch.

"So that's the line," he said.

Before we hung-up the phone he reiterated the physical sensation of fear he had felt. "Goosebumps," he said. We wrote down in our notebook that despite all the talk about terrorism, attacks and buildings collapsing he had never mentioned the words "nine-eleven" or the date "September Eleventh."

We just finished having a couple of cocktails with some guys who work on the floor of the New York Stock Exchange. And when we said we had a couple we mean we had a couple while our trader friends downed the drinks as fast as the barkeep at Harry's would refresh them. In fact, after a couple of especially quickly downed rounds the bartender started looking at us cross-wise, and so we stepped out onto the cobble stones of Stone Street for a smoke and a break from the cocktails.

"Hitting them a bit hard tonight," we said.

A long puff of smoke drifted from between the still clenched teeth of Trader Chris (whose name has obviously been changed at his request).

"Not hard enough," he said. "I thought people around me were going to give up the ghost when the bottom dropped out at thre. I need a drink today more than any day that I can remember. Hell. I need more drinks today than any day I can remember."

We talked for a bit about something else. Anything else. Weather. Girls. The Staten Island ferry. Then he decided that he'd had enough of Harry's. Trader Chris tapped on the glass of Harry's to get the attention of some of his fellow traders still drowning their memories of the day at the bar. They looked up and he pointed down Stone Street.

We settled into a booth against the wall at a dark Irish bar called Ulysses. In a few minutes we were joined by some other traders. Word had already spread that the Dow Jones company was blaming some sort of computer glitch for the huge plunge in the Dow Jones Industrial Average right around three in the afternoon. In a matter of mere seconds the DJIA had dropped hundreds of points. It was now just about half an hour past five and the company responsible for publishing the average was spreading the word that the high volume of trades had fouled up the computers.

"The hybrid system shat a brick on the market," one of the traders at our table said. "What a great welcome for Needleman."

Presumably he meant Niederauer, the Goldman Sachs managing partner and famous proponent of electronic trading who was tapped to be an top executive at NYSE yesterday. His rumored antipathy to floor traders—he reportedly referred to them as "five guys named Vinny"—had obviously not won him many friends around this particular table at Ulysses.

One trader at the table was worried that somehow this would all get turned around against the floor traders. "They're going to say we fouled it up. Watch. It's never the suits or the computers. It's the guys in the jackets," he said, punctuating his sentence with a long draw from a pint glass full of gin and tonic. I smiled a bit. That phrase--"the suits"--sounded so punk-rock. Or would have if it wasn't coming from a guy who has made his living on Wall Street for years. There is something particularly funny about the sound of class warfare coming from the mouths of guys who make hundreds of thousands of dollars (at least) a year.

According to the consensus at the table, there are lots of trades that still have not cleared. This means that there were traders stuck at work even as we sat in the bar, trying to get confirmations on trades and clean up their books. We saw a look pass across the faces of the traders that we thought was disgust. But then it looked like something else. It looked more like holy terror. Working past five is tantamount to sacrilege for many traders. Today was the day the God of the Closing Bell died. And, perhaps more ominously, it could mean that some trades had gone into the system and wouldn't clear until tomorrow morning. Those trades would likely be sell-orders, meaning that tomorrow could begin with another enormous downturn.

The waitress came around and took our orders. Shots and pints—of beer for some, or liquor for others—all around. We drank ours down, listening as the talk circled and circled around what it was like to watch the market drop hundreds of points in a single tik. Every now and then the conversation drew away to topics more mundane or personal, and then quickly found itself pulled back to the market plunge. It felt like a ship that was sinking, and might have been pulling us all down with it.

We said our farewells and hurried back to the DealBreaker branch office on Wall Street to copy down what we had heard in our notebooks, file our afterhours copy and see what was on the wires about today's trading.

Here's the official line coming from Down Jones and NYSE, via the Associated Press:

Dow Jones & Co., the media company which manages the flagship index, said around 2 p.m - just two hours before the New York Stock Exchange was to close - it was discovered computers were not properly calculating trades. The company blamed the problem on the record volume at the NYSE, and switched to a backup computer.

The result was a massive swoon in the index that happened in the seconds it took Dow Jones to switch to its secondary computers.

"The market's extraordinary trading volume caused a delay in the Dow Jones data systems," said Dow Jones spokeswoman Sybille Reitz. "We decided to switch over to the backup system, and the result was a rapid catch-up in the published value of the Dow Jones industrial average."

Spokesmen for the NYSE Group Inc. and Nasdaq Stock Market Inc. could not immediately confirm if all closing share prices were valid. A spokesman for the Big Board said it experienced "intermittent delays and are currently assessing the situation." The Nasdaq said it was "confirming" the closing numbers.

The Dow plunged about 200 points in a matter of minutes, and dropped as much as 546 points - its worst decline in more than five years, and one that sent the blue chips into negative territory for the year.

The floor traders we spoke to are probably still in the bar as we put this story up on DealBreaker. We've got a bit more work to do around here. A few more calls to make and stories to post. We hope you don't stay too late, fellas. We hope you get a good night sleep. Tomorrow you may need it.

Swiftness of Dow Drop Due to Computers [Associated Press via Forbes.com]

Usually the publication of "Write Offs" signals an end to our day here at DealBreaker. We're already down the street in the bar, struggling to make the most of whatever is left of happy hour, by the time it gets posted on the site. (Sometimes we make Bess stick around to answer unread emails and sort through last minute tips but that tends to make her uppity when she does show up at the bar. And by "uppity" we mean we have to buy her drinks.)

But today is special. We're going to do some afterhours reporting after talking to some people who watched today's stock drop from the trenches of the exchange floor and from the trading floors. So stay tuned. And please, if you have a story you'd like to share, feel free to leave a comment or send an email to tips@dealbreaker.com.

[Editor's Note: We were going to call it a "market crash" edition but what if the averages drop even lower tomorrow? If we go with something as historic and dramatic sounding as "crash" today we'll end up with apocalypse on any further downward movement. Better to keep our verbal powder dry for now.]

[Photocredit: The NYSE infographic on trading collars and circuit breaker levels we picked up from Barry "It's Not China, It's the Economy, Stupid" Ritholtz at the Big Picture.]

$$$Two hood girls for one hot i-banker? Plus madlibs? [Craigslist]

$$$Get Your Gekko On [Banker's Ball]

$$$Madlibs for The Market of February 27th, 2007 [Long or Short Capital]

$$$Lindsay finds out how to lock it down without wrapping it up. [WallStrip]

One of the most important rules of warfare is to “know thine enemy’s tactics.” For instance, we know that John Thain is known to keep brass knuckles handy. As such, it is best to approach him in full chain mail and a goalie’s mask. Clearly, this message is lost on Tom O’Brien, who is locked in a mortal death-match with Philip “I’m not going to let some pompous ass sitting in Boston tell me I can’t talk to somebody” Goldstein over his closed-end fund.

In a letter to shareholders, O’Brien wrote,

Which seems like an odd way to approach a battle with a man who once stormed into a shareholder meeting screaming, “You motherfuckers won’t get away with this” while swinging at enemies.

Try adding italics and/or exclamation points. A hurtful adjective or two. Perhaps a larger size or one of those fancy blood-dripping-from-the-letters fonts. YOU STUPID MOTHERFUCKER.

RHR Sends Proxy Solicitation to Shareholders [Business Wire]

Just in case we were feeling that our earlier posts about private equity profiting from public policy sounded a tad, well, paranoid, Steve Schwarzman said a few reassuring words at that big private equity con-fab in Germany to reassure us that just because we're paranoid doesn't mean the private equity guys are making a bundle off market regulation and public (or media) pressure against executive compensation levels.

From DealBook's private equity conference dispatches:

The chairman of the private equity firm Blackstone Group sounded as if he wanted to send a big thank-you note to lawmakers and regulators on Tuesday. “Sometimes governmental reforms really work well for you, because they mess things up,” he told the audience at the Super Return conference. “We’re the beneficiaries of governmental reforms.”

For better (for buyout firms) or worse (for shareholders), Mr. Schwarzman suggested that under the current system, managers of public companies felt prohibited from making drastic changes that would, in the long-term, benefit the company’s investors.

He put it this way:

A C.E.O. will sit with you and say here are four major things I would have done if I didn’t have the regime that I currently have as a public company, and why don’t we do these right away. And, in a way, the public shareholders then complain that they didn’t get a fair value for the company, but if the C.E.O. did those individual actions, it would lead to his stock being depressed.

So, the public shareholder is getting what he deserves and we are, fortunately, the lucky people who are getting not perhaps what we deserve — but are indeed getting.

We’re From the Government. We’re Here to Help [DealBook]

We’d planned to just COMPLETELY ignore what’s probably the biggest story of today—the massive market tank correction—but Tim Sykes was getting a little stale, I needed to post something substantive so I could use the space to say-- "sidebar: I plan to keep up the 'say something chick-like and then claim to be Carney jokes' as long as I see fit, and yes, I hate myself much more than you could ever hate me," and, you know, whoever said we couldn’t be useful here in the DB HQs? Luckily for us, a reader-trader friend at Citi, sensing our desire to both serve you and take a nap, summed it up in a nice little email:

From: [redacted]

Date: Feb 27, 2007 3:38 PM

Subject: the thing Carney JUST posted about

To: tips-DB

Does anyone know what it is like to hear a floor full of 300+ people puke/shriek at the same time??? ...'cause now I do...

ps - the volatility on the S&P jumped more than the day after sep 11...craziness

pps: I work on a volatility desk

ppss: i considered going more scatalogical with the above but I didn't want to offend your Puritan sensibilities.

pppss: don't shoot the messenger, but I heard it's not over by a long shot between our former cfo and maria...yeah, I keep up with gossip under the umbrella...

Some people definitely made money on the volume and volatility today--we got some gloating instant messages from them--but you wouldn't know it from the sound from the floor as the closing bell rang out at the New York Stock Exchange. This is the first time we remember hearing actual boo-ing from the exchange floor.

There's also talk of problems with getting trades resolved, and possibly some sort of electronic traffic jam on the exchanges. One old-schooly specialist already sent us a text message blaming today's downturn on electronic trading. WIth the move to hybrid trading at the NYSE, there aren't specialists making markets and taking the opposite sides of this trade. One of the purposes of this was to prevent rapid market swings and maintain something the old-timers called "market order." Of course, that was then. This is now.

And now is Dow down 415 points.

Word hit last night that the New York Stock Exchange would as of right now be a wholly-owned subsidiary of Goldman Sachs and specialists would be scheduled for immediate extermination.

That, at least, was the reaction coming from a couple of specialists we spoke to today about the news that Goldman Sachs managing partner Duncan Niederauer had been named president and co-chief operating officer of the NYSE. He joins former Goldman president John Thain at the top of the exchange, and becomes Thain's most likely successor as chief executive of the exchange.

But what really had tongues wagging on the trading floors was Niederauer's enthusiasm for electronic trading, and possibly for eliminating floor specialists all together. Niederauer was the head of electronic trading at Goldman and was instrumental in arranging the NYSE merger with the electronic trading platform Archipelago, a move that many still see as the beginning of the end of the role of specialists on the trading floor. Prior to the merger, Niederauer sat on the board of directors of Archipelago.

As long as seven years ago, Niederauer was describing the situation of floor traders handling order flows as "an unsustainable model."

On CNBC this afternoon, Charlies Gasparino described Niederauer as "one of the biggest advocates in electronic trading." Gasparino also provided this bit of colorful background:

"This guy was advocating the replacement of the specialists with a computer because he basically thought specialists were inefficient and possible fraudulent. One time he said something along these lines to a high-ranking person at the New York Stock Exchange, "I don't want five guys named Vinnie executiving my trades."

This remark led then NYSE head Dick Grasso to treat Niederauer as an enemy of the stock exchange according to Gasparino, who described Grasso's reaction as pronouncing Niederauer dead. Well, as they say, it seems as if stories of Niederauer's death have been greatly exaggerated.

Gasparino also added that a move to completely electronic trading might not wait a few years from now when Niederauer might become the chief of the exchange.

"I think it's going to be a lot sooner," Gasparino said. "A lot of people on the floor are telling me it's a lot sooner than two years. It's possibly a year or a lot or even sooner than that."

Goldman Partner Joins Top Ranks At NYSE [Forbes.com]

Niederauer Is Clear Heir to NYSE's Thain [CNBC.com]

The pre-takeover announcement trading in TXU call options has lots of the usual suspects complaining that the other kind of usual suspects must have had inside information about the deal. "The only possible explanation is that there are leaks in these deal processes," Whitney Tilson at T2 Partners and Tilson Mutual Funds in New York told Bloomberg.

But this story from the Dallas-Fort Worth Star Telegram makes clear that big shots at the Texas Pacific Group were going around to Texas officials and the relevant environmental groups making sure they wouldn't get in the way of the deal. Actually, the suggests TPG's chief is actually a tree-hugger himself.

When Texas Pacific Group chief David Bonderman sought help a couple months ago to get environmental groups behind Texas Pacific's plan to buy TXU Corp., he called an old friend -- former Environmental Protection Agency Administrator William Reilly.

They met in 1980, when Reilly headed the Conservation Foundation, a land-use organization that later merged with the World Wildlife Fund. Reilly needed legal help, and Washington, D.C., powerhouse legal group Arnold & Porter lent him Bonderman, Reilly said Monday.

Now Bonderman was asking Reilly to lead negotiations to win the support of two big environmental groups, Environmental Defense and the National Resources Defense Council, for the record $45 billion buyout of TXU by Texas Pacific and Kohlberg Kravis Roberts, another big private equity fund. Although the deal aims to make money, Reilly said Bonderman's long-standing interest in the environment is also a driver.

"He's for real on this stuff," Reilly said. "He was in the Amazon two weeks ago. He was in Mozambique last year for a new marine reserve. These are not places to go if he's looking to line his pockets," he said.

We have no idea whether this is just TPG spin. But whether or not TPG really is run by environmentalists or just finds it profitable to pretend it is, it certainly tells you something about which way the political winds are blowing.

Two old friends, one goal: support of green groups
[Star-Telegram]

To the surprise of absolutely no-one, the trading volume on TXU call options was unusually high in the couple of days before the deal was first leaked to CNBC. We're not saying it's right that some folks who might have had inside knowledge about the deal might have traded on that knowledge while the rest of the market was in the dark. But we are saying that it strikes us as not exactly very likely that the very first person to know about a deal outside of TXU and its private equity acquirers, KKR and the Texas Pacific Group, would be CNBC reporter David Faber.

From the Wall Street Journal:

In what has become a familiar occurrence, some stock and option investors seem to have caught wind of TXU's sale before news of it became public late Friday.

Shares of the Texas utility rose 4.1% Friday, before the deal was reported by CNBC after the market close. Meanwhile, the volume of TXU call options, which give investors the right to buy the stock, surged to 18,000. That is compared with average daily volume this month of about 2,400 contracts. Yesterday -- when the company officially confirmed reports of its planned sale to private-equity firms Texas Pacific Group and Kohlberg Kravis Roberts & Co. -- the stock rose an additional $7.91 to $67.93.

Some market watchers cried foul about the moves. Jon Najarian, a trader who tracks unusual activity for optionMonster.com, argued that volumes Friday were high enough that "certainly this information was widely distributed to get this many people reacting to it." Though some traders may have been anticipating the company's earnings release due tomorrow, Mr. Najarian argued that probably doesn't account for all of Friday's activity.

Unusual Activity Precedes TXU Buyout [$$} {Wall Street Journal]

For those of you unfamiliar with the group, '85 Broads' is a pro-lady organization originally founded by Goldman Sachs women, for Goldman Sachs women, that fails to see any problem with giving a group a cutesie name that seems to undermine the purported goal of trying to prove that women are more than just hearts-over-‘I’-dotting individuals, capable of doing just as good, if-not-better work than men in the business world. Currently embroiled in a brouhaha with Lucy Kellaway, a columnist at Financial Times who penned an article lambasting the group for its “supportive we’re-in-this-together atmosphere that ismade less supportive both by being compulsory and by the competition that lurks not far beneath the surface,” is 85 Broads founder, Janet Hanson. Over on her personal blog, Hanson writes, in a post entitled “Lucy Kellaway gives ‘SHREW’ a whole new meaning!”:

I just got a google alert about an article written about me by Lucy Kellaway of the Financial Times. I was so glad that she described me as “middle aged” and not “elderly.” That would have been sooooooooo mean!

In her article, Lucy mentions that she recently had a long chat with a friend of hers who is a member of a senior women’s professional network—her friend described this particular network as a “witches’ coven”—sounds like Lucy should beg them to make her a lifetime charter member!

Lucy also mentions that “she’s listened to many women’s experiences at formal events and has never grown an inch in ANY DIRECTION.” I’m not going to even TOUCH THAT ONE.

-Nice use of sarcasm as evidenced by the multiple O’s: 1 pt.

-"You’re fat” joke: 5 pts.

-Missed opportunity to make a play on the word “witch”: -3 pts.

-Being man enough to own up to having a Google Alert for yourself: 7 pts.

Scorecards aside, we’d just like to thank Lucy and Janet, on behalf of the male employees at 85 Broad and beyond, for totally warranting the use of hissing noises, “Catfight!” alerts, and discrepancies in salary based on gender this afternoon. It was totally arousing.

'85 Broads' Founder Endorses Power Of Sisterhood [Gawker]
Lucy Kellaway gives "SHREW" a whole new meaning! [85 Broads]
Let’s stand on our own feet – not other women’s shoulders [FT]

Everyone's favorite faux-banker blogger just hit the bigs, selling a book to Hyperion.

From PublishersMarketplace:

Amit Chatwani's DAMN IT FEELS GOOD TO BE A BANKER: A Fact-Based Approach to the World of Finance, a guide to the world of Wall Street in the voice of the "consummate banker caricature" that the author, labeled the "Borat of Wall Street" by BusinessWeek, popularized on his website LeveragedSellout.com, to Brendan Duffy at Hyperion, at auction, by Byrd Leavell at Waxman Literary Agency (NA

Stanislav Shpigelman, the ex-Merrill Lynch analyst sentenced to 37 months in prison for tipping off former Goldman Sachs employees Eugene “Twinkletoes” Plotkin and David Pajcin to news of six pending mergers, said in papers made public last week that his error in judgment resulted from “false promises, deception, intimidation and flattery.” According to the briefing by Shpigelman’s lawyer, Mary Mulligan, his involvement was “not [driven by] the receipt of large sums of money,” which she apparently sees as grounds for seeking leniency.

According to Bloomberg, Shpigelman met Plotkin when he was 19 and studying abroad, introduced by his sister, a colleague of Plotkin at Goldman. Although Plotkin failed in his pledge to help Shpigelman obtain a Goldman internship for that summer, the two kept in touch. The young pup started working at Merrill (an obvious blow to the friendship) in the summer of 2004, and reunited with Plotkin during a meeting at Spa 88, a bathhouse downtown that Urban Daddy has endorsed and that we’ve been unable to separate from the mental image of our grandfathers sitting in the steam room of our local JCC. Moving on! It was at 88 that Plotkin ultimately convinced Shpigelman to get involved in the insider scheme and to “try the grape leaves, they’re a delicacy.”

By Mulligan’s account,

“Plotkin and Pagcin were older, more experienced industry veterans who insinuated their way into Mr. Shpigelman's life by promising the sort of career mentorship that Mr. Shpigelman so desired.”

Then the “gentleman of a certain age” lost money on a deal, and “the combination of the intimidation brought to bear by Plotkin and Pajcin, and Mr. Shpigelman's desire to stay in Plotkin's and Pajcin's good graces led him to agree to provide them with additional information,'' Mulligan wrote. ``Plotkin and Pajcin then traded on this new information.''

Assistant U.S. Attorney Benjamin Lawsky, however, doesn’t buy the sob story and has argued that “Mr. Shpigelman did this for the oldest reason in the book -- greed -- and his desire to make bundles and bundles of money.” While we think most of the defense seems plausible, we’re not exactly sure we’re capable of throwing sympathy at someone who’d be intimidated by a ballet dancer. Though one might make the argument that that’s exactly the type of person who should be spared as much time in the big house as possible.

Ex-Merrill Analyst Says `Intimidation' Led to Leaks [Bloomberg]

**We kid. It was 16. And yes, we’re going through some sort of personal problem that manifests itself in the excessive use of **s. Further explanation TK in our “The More You Know” spot (concerning both the bun in the oven and the **s. And this is JC, for those keeping count at home).

Politics creates opportunities for private profit. That's not exactly news. We've known it at least since Senator Plunkitt of Tammany Hall explained the difference between honest graft and dishonest graft.

More recently we've seen how the regulatory and legislative response to the corporate scandals of the turn of the century—in particular, Sarbanes-Oxley and its accompanying regulations—have contributed to buying opportunities for private equity. Firms and managers find the public capital markets unwelcoming and unrewarding), regulatory overhead and legal distractions push down company valuations, and the threat of gigantic civil fines and criminal penalties make increase the risks of operating a public company. Private equity offers an escape from this hazards with promises of greater riches. And if the laws and regulations get repealed or reformed someday, well that will just create new IPO and other exit opportunities for private equities. Call it timing the political market.

This morning's Wall Street Journal carries an editorial explaining how a different kind of politics—environmentalism—contributed to the fall of TXU's share price and made it a more attractive takeover target for private equity.

TXU had painted a green bull's-eye on itself when it announced plans last year to build the 11 new plants. Never mind that the plants were to be built on the sites of existing plants, that a number of them would replace older, less-efficient plants, or that Texas is already bumping up against the limits of its ability to produce the electricity it needs for its growing population and economy. The announcement sent the environmental movement to the barricades against TXU, and may be one reason that the company's stock, after going up regularly for several years, sputtered and stalled in 2006.

That stock slide wasn't all bad for Kohlberg, Kravis Roberts, which is leading the group buying TXU for not much more than its all-time stock-price high, which it hit in the middle of last year. But then again, giving in to the pressure not to build all 11 plants may not turn out to be all bad for KKR and TXU, either.

Ercot, Texas's independent electric-grid operator, figures that peak electricity demand in the state will catch up with available capacity by 2009, if not sooner. Tight demand means higher electricity prices, which is good for TXU's profits. That squeeze will, in turn, rejuvenate calls for more capacity, which may allow TXU to dust off the plans for the new plants at a moment when the current environmental concerns weigh more lightly in the political scales than skyrocketing electricity bills. The private-equity crowd didn't get to be billionaires for nothing.

To sum up: Tree-huggers push down the price of TXU. KKR and TPG swoop in and pick up the pieces, making peace with the greens by agreeing to shut down the plans for the new plants. The resulting higher electricity prices enrich TXU and perhaps even creates a demand for those now-pariah plants in the future.

Here’s how the WSJ concludes the editorial:

As for TXU's current shareholders, the agitation of the greens may have helped bring down TXU's share price last year, so the environmentalists probably did KKR and partners a favor. There may even be a trend in the making here -- environmental protesters bring down a stock, making a private-equity transaction look more attractive, and in return, the equity firm and its management partners buy off the greens with this or that environmental promise. We're not suggesting any such quid pro quo here, but if we were TXU's mom-and-pop investors or Texas energy consumers we'd certainly be asking some pointed questions.

Hey. Wait a minute! Aren't we the same folks who spilled all those pints of digital ink on Friday bemoaning the corporate crime reporting of business journalists? How dare we start promoting that old Aguirre story again?

Well, you see, there are actually two Aguirre stories. One over-reported, smear-filled and not very helpful to the public understanding of some real problems with American business and finance. And the other? You guessed, under-reported, helpful and not anywhere near as full of name-through-the-mud hotness.

Aguirre's charges garnered a lot of attention from the press. Far more than you might expect for a bureaucrat blowing the whistle on his superiors, charging them with cravenness before the powerful and politically connected. You can get that story at any happy hour on Capitol Hill. What attracted attention to this story was that the executive Aguirre had been investigating, John Mack, was running Morgan Stanley. According to Aguirre's theory, Mack could have leaked information to Arthur Samberg, the head of the hedge fund Pequot Capital Management Pequot about a coming takeover bid of Heller Financial by General Electric. Pequot is said to have made around $18 million from the deal.

So you had a big Wall Street bank. It's top executive. A high-flying hedge fund. A famous money manager. One of America's best-known companies. All allegedly tied together in some sort of neat knot of insider trading. And then there was the fact that Mack was said to be close to President George Bush, adding the scent of political favoritism to the whole mess. It was practically the perfect corporate crime storm. And it proved irresistible to the press.

One problem with the story of this particular crime of the century was that the facts had a way of not panning out. The SEC launched renewed investigations into the Heller transaction and cleared everyone involved. Mack, Samberg, Morgan Stanley and Pequot had all had their names dragged through the mud for months without anything substantiating the charges other than a former investigator's theory and a couple of phone records showing that Mack had called Samberg around the time of the Heller deal.

Another problem was that Aguirre kept saying that his real beef was not with the targets of his investigation but with the SEC. Aguirre was alleging that the most powerful firms on Wall Street got special treatment from the SEC, in part because the regulators had a too cozy relationship with the folks they were supposed to be regulating. This story never got as much attention, perhaps because it was a lot less sexy.

Unfortunately it was this part of Aguirre tale that made the most sense. There is a revolving door between the SEC's upper echelons and the top Wall Street firms, who often hire former investigators, regulators and commissioners once they leave the agency. What's more, the SEC was more or less created by Wall Street to help boost investor confidence by creating the impression that someone was policing the financial sector and protecting investor interests. And from the start the SEC had helped stifle competition on Wall Street by increasing regulatory overhead and banning many of very the practices that had led some Wall Street giants to accumulate their power and capital. With the SEC around, for instance, it became much harder to build a new investment banking giant. (And this is one reason so much of the brains on Wall Street has fled to private equity and hedge funds.)

And this might be the heart of the reason that the real heart of Aguirre's story never got the attention it deserved, while the less-substantiated and more thrilling insider trading storyline hogged the headlines. At it's heart, Aguirre's story is not even news. It's something we've known for a long, long time. And that old story about how bureaucracies operate doesn't really translate into the sort of civil rights storyline reporters think will win them Pulitzers. So we don't hear much about that.

Just the other day we were thinking, “We wonder what that Tim Sykes fellow, paragon of modesty and restraint, is up to right now?” Since we knew many of you were thinking that too, we decided to check in with the debatably wunderkindish short-seller, who was more than happy to point us in the direction of a recent interview with Joe Concha of realhoboken.com: Hoboken’s Premier Online Magazine. (Don’t scoff—it’s just a quick Path ride away and considered by some to be the sixth borough of New York! Or the seventh, if you bought the Times’s story about a city 90 minutes south of New York). It was an long, dirty, and arduous task traversing the article but we did it-- for you (and because apparently, given enough of Carney's painkillers, we'll do anything. Plus, we figured that if CNBC's going to declare this "We've Had It With Legit Reporting Week," we might as well get on board).** Here are our findings:

1.Sykes isn’t just a short-seller. He’s a “Hedge Fund Guru.”

2.Sykes-y-boy may or may not be two steps away from having rape charges brought against him by a lying hooker out for money.

The fairly recent Tulane graduate is to Wall Street what Kobe Bryant was to basketball when he broke into the league right out of High School.

3. He knows the true value of friendship: Eggplant Parmigiana Wednesdays and thrice-weekly toilet scrubs. And French maid uniforms when the occasion calls for it.

Concha: Tell me about the hired help for your apartment.

Sykes: He’s a friend, a protégé. He doesn’t really have the money to afford rent in a West Village apartment, so he makes up for it with the cleaning and cooking.

**JK. JK, we're serious. But our love for you, Jonathan, is unflappable. You (or someone 18 rungs below you) hired us as an intern on the McEnroe Show in the summer of '04 and that's got to count for something--look where we are now!

Remember Gary Aguirre? He was the former Securities and Exchange Commission investigator whose explosive charges led to a series of hearings on Capital Hill and a lot of alarm-bell ringing publicity, particularly from Gretchen Morgenson of the New York Times. Aguirre's main charge was that he was fired from the SEC after an investigation into possible insider trading led him toward a top Wall Street executive.

Today the Guardian reminds us that not only is Aguirre still around. So are the problems he became famous exposing:

"What you have at the SEC is people rotating from jobs where you make $180,000 a year into jobs where you make over a million," Aguirre tells the Guardian in an interview, on what he sees as a mutually back-scratching relationship between the regulator and Wall Street. "It's very friendly - it's a club. I'm here, I'm inside, now I'm outside, now I'm inside again.

"When the SEC starts playing favourites and they decide not to go after Wall Street elite and focus on small fry, then they're not focusing on the players that really impact the capital markets. It's not the penny stock dealers that could trigger a credit crisis in this country."

So you thought that when KKR launched a publicly traded fund last year it's main goal was to raise money. That's clearly because you aren't paranoid enough. According to Blackstone Group chief executive Steve Schwarzman, KKR really wanted to drain the appetitive for private equity investment from the IPO market before any other private equity firms could raise money.

"KKR destroyed the market for anyone else" mulling a publicly traded fund, he said, "which I think was their objective."

Schwarzman went on to point out that an Apollo Management IPO came up short. Apparently when KKR sets out to destroy something, that thing gets destroyed.

Blackstone CEO says public markets 'over-rated' [Reuters]

Yesterday Maria Bartiromo, uhm, scored with a top Citigroup executive.

Sorry. Scratch that.

Yesterday Maria Bartiromo scored an exclusive interview with former Citigroup CEO Sandy Weill. There was a bit of a double news hook for the interview. Yesterday Citigroup had revealed in its annual report that the Securities and Exchange Commission is investigating the bank's accounting and tax reserves related to its $31 billion purchase in 2000 of Associates First CapitalThere. Sandy was chairman in those days, so Maria and co-host Dylan Ratigan asked him some questions. Which he totally declined to respond to. It was all no comment this, and I haven't read the annual report that. This was actually kind of newsmaking. The world learned that Sandy Weill, the man who built Citigroup, doesn't read the annual reports right away and doesn't watch the daily movements of the stock prices.

The other alleged news hook for the interview was some sort of charity thing involving schools. Someone won an award. Maybe it was Sandy. Snore.

But apparently nobody but us paid attention to anything as esoteric as what happened in the interview. It was all just jaw-dropping amazement that CNBC, or Citigroup, or Sandy Weill or Maria Bartiromo had the gall or the guts or something else to set up this interview in light of the recent questions about the propriety of Bartiromo's possibly compromising relationships with Citigroup executives.

TVNewser's anonymous sources give voice to the shocked masses:

An longtime CNBC viewer wrote to TVNewser: "Have they lost all ethical thought and reason in Englewood Cliffs? I sat there with a stunned look on my face the whole time the interview was going on."

"Why shouldn't she do the interview? She did nothing wrong," a CNBC insider responded...

> Update: 9:35pm: "Just the hint of scandal makes the interview stupid from a P.R. point of view. Why risk credibility with viewers by giving the interview to Bartiromo?," an e-mailer adds...

Ex-Citigroup CEO Weill Declines To Comment On SEC Probe [CNBC]

Bartiromo Interviews Former Citi CEO [TVNewser]

Shanghai's Index Plunges 8.8% (WSJ)
The Shanghai stock market got slammed, falling 8.8% off of what was an all-time high. There does not seem to have been any event driving the selling. No communist party official died. No state bank collapsed. No statements were made on the future of the Yuan. It looks like it was just good old fashion profit taking, or maybe it was a correction, depending on your choice of positive euphemisms for a market drop. And it seems that when Shanghai sneezes, the rest of Asia gets a cold, as evidenced by bad sessions in many other places, including Australia.

Panel Backs New Stamp Not Linked to Rates (NYT)
Here's a potentially interesting hedging instrument that you might want to keep your eye on. The Postal Regulatory Commission is backing the idea of a "Forever Stamp", a stamp that will cover the cost of sending a letter for the lifetime of a buyer. Apparently a forever stamp will cost whatever a first-class letter costs at the time, but if in six months, the price of a letter goes up, your stamp will still be valid. Part of the appeal for the post office is that it won't have to keep printing up $.02 stamps so that people can make up the difference between their old stamp books and new ones. Now, if you think that the cost of a letter will rise faster than the rate of inflation, a forever stamp might be a good investment, particularly if you can buy them in bulk.

Mississippi Expects to Be Site of a Toyota Assembly Plant (NYT)
Chalk up another win for the right-to-work states. The governor of Mississippi is set to announce that Toyota has chosen the town of Tupelo to build an $800 million SUV plant. Already, the company has a plants nearby in Huntsville, Alabama, but it would be the first Toyota plant for Mississippi. While people in the NASCAR belt may prefer Fords and Chevys, they've got be thinking that neither of those companies have done much for them lately. Meanwhile, Toyota and its ilk have now built several plants in the region.

Wal-Mart buys 35% stake in China rival (Reuters)
We still think that Wal-Mart needs to buy out Wu-Mart, just to stave off any confusion down the road, but in the meantime the company has bought a 35% stake in Bounteous, a Chinese retailer with 101 stores in 34 cities. Apparently, the company is not profitable, but that Wal-Mart was attracted to Bounteous for its infrastructure and locations.

$$$The Returns of Satan’s Portfolio [Long or Short Capital]

$$$Future Bankers of the World? [Banker's Ball]

$$$Tips on Getting a Close Shave [SeekingAlpha]

$$$International Game Technology (IGT) [WallStrip]

We took the floor on Friday to give a rather lengthy lecture on how “not every corporate misdeed is a crime, and not every, uhm, mis-doer is a criminal,” so logic would have it that we wouldn’t deign to keep you abreast of possible no-no’s happening over at UBS. Because that would be hypocritical and make us look flakey and whatnot. But let’s just say, for a second, we hadn’t done that and that our words weren’t coming back to bite us in the ass, as it were, now. Then we could tell you about this without fear of public scorn and ridicule, right? Deal? Deal.

…federal authorities are on the verge of busting a scheme in which at least one employee of UBS (UBS) was allegedly selling information about upcoming changes in analyst ratings on stocks to traders not affiliated with the Swiss investment firm.

Sources says federal prosecutors in New York and securities regulators in Washington will soon file charges against a number of individuals caught up in the investigation, which has been going on since last fall. Criminal and civil charges could be filed as soon as Tuesday. Investigators have found that traders working for at least two unidentified hedge funds were paying a UBS employee in New York for the information about impending ratings changes on stocks. But other traders were also buyers.

Sources say the traders often got one-day advance notice of an impending change on a stock rating by a UBS analyst. The information allowed the traders to buy or sell shares ahead of the change's public disclosure, so they could take advantage of any price swings in the stock. People familiar with the inquiry say authorities contend it was improper for the traders to act on the information, since news of the impending ratings changes was still confidential and not yet made public.

Also, and this is by no means a way for us to weasel out of the situation, but we totally meant to include Matthew Goldstein, the chap who wrote this article, in our list of journalists we’d like to nail who we've deemed worthy to discuss this subject. So, yeah.

Charges Pending in UBS Payoff Case [UBS]

Your favorite "Wall Street Tabloid" gets mentioned in the most recent issue of GQ. Apparently we're Karen from The Office's favorite blog.

Are You A Pam Guy or Karen Guy? [LifeInTheOffice]

The mainstream financial media would like you people to believe that the biggest story of the day is Kohlberg Kravis Roberts and Texas Pacific Group’s buyout of energy giant TXU. But the mainstream financial media—the WSJ, the Times, andrewrosssorkin.blogspot.com-- is, as per usual, lying to you. Hurts, doesn’t it? We’ve been there. Which is why we’ve decided to not let them take you for the proverbial ride they get such yuks out of taking you on any longer. The actual biggest story of the day is…

Among the gems from BusinessWeek's profile of Carl Icahn is the fact that the corporate raider activist shareholder has 22 phones in his East Hampton phone. The reason for all those phones?

He often works until 2:30 a.m., and has 22 phones at his East Hampton (N.Y.) home to help him stay in touch at all hours.

Someone really ought to tell Carl that they totally make phone that work for like the whole day. If he's burning through one an hour, he really need to speak to his telecom provider.

Just Don't Call Him A Raider [BusinessWeek]

Paul Kedrosky points out that the TPG-KKR buyout of TXU isn't quite as much of a "record setting deal" as it's being made out to be:

Given that a $45-billion sale of TXU to private equity firms Texas Pacific and KKR is apparently a done deal, it's worth thinking about some of the consequences. For starters, while this is a big deal, it isn't yet the largest in history. That honor still sits with KKR's 1988 deal for RJR Nabisco. Inflated to today's dollars, the then-$25-billion deal becomes a $63.2-billion deal.

Hmm. Paul Kedrosky is probably much smarter than we are. But when we ran $25 billion through our time-machine inflation calculators we came up with around $44.09 billion, which makes the TXU bigger indeed than the RJR Nabisco deal, even if it only beats it out by less than a billion dollars.

Takeaways from the TXU Buyout [Infectious Greed]

Leave it to Alan “It’s not easy being” Greenspan to ruin our newly minted favorite holiday—Biggest LBO Ever Day. We thought we’d reached a point where we could expect, if not full on participation in the breaking of the coal burning energy plant-shaped piñata that Carney picked up on the way to work this morning, at least some level of cooperation on this joyous occasion. But apparently we thought wrong. Greenspan, like always, had to go and ruin it, like he ruined Schwarzman’s birthday (yeah, like we could really be expected to show up with a huge salsa stain down the front of our dress), like he ruined Sam Zell’s Purim Party ‘04, like he ruins EVERYTHING!

"When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign," Greenspan said via satellite link to a business conference in Hong Kong. "For example in the U.S., profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle."

Greenspan said that while it would be "very precarious" to try to forecast that far into the future, he could not rule out the possibility of a recession late this year.

Greenspan also warned that the U.S. budget deficit, which for 2006 fell to $247.7 billion, the lowest in four years, remains a concern.

Now, if you’ll excuse us, we’re going to attempt to salve our wounds with this. It probably won’t help, but, as you can likely glean, we’re pretty much desperate at this point in time.

Greenspan Warns of Likely U.S. Recession [AP via Yahoo! Finance]

This morning we noted that Citigroup's appointment of a new chief financial officer has done little to quiet speculation about who will succeed Citi's CEO, Chuck Prince. Judging by your emailed responses, quite a lot of DealBreaker readers have some strong opinions on this. So we bring you a DealBreaker Reader Poll. As always, feel free to vote other by entering a nomination in the comment section below.

John Mack, like the Tom Arnold of investment banking (take a second on that one), has overcome huge odds to fight his way back to the top of his game.** Last year, the Morgan Stanley chief, who was shown the door in 2001, received a raise of 38% to take home $41.4 million, reports CNN Money. The package was comprised of a base salary of $800,000, $36.2 million in restricted stock, $4 million in other stock options, miscellaneous compensation of $15,447, $67,963 in pension benefits, $6,100 in matching 401(k) money and, perhaps most importantly, in the parlance of our times, use of the company jet valued at $321,848.

Earlier: How Goldman's Managed To Stay Out Of The Backdating Scandal

Morgan's Mack sees hefty pay raise [CNN Money]

**Rocky seemed too easy and we thought it was about time we—Carney—went public with our feelings for Carpool.

We're not sure what takes more guts. Is it BusinessWeek going ahead and running the crossed-out Jet Blue cover and admitting that it was about to name the discount airline as the fourth best company in customer service? Or sending Maria Baritromo, who has only recently become re-acquainted with flying commercial, out to interview Jet Blue CEO David Neeleman? We kind of thought Maria would avoid talking about problems on planes for a while.

JetBlue reroutes BusinessWeek cover story [Reuters]

An Extraordinary Stumble At JetBlue [BusinessWeek]Neeleman Explains Himself [BusinessWeek]

We've been doing a lot of writing about backdating lately but what about the poster-child for criminal backdating fugitives, Kobi Alexander? The founder of Comverse vanished after US authorities sought to arrest him on charges related to backdating, securities fraud and bribery. He later turned up in Namibia, where he was arrested by authorities and awaits an extradition hearing in April.

Over the weekend, Bloomberg reported that Alexander has started a low-income home construction business in Namibia.

His Namibian company, Kobi Alexander Enterprises, has already developed two projects in the coastal city of Walvis Bay involving the construction of 200 houses for low-income residents, the company said in an advertisement yesterday in The Namibian, a local newspaper.

“Mr. Kobi Alexander, its founder, brings with him a wealth of business acumen,” the advertisement said. “He is the founder of Comverse Technology, the world’s leading supplier of enhanced services for telecommunications companies."

We can only imagine how that "business acumen" line strikes the US prosecutors who have done their best to paint Alexander as the worst sort of corporate criminal.

U.S. Fugitive Starts Over in Namibia [Bloomberg in NYT]

There’s an old saying that goes “You can nail the $Honey or you can nail your former employer for $25 million but you can’t do both.” Or at least there should be, we think; pretty much makes sense, right? Anyway, going with the assumption that there is such a saying, former “Citi” CFO Todd Thomson is rumored to be saying “Fuck it, you all can adhere to that old truism all you want but I’m going to have my cake and eat it too, in the biblical sense.” According to mostly credible DB sources, Thomson may indeed be given the sizeable sum to stay mum about inner-Citi (<--you liked that) turmoil, including dirt on CEO Charles Prince. This is a quasi-interesting turn of events in MariaGate, as it comes on the heels of a BusinessWeek article that essentially claimed that Thomson was a scapegoat whose errors were totally blown out of proportion to “obscure the disarray and dismal returns of Chuck Prince’s reign” (and if we're going actually crunch the numbers on this one, a flight on a private jet from Asia is basically just a glorified dinner at Denny’s, so, mathematically speaking, there might be some truth to BW'S story). If Thomson is given his asking price, will the blood money be an admission of guilt on Citi/Prince’s part? $25 million seems like a lot to just say “Thanks for playing.”

We spend so much time talking about things like bonuses and succession battle at big banks--not to mention ridiculous Ivy league ego-maniacs and controversial trips on corporate jets--that it's useful to remember that there are young people graduating from some of our best schools who have different priorities than landing that great hedge fund job. Here's a brief excerpt from a story about Dartmouth's Kate Cameron, who is planning a very different kind of life on-board some not-so-corporate jets.

Even with the envelope in her hand, Kate Cameron '07 found that she could not mail her agreement to take a generous job offer with a hedge fund after graduation. After much consideration, Cameron realized that her heart lay somewhere far above the financial sector. Instead of joining the corporate world, she will work toward gaining certification as a fighter pilot for the U.S. Marine Corps...

After working at Bridgewater Associates, the world's largest hedge fund, Cameron understands the difficulty the armed forces have in recruiting students from the nation's top schools, like Dartmouth.

"College graduates are tempted by corporate recruiting," she said. "At Dartmouth, the top companies in the world show up at our doorstep and offer us tons of money, perks, and a great life in New York City."

We've nothing but admiration for Kate. Greed is goodentertaining. But martial courage is awe-inspiring.

Cameron '07 eschews hedge fund job, heads for the skies [The Dartmouth]

The latest round of musical chairs at Citigroup has found American Express chief financial officer Gary Crittenden sitting in chief financial officer chair at the bank. For those of you keeping score at home, that position was vacated by Sallie Krawcheck last month. Krawcheck moved out of the CFO slot last month to head Citigroup's global wealth management division after it's former head, Todd Thomson, left Citigroup under a cloud and amidst rumors about lavish spending, travel and an inappropriate relationship with CNBC on-air personality Maria Bartiromo.

But if Citigroup hoped that naming Crittenden would quite the rampant rumor-mongering and speculation about further possible moves and successions, it's likely to find that hope frustrated. The very first sentence of this morning's Wall Street Journal report on the Crittenden hiring makes it clear that Wall Street's eyes remain focused on the top-prize at Citigroup—who will succeed chief executive Chuck Prince.

Citigroup Inc.'s naming of American Express Co.'s chief financial officer to be the New York-based bank's next finance chief fills a gap in Chief Executive Charles Prince's leadership team but doesn't clear up who eventually will replace him as CEO.

Before his sudden departure, Thomson was thought to be a likely successor. Here's the Journal's list of the remaining likely successors:

If he is ever considered for the top job, Mr. Crittenden would join five other Citigroup executives as potential successors to Mr. Prince, who is also chairman: Manuel Medina-Mora, head of Citigroup in Latin America; Tom Maheras and Michael Klein, co-presidents of the corporate-and-investment bank; Ajay Banga, head of the international consumer business; and Ms. Krawcheck.

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It's a deal for TXU (Fort Worth Star-Telegram)
Well, it happened. Late on Friday came word that KKR was about to announce the purchase of Texas utility TXU, in what would be the largest private equity buyout of all time, eclipsing a record that's stood untouched for about two weeks. Including debt, the deal will come to around $45 billion. There seems to be a big environmental angle to the deal. The Times is framing the whole thing in terms of the deal's "greenness", as it points out that KKR will not invest in 11 new, much-maligned coal plants. Of course, it could easily be that the buyers aren't interested in making any new capital outlays after such a big purchase -- smart of them to paint it with this environmental brush, particularly after last night's stirring Oscar ceremony. Who will ever forget Melissa Etheridge singing her song for "An Inconvenient Truth" with messages on the screen behind her about how we can reduce our carbon emissions. Riveting stuff.

Salesforce.com’s big customer: Mystery solved (Between the Lines)
Salesforce.com is the web-based software company that goes against heavyweights like Oracle, Microsoft and SAP. It's now got a new target in its sights: Bloomberg. Not the mayor, but the provider of financial data to Wall St. The company has put together a comparable offering that doesn't require its own terminal, and costs only $500 per month, well below what Bloomberg charges. It's going to be an uphill battle for Salesforce, since Bloomberg terminals are so entrenched and people are so familiar with them. But the idea of a special terminal designed for data from one company does seem a bit quaint. Already, Merrill Lynch says it will use the service for 25,000 employees.

Daimler mulls GM stake to pay for Chrysler unit (Reuters)
There continues to be a lot of chatter about the fate of Chrysler, although it doesn't sound like anything is even close to certain. Apparently, the idea that it might go to GM in some way is still on the table, and that GM might pay for the unit by giving Daimler an equity stake in itself. Again, this is all just rumor (this particular one originated at the Financial Times). So, in other words, GM would like Chrysler, but not if it means actually paying money for it. Giving up an equity stake is much more palatable.

Tribune Mulls Revamp As Auction Founders (WSJ)
The whole Chicago Tribune auction pretty much fizzled out. Sam Zell has put in a late bid, but it doesn't appear to be to management's liking. Now the management is left figuring out how to turn around the company on its own. At this point, it's going to do a "self help" restructuring, which doesn't sound much different than any other restructuring. Current plans include spinning of its TV unit and disbursing a big one-time dividend to shareholders.

We linked to it a few moments ago in "Write-Offs" but that hardly seems like the way to treat what may be the biggest leveraged buyout ever: KKR and Texas Pacific Group bid to acquire giant Texas utility TXU.

CNBC's David Faber broke the story:

In what will be the largest leveraged buyout of all time, the private equity firms of KKR and Texas Pacific Group are close to announcing a more than $40 billion purchase of TXU, the giant Texas utility that is the largest producer of power in that state, CNBC's David Faber has learned.

TXU's board is expected to vote on the deal this weekend and an announcement is likely on Monday morning, people familiar with the situation told Faber.

TXU, KKR and Texas Pacific officials declined comment.

The exact price KKR will pay is unclear, Faber said. TXU's current market cap is $27.5 billion. It also has $12.3 billion in debt. Since the consideration will be in cash and given TXU's current enterprise value is roughly $39 billion, the addition of any premium will make it the largest LBO ever, topping Blackstone's recent $39 billion buyout of Equity Office Properties.

The deal itself will require at least $6 billion to $7 billion in equity and in what is a recent trend, it appears banks will bridge some portion of that commitment until KKR can sell down its overall commitment. That was done in Blackstone's purchase of Equity Office Properties.

$$$Correction: THIS is the LBO to end all LBOs. [CNBC]

$$$Bankers Go Long on Bling and Beach Houses [DealBook]

$$$The most successful webshow in the history of our world finally sits down with Rocketboom. [WallStrip]

Useful:
RE:Does Having A Job In Finance Kill Your Chances With The Ladies?
Anonymous: I dated men in my industry and never will again. Worst boyfriends ever. Even worse lovers. The problem is they spend all day in a testosterone-charged environment with no women around to temper the atmosphere, discussing women in the most brutal of terms, with accompanying pictures. As a girlfriend of a banker, prepare to have every bite of salad that goes into your mouth met with a grimace, because your BF hears his boss bitch all day about how fat his wife is. The sex is abysmal. If it's not the stress of work (which they assume you're too stupid to understand) it's the 5 glasses of scotch after work with the boys that renders your "BSD" woefully sans d. And should you at least want to spend time with your man and said boys? No F-ing WAY are you invited. You're way too stupid to keep up, you'll probably just stuff yourself on bar peanuts and appetizers, and his friends will think he's whipped - after all, he's never getting married anyway, because then his boss will think he's a loser.

Conversely, banker types...if you want to get lucky (I'm not even talking about a "relationship") stay the hell away from the metpacking bottle service - those "models" (read - russian strippers) are NOT going to go for your skinny 5'7 blue shirted ass. Just go to a normal happy hour joint, chat with the pretty girl at the bar, listen to her talk about herself for five minutes, smile, and don't listen to your asshole friends - you would be amazed at how much tail you'll score in this city when you act like a normal person.

Entertaining:
RE: Does Having A Job In Finance Kill Your Chances With The Ladies?
Anonymous: You can all go fuck yourselves.

Usefultaining:
RE: Applocalypse
LippyTex: A mock turtle neck is also referred to as a "Dickie".

BS:
RE: The War Against Blackberries, Continued
trip: Are you people so weak, so dependent, that you can't function without your gadgets? Get a life, guys. Wow, I wonder how people managed to survive BEFORE mobile communication...?!

Pepsi:
RE: Extorted Exec Mystery Solved!
the real nc: Natalie, I did do a littel investigation, you proably are best friends with Jessica... are you going to bake her cookies while she spends time in a Federal Pen? And for you being happily married, don't think so. Does Pepsi know that your on the internet bashing Pepsi? Are you at work? What would Mr.Foss think of you doing this? I also go to school with his daughters. When we return from break I'll fill them in on the scank that you are, did you know that IT can track your postings from work? Watch out Natalie, you too may be having the door hit you in the ass!!!

One recurring theme around these parts is the danger of criminalizing business failure and the role of the media in over-hyping so-called corporate scandals. Executive pay is probably the prototypical media manufactured scandal, and many in the business press have been trying their best to make the backdating story look like into an especially egregious form of abusive executive pay. But it happens with private equity takeovers that get management cooperation, hedge fund collapses and allegations of dirty-deeds by specialists and brokerages. Then there are the much-hyped stories of insider trading, hedge fund scammers and fraudulent financial officers. Underlying all this is some sort of morality tale playing out in the minds of many reporters and editors—where the rich are greedy, greed is a sin, and eventually the sinful are revealed and punished. Sometimes it seems like some of these journalists believe it's all crime, all the time in corporate America. Most especially on Wall Street.

We're hardly an exception. To tell the truth, we can't resist the pull of a particularly good bad insider trading scam. And we're fascinated by these characters who start up "hedge funds" that are clearly (at least to those of use with the benefit of hindsight) vehicles for parting the gullible from their savings. But we offer two defenses—one dirty and ironic; the other more earnest and wholesome—for our own conduct. First up, the dirty excuse—we're an online tabloid covering finance. A scandal sheet, if you will. We're in the business of making fun of things and digging up dirt. Second, the cleaner excuse—we do our best to distinguish between genuine scandals and pseudo-scandals, between the misleading and the malicious, between the culpable and the criminal. In short, not ever corporate misdeed is a crime, and not every, uhm, mis-doer is a criminal.

And there are some folks in the business press who get it right. We think Charlie Gasparino does a great job with his reporting. Holman Jenkins is amazing. Andrew Sorkin does a good job over in his corner of the New York Times website. Gary Weiss is like the Batman of genuine corporate crime, except that he's real. Herb Greenberg is good enough to make the right enemies. But we're not naming names of the guilty or the great here. Our point is merely that there are capable, even excellent, reporters writing about business today. But the exceptional are all too often exactly that: exceptions.

So what's everyone else's excuse? There was a time where the business pages were a place you put reporters who were too drunk to be trusted with the obituaries. But that's not true anymore. These folks are professionals. Why is so much of the business media in the business of criminal scare stories these days? Why does there seem to be so little space between the stories glorifying corporate heroics and those decrying the latest Crime of the Century. Why do so many business stories seem pressed into the alternate models of boot-polishing or much-raking? Well, today we came upon a little item that seemed to shed some light on this phenomenon. Basically, crime sells, and journalism is a business like any other and that means it's got to sell stuff.

Here's the opening paragraph of an abstract of the paper by Sara Sun Beale on "The News Media's Influence on Criminal Justice Policy: How Market-Driven News Promotes Punitiveness."

This Article argues that commercial pressures are determining the news media's contemporary treatment of crime and violence, and that the resulting coverage has played a major role in reshaping public opinion, and ultimately, criminal justice policy. The news media are not mirrors, simply reflecting events in society. Rather, media content is shaped by economic and marketing considerations that frequently override traditional journalistic criteria for newsworthiness. This Article explores local and national television's treatment of crime, where the extent and style of news stories about crime are being adjusted to meet perceived viewer demand and advertising strategies, which frequently emphasize particular demographic groups with a taste for violence. Newspapers also reflect a market-driven reshaping of style and content, resulting in a continuing emphasis on crime stories as a cost-effective means to grab readers' attention. This has all occurred despite more than a decade of sharply falling crime rates.

She's talking about more than business news but it seems pretty clear to us that a lot of her argument can easily be applied to our little corner of the world. It's a good cautionary paper for journalists who may think they've uncovered the latest, greatest corporate scandal ever and have their eyes on those Pulitzer prizes.

We're not promising to be any more responsible than we already are. And hopefully we won't get too much more irresponsible. There's always room for a good scandal story. But we are glad that we're not alone in finding some of this criminalization of business business a bit out of whack with reality. Our slogan when we started this thing was simple: "Greed is good entertaining." We still like that much better than the operating morality of too much of the business press—that greed is criminal.

We apologize right now for getting all preachy and righteous on you. We promise we're done with the lessons for the day. Now it's back to making fun of things. And drinkng whiskey. That's what Friday afternoon is for, right?

The media and criminal justice [Ideoblog]

The News Media's Influence on Criminal Justice Policy: How Market-Driven News Promotes Punitiveness [Social Science Research Network]

There are a few people we love around here in the DB HQs: Brian Hunter (Carney), that fish (Carney), Jon Corzine (me), and CNBC man candy Charlie Gasparino (both of us—though Carney claims he’s just using CG to get to Erin Burnett—which I don’t buy for a second and neither should you). Of late, we’ve got a new crush and there’s really no point in dancing around the fact that it’s Bulldog’s Philip Goldstein. Why? For starters, we’ve just got a thing for hedgies hags. Then there’s the “pompous ass” line a few weeks back; the 9 minute catfight on CNBC the other day; and the “older man” role he so conveniently fills in our lives. So it shouldn’t come as a shock that we were practically doubled over in delight to get our hands on a little more gossip about the father of our future children the hedge fund manager, from a sleuthful reader.

1.Apparently, after taking part in a conference call with our guy, an analyst friend of the reader was found crying in her cubicle. It may have been the part about Goldstein calling the crybaby a “useful idiot” to her boss that did the girl in. (Please note: John’s called me worse--much worse-- and do you see me crying at work? No, because he is not worth my tears!).

2.During a deal with Brantley Capital, specifically a shareholder meeting, Goldstein gave a “Teldar Paper-worthy speech.” While votes were being cast, he stepped outside to make a phone call (to contact a manager he thought would be good for a few) and the CEO announced that the meeting was adjourned and the voting was over (Goldstein had yet to cast any votes). Upon hearing the banging of the gavel, Goldstein ran back into the room and in a “full battle-cry voice,” pointed to the board and said something along the lines of “You mother fuckers aren’t going to get away with this!” Apparently a full on cage fight ensued, with people having to being physically held back and directors running out side doors.

Earlier: Philip Goldstein Makes Watching CNBC Bearable: Brass Knuckles Edition

We write quite a lot about hedge funds here. And one of our constant debates is what should we call people who work at hedge funds. Other than, say, "people who work at hedge funds." They aren't bankers. Sure some of them are fund managers, analysts, traders or physicists. But we need a broad term to encapsulate everyone in the industry.

A few rejected attempts were: hedge fundster, hedgie or hedge fundie, hedge hog and two-twenties. The first few are too obvious or cutsie. Hedge hog seems to describe a particular kind of hedge fund bloodsucker. Two-twenty is a bit too obscure.

Our leading candidate write now: Hag. That's right. Hag. H-A-G. As explained on the etymology website Wordhumper, the word Hag is derived from a few old words.

[Hag's first] element is probably cognate with [Old English] haga "enclosure" [which is related to our modern hedge]...Or second element may be connected with [Norwegian} tysja "fairy, crippled woman"...from PIE *dhewes- "to fly about, smoke, be scattered, vanish."...Haga is also the haw- in hawthorn, which is a central plant in northern European pagan religion. There may be several layers of folk-etymology here. If the hægtesse was once a powerful supernatural woman..., it may have originally carried the hawthorn sense. Later, when the pagan magic was reduced to local scatterings, it might have had the sense of "hedge-rider," or "she who straddles the hedge," because the hedge was the boundary between the "civilized" world of the village and the wild world beyond. The hægtesse would have a foot in each reality...

Obviously, we need your help. Leave suggestions in the comments section below please.

The Daily Hump: (Sea) Hag [WordHumper]

Another hedge fund scammer has been caught allegedly posting false gains while he burnt lost investors money on questionable investment, the Washington Post reports today. The latest accused hedge fund con-man and his Canadian partner Stephen Chesnowitz had a unique way of getting investors—they took them out to lunch!

Over the past two years, the two traders sent out mass mailings advertising a free "gourmet meal" and the opportunity to "earn excellent returns with a guarantee against market risk." More than 150 people, mainly from Montgomery and Prince George's counties, attended the seminars and gave Williams a total of $9 million. He transferred the money to Chesnowitz's hedge funds in Canada and the Cayman Islands.

As always, the way to a man's wallet is through his stomache.

William's "investments" included a Canadian bed-and-breakfast and two vintage cars. Presumably one for himself and the other for Chesnowitz. After posting phony gains on his website, Williams allegedly took a standard 20% hedge fund commission on the gains. Nice work if you can get it.

Hedge Fund Manager Charged in Fraud [Washington Post]

Today those sadomasochists over at thestreet.com take a look at a something so perverse, so unspeakable, that we don’t even want to say it but have to because only a few of you DB readers—Holman Jenkins—have the ability to read our minds: a world in which Steve Jobs is not the CEO of Apple. Sends shivers down your spine, doesn’t it? While most people on the Street (Wall and dot com) believe that Mock Turtle neck won’t be going anywhere any time soon because of the rock-solid (and uncomfortably existential) argument that “Steve Jobs is Steve Jobs,” in spite of a few run ins of his own with Carney’s FAVORITE THING TO TALK ABOUT EVER!!!, “snowballing prosecutions for corporate backdating prompt the [sick and twisted] question of how the company would fare if Jobs were no longer in charge.” Here’s what they came up with:

1. If Jobs were to be charged with securities fraud…the stock would take a 25% hit. Apple shares closed Thursday trading at $89.51, gaining 31 cents. The stock has remained somewhat range-bound in the past three months.

2. Investors would have an initial emotional reaction if Jobs were to leave, but "stocks ultimately move around their fundamental value," he says. "If Jobs leaves, it's not necessary that Apple falls apart. The perception might be that."

3. COO Tim Cook would play a more vital role in the company.

Here are a few other things we think might happen if Apple lost Jobs:

Yesterday we posted a trio of items on backdating. One illustrated how pressures to hold down executive pay may have encouraged backdating. Another explained why the best-guess-ish nature of options accounting probably also helped encourage backdating. And a third pointed out that Goldman Sachs' utter lack of shame protected them against the temptations of backdating. (It also probably helped that they didn't go public until almost the very end of the backdating era.)

And a couple of those posts were, uhm, rather lengthy for a DealBreaker item. If you are anything like most of our readers, you're a busy person, reading DealBreaker while you pretend to work and probably don't have time to read a couple of thousand words on anything, much less backdating. We're sorry about that.

Fortunately, Larry Ribstein read our backdating items so you don't have to. And he's provided a quick little summary for your convenience.

Here's how he sums it up:

But here's the real point: the fact that companies are operating under these constraints is largely attributable to the media frenzy over compensation. Goldman, for example, doesn't have backdating problems because, as Dealbreaker reports, "it has no shame. Blankfein and Co. just put it all right out there: our guys make more than everyone you know." Goldman apparently doesn't have to worry about media criticism of backdating. Firms that sell to ordinary consumers need to worry about the image they'll get in the papers if they pay their people what the journalists view as "too much."

So, in conclusion, firms need to pay their people a lot to hire and keep them. But the media imposes a shame cost on disclosing these amounts. The backdating executives figure it doesn't really matter because even the correct option numbers are bogus and the real numbers, which measure the firms' actual performance, are disclosed. But the media is actually focusing on the bogus numbers, so the disclosure problem may be material because the media makes it so. And, finally, as I've discussed in many posts, the media, anxious for readers and Pulitzers, inflates this into a scandal of major proportions that requires the gathering of scalps. The prosecutors, sensitive to public opinion and ready to reap benefits from high-profile cases, are ready to oblige.

How the media produced the backdating scandal [Ideoblog]

U.S. District Judge Melinda Harmon has denied the pleas of Merrill Lynch, CSFB and Barclays PLC to delay a $40 billion lawsuit by former Enron shareholders and investors against them; the suit will now go to trial April 9. In their argument for a delay, defense for the banks—accused of playing a key role in the company’s collapse—argued that they should wait for a pending decision from the 5th U.S. Circuit Court of Appeals. In a motion, attorneys offered:

There is nothing sinister about the suggestion that since the Fifth Circuit will be ruling on that appeal, the court and the parties should take the time to apply the Fifth Circuit's guidance to the class definition, the parties, the claims and the defenses before sending class notice and embarking on a jury trial estimated to last many months.

While sinister may not be the right word to describe it—we’re a bit more partial to ‘underhanded,’ ‘conniving,’ ‘in line with the nature of unmitigated pricks' [Ed.'s note: some around here think that last one was too mean, and prefer, 'in line with the schemes of evil genius lawyers']—, the desire to wait on the Fifth circuit would certainly be in the best interest of the banks, as the Fifth is the very same one that said there was trouble with Skilling’s convictions and seems to be very skeptical about the Enron case in general. In other news, we received a tip late last night that Ken Lay was spotted on line at the UWS Gray’s Papya. Anyone got confirmation?

Judge denies motion to delay Enron suit [AP via DealBook]

The classic advice for how to succeed in business is: "Build a better mousetrap." But that's so old fashioned. These days there are plenty of other alternatives, including "Make your competitor's mousetrap illegal."

That's the method favored recently by Altria's Phillip Morris group, which has been a big supporter of a bill promoted by Senator Ted Kennedy and Congressman Henry Waxman to increase regulations on tobacco. If its surprising that Phillip Morris would be a big supporter of a bill promoted by lawmakers who claim they are cracking down on Big Tobacco, well that's probably because you don't pay much attention to how lawmaking works down in Washington, DC.

Of course, it would be a public scandal if lawmakers actually made all cigarettes not manufactured by Phillip Morris illegal. That would be way too obvious. So instead of making all outlawing all the other proverbial mousetraps, this bill just makes advertising mousetraps illegal.

How does that help Phillip Morris? Washington Examiner columnist Tim Carney explains:

This bill would also further restrict tobacco advertisements, possibly even banning all cigarette ads — another way the government could help Philip Morris. Studies find that cigarette ads do much more to sway brand choice of smokers than to make new smokers or cause smokers to buy more cigarettes.

If there were never another cigarette ad in America, the primary effect would be locking current market share in place. Two of every five cigarettes sold in a store in America is a Marlboro. Philip Morris’ other brands account for about 10 percent of that market, giving Philip Morris more than half of the U.S. retail market, not counting Internet sales, according to the company.

[Disclosure note: Tim Carney is the brother of DealBreaker's editor, John Carney.]

Philip Morris wins with Kennedy, Waxman bill against ‘Big Tobacco [Examiner.com]

It won't come as a surprise to DealBreaker readers that the SEC's proposed rule to drastically increase the SEC's net worth standard for hedge fund investors has been met with overwhelming disapproval from the investing public. Or at least the part of the investing public that is writing emails and letters to the SEC since it proposed the new rule in December.

Fortune's Bethany McLean was the first journalist (or, you know, the first one we noticed) to report on flood of negative comments. Now the Los Angeles Times is in on the game, noting that one commenter refers to the proposed rule as "communistic." Practically every other business news outfit has run similar stories. In fact, CNBC is promoting a segment discussing the reaction even as we write this item.

But far more interesting than this unsurprisingly negative reaction to the paternalistic regulation, is the rift in the hedge fund community that the new rules have revealed. As we've noted many times, regulations are hardly ever neutral. They tend to help some firms and hurt others. And the firms they tend to help are the ones with the most sway with lawmakers and regulators. In other words, those who are best at buying or otherwise obtaining influence in politics.

The proposed net worth increases would hurt smaller hedge funds—which often rely on less wealthy investors to obtain the funds they manage—while leaving the larger hedge funds—which often have minimum investment rules that rule out many of those whose net worth might pass even the higher standards under the proposed rule—untouched.

And this isn't something that is lost on either the large hedge funds or the small ones. Here's the Los Angels Times reporting on the rift:

The SEC's request for comments also demonstrated the split within the hedge fund industry over the agency's plan.

Proposal by SEC To Curb Hedge Funds Met With Ire

The Managed Funds Association, a trade group for hedge funds, is "supportive" of the SEC's goals with the proposed changes, John Gaine, the group's president, said in an interview.

He said the industry had to be careful "not to go down the food chain" to average investors who might not understand the risks involved.

But managers of some relatively small hedge funds said the proposal would make it difficult for them to grow, while favoring funds that have big-money clients.

"This rule mainly just punishes small managers like myself, increases barriers to entry ... and benefits the elite in our society," Rick Puglisi of Apprecia Capital Advisors in New York wrote.

Proposal by SEC To Curb Hedge Funds Met With Ire [LA Times in NY Sun]

The Smith Barney brokers are ecstatic about the return of Sallie Krawcheck, according to Elizabeth Wine in On Wall Street Magazine.

"If I'm a Smith Barney broker, I'm happy," says Chip Roame, managing principal with financial services research and consulting firm Tiburon Strategic Advisors.

Roame believes that Krawcheck's return to the brokerage business, which she ran before moving to the CFO office in 2004, will benefit advisors because she is clearly on the Chuck Prince team--a reference to Citigroup's current CEO. "By putting her back in that spot, it probably draws Smith Barney closer into the fold of Citi, gets it more resources, ramps up focus on integrating brokerage with banking services."

Indeed, when the announcement of Krawcheck's return to the brokerage side was announced, Smith Barney brokers were reported to have literally broken out into applause.

Krawcheck's move to Citi's brokerage business brings her full circle. She was brought on board by then-Citigroup head honcho Sandy Weill, who hired her away from her post as the chief executive of Sanford Bernstein, to clean up the business and restore credibility after scandal rocked Citi following revelations (largely from the reporting of Charlie Gasparino, then at the Wall Street Journal) that analyst Jack Grubman had tainted his research in order to win favor with Citigroup clients and the banks top executives.

In 2004, Krawcheck essentially switched jobs with then-chief financial officer Todd Thomson, a move that was seen as an attempt to give both Krawcheck and Thomson broader experience within Citigroup. Both were seen as potential successors to Citigroup chief executive Chuck Prince.

In recent months, rumors had spread (thanks, in part, to the reporting of that Gasparino fellow again) that Krawcheck was unhappy in her position as CFO, fueling speculation that she might leave the bank all together. There was talk that she was offered a position in the administration of newly-minted New York governor Eliot Spitzer but had rejected the job.

Thomson's sudden departure from the bank, under a cloud of rumors about lavish spending and travel and a perhaps inappropriate relationship with CNBC star Maria Bartiromo, seems to have cleared the way for Krawcheck to return to Citigroup's Smith Barney brokerage business. Thomson is reportedly not a very popular guy around the brokerage business these days.

From OWS:

Pete Michaels, a Boston-based securities attorney at law firm Michaels & Ward who used to work at Citigroup, says Krawcheck would likely put an end to the flurry of gossip surrounding the firm. "She will make sure the firm is not distracted by the kind of thing we've read about [recently]. I think she's going to be the broker's advocate. Under the last guy, there were a lot of distractions going on that won't be the case under Sallie Krawcheck."

Michaels reports that many of his broker friends at the company have complained bitterly about having to explain to clients why the Money Honey [Bartiromo's nickname] was flying around on the corporate jet. He adds that clients can be fickle people. "Some are going to think the broker knew what was going on. Clients don't like to hear things [that are] negative in any degree about where their broker works."

As the New York Times likes to put it: "Oh snap!" When your former employees refer to you as "the last guy" you know you probably aren't missed very much.

The Return of the Native [On Wall Street]

That was the subject line of a reader email, noting Portfolio's** "exclusive offer" to new subscribers, as previously analyzed by Gawker. You could optimistically suggest that Portfolio is factoring in the cost of the umbrella, but we don't think so. We were once told by the editor-in-chief that she didn't understand why anyone reads blogs--"they're like listening to the crazy guy on the subway rant!"--so we're not particularly optimistic that our basic arithmetic skills will be taken any more seriously than the ravings of a mentally ill person who happens to be taking public transportation, but just in case: $59.88 - $12.00 = $47.88.

** We can't be bothered to replace the "f" with the inexplicable little Dutch florin, so just imagine that it's there.

LastFM's founder refused to comment on rumors that the online music website was in negotiations to be acquired by Viacom, the blog Vecosys reported this morning. On Tuesday we reported that a well-placed source had told us that Viacom executives and lawyers were in London, where LastFM is based, to negotiate a purchase of LastFM.

Mike Butcher of Vecosys writes:

I just got off the phone to LastFM co-founder Richard Jones, who told Vecosys: “If you do a little digging there have been all sorts of rumours over the last few months none of which have turned out to be true. Our policy is not to comment on rumours.” And indeed he didn’t comment. But if this turns out to be true this would be possibly the biggest deal to come out of London for an Internet startup for several years. Stay tuned… literally

Not a confirmation but not a denial either. And our source is sticking by the story. Watch this space for updates.

LastFM on the block? [Vecosys]

Wal-Mart Presses Suppliers To Enhance Their Diversity (WSJ)
The Wal-Mart PR machine continues to crank into overdrive. The company is angling to be a force for diversity and social change, urging its suppliers to hire more minorities and women. Of course, it says, it doesn't really know how it's going to enforce this. There's an interesting development going on here actually. As Wal-Mart is really in a class all of its own in terms of size and influence it increasingly resembles a government. It simply makes statements like, "we support diversity and we want suppliers to hire more minorities", in the same way that Nancy Pelosi might. Ultimately, however, central planning doesn't work. And it could be that the company's biggest undoing is that its executives, without feeling much pressure from competitors, start to feel more like technocrats than managers.

Officials Reject More Oversight of Hedge Funds (NYT)
For the time being, everything is kosher in hedge fund land. Treasury secretary Hank Paulson has concluded, after a recent study on the question, that there's no need for increased regulation or oversight over the industry -- at least for now.

Oil Trading Slow on U.S. Inventory Drop (AP)
Remember when oil was close to $50, and it appeared it might go all the way down to $40. There was all this panic in the middle east and furious calls for output cuts. Well, no more. The price of oil is now solidly above $60 (closer to $61 in fact), and inventory is dropping in the US. Even gasoline is getting expensive again. hope you enjoyed the good times while they lasted.

Why Toyota Is Afraid Of Being Number One (BusinessWeek)
With each passing day, Toyota lurches a little closer to being the world's biggest automaker, surpassing Detroit, the home of the automobile. Given the fierce populist leanings of so many in power, the company probably has a good reason to be scared. On both sides of the aisle, politicians express displeasure at the rise of both corporations, and in particular foreign corporations. So the company needs to improve its PR chops. it already has a pretty big setback last week, when it was revealed that the driver of a Toyota car had cheated in preparation for the Daytona 500. Apparently, the team needed to put in some vaseline-like substance in the fuel to rev up the horsepower. And in general, Toyota's race cars haven't been all that impressive. Maybe this is intentional; let them get beat up in the place were Americans are paying attention -- NASCAR -- while Toyota beats up the rest in the area that it really matters.

$$$Once more, the Sith will rule the galaxy. [SuperMogul]

$$$Blogs, MySpace and Mutually Assured Embarrassment [Infectious Greed]

$$$Crazy obsessive Luke Perry fan Roger Ehrenberg on Google's TSO Program. [IA]

$$$Girls Rule!!! (And the word you're looking for, bashful academic study auteurs, is fellatio. Glad we could be of service. Just doing our job. And this is Carney, btw. Thanks for reading!! K, bye). [Crossing Wall Street]

$$$The merger to END ALL MERGERS. [WallStrip]

Moments after we posted about how Goldman doesn’t have a backdating problem because it doesn’t have to, we received a breathless communiqué—or what we sensed must have been breathy on the other end—from one of its own. Apparently there used to be a joke back when the GS stock wasn’t much of a high-flyer (mayhaps during the JSC era???) that employees were getting “stuffed” every year on strike prices for options, but it was being done systematically—"never any “hanky-panky’.”** Stock price seemed to go up during pricing and—tear— and back down afterwards, leaving the Goldmanites holding worthless options. This methodic-ness inspired many a “Fuck Goldman, I’m headed to Citi” rant from the cheap seats (paraphrased, as we’re wont to do, though essence retained, as Citi got stock at a discount, and you’re allowed to buy p***y on the company’s dime). Obviously, this missive must have come from one of Goldman’s follically-blessed employees.

**No hanky-panky = no fun.

Here's the main reason no one understands backdating: because no one understands how stock options grants are priced. And, to make things worse, even fewer people understand how stock option pricing affects overall executive compensation. (Yes, we realize we just wrote fewer than "no one" but that's about right.) Add backdating shenanigans to that and you've got a perfect recipe for absolute misunderstanding.

After our item on backdating this morning we received several inquiries about why we were suddenly backsliding on backdating. Were we finally admitting that the prosecutors, regulators and business press was getting the story right? Of course not.

But to understand why we're not saying that you have to understand stock options pricing. And, despite our earlier statement that "no one understands" it, we suspect that maybe you do. People paid to understand somewhat complex financial accounting are, after all, more than a bit over-represented in the DealBreaker readership.

But in case you slept through your financial accounting class or landed your job because your uncle runs a big hedge fund client of the bank, we're going to do some 'spaining after the jump.

Remember that David Finnerty case we mentioned yesterday. You know, the one with the New York Stock Exchange specialist who the government accused of improperly inserting themselves in between customer trades. The one that the judge threw out yesterday because the prosecutors failed to show that the customers had any expectation that Finnerty wasn't interpositioning himself in their trades. Today Larry Ribstein wonders whether this case might undermine some of the theory beneath the case against brokerage firms accused of making money by trading on advance knowledge of trades by big customers. If the customers expected that the brokerages were going to do this, does this make it all okay?

Well, a lot of folks look at that kind of trading as a form of illegal "insider trading." But is it? Ribstein sounds a skeptical note.

Possibly. But is this speculation trading on material inside information? There are a lot of facts here that need to be unraveled, and perhaps the SEC should be looking into them. The danger is that all of this is going to disappear into the black hole of a criminal investigation and trial. After all, there's the whiff of "insider trading," which ramps up the feverish public demand that regulators and prosecutors "do something."

But a criminal trial is not the way to find out the institutional background necessary for a worthwhile regulatory fix. It's a long and expensive process, replete with procedural roadblocks. The whole thing could end the way the NYSE specialist cases did – ten out of 15 cases aborted or lost, with this negative result in the Finnerty case.

As you well know, a newfangled term called ‘backdating’ has got Wall Street and its peripherals (especially those with predilections for kilts and, it would seem, cross-dressing) a bit worked up, of late, on both sides of the fence. (NB: Words whose origins can only be traced back to 1953 or later—vexillology, Kwanza, blog—are fake and, therefore, no reason to get one’s panties in a bunch, but I guess I’m a day late and a dollar short, so to speak, and you know cross-dressers—there’s never any reasoning with them). Anyway! At Market Watch, David Weidner, the guy who once advocated getting oneself up in Stevie-boy Cohen’s grill as an investment strategy, has a Goldman Sachsian take on the scandal du jour.

Ever notice that Goldman Sachs Group never seems to get involved in executive-pay scandals? No backdating, no hidden payments, no corporate-jet brouhahas. That's because largesse at Goldman comes in a variety of above-board forms. Just when you think it can't get any worse, that these guys can't get any richer, it does and they do.

Wall Street's gold standard of investment banking detailed in a regulatory filing Thursday that its executives -- who already had been awarded record compensation -- also had received investment income. A lot of it.

Like many firms on the Street with private-equity arms, Goldman allows its employees and those close to them to invest along with the institutions. That means when Goldman closes the $19 billion fund it's been working on, part of the proceeds may go to bankers inside the company.

Private-equity funds raised a record $401 billion during 2006, as 612 new funds were launched in that span, according to Private Equity Intelligence. This amount exceeded the previous record of $311 billion set the year before.

How many people you know got into those funds?

At least a small part of that money came from Wall Street big shots. With opportunities like that, who needs backdating?

Basically, Goldman never has compensation tittle-tattles because it has no shame. Blankfein and Co. just put it all right out there: our guys make more than everyone you know. Combined. Including all your one-night stands. Yeah—including that guy. Suck it. Fin.

In other 85 Broad news, a new anthropological study from Blogging Stocks’s Peter Cohan shows that Goldman Sachs apparently shows favoritism to the hairless, in terms of executive pay, which seems entirely plausible/reasonable to us. As our favorite Governor and erstwhile GS’er once said, “We consider ourselves to be a group. And, just so there’s no confusion, the follically-gifted who choose to go bald—which is to say those who shave their heads—have done so to be fashionable, and we don’t consider them to be a part of the bald community. So it's no dice for them on the $$$.” Make of that what you will.

Goldman's pot is even sweeter [Market Watch]
At Goldman, bald pate == big bucks [Blogging Stocks]

We're heard all sorts of convoluted conspiracy theories about what DaimlerChrysler might really be up to with this whole "Chrysler either is or is not for sale" flag running up and down the pole. But by far our favorite comes today from the car-guys over at Jalopnik. According to the Jalopnikistas, Daimler-Chrysler CEO might not want to sell Chrysler at all. It's just a stunt to pacify his board of directors.

Or something. Here's how Jalopnik explains the scheme:

With so few parties seemingly interested in buying the 'merican side of the German-American hybrid outright, why would DaimlerChrysler CEO Dieter Zetsche be so interested in not selling it off chunk by badge-engineered chunk?

Maybe...

...it's because Dr. Z isn't actually all that interested in seeing the group he once helmed sold off at a yard sale? Pardon us for speculatin' sentimentally here, but we've heard the king teutonic knight has a bit of a soft spot for his old stomping grounds in Auburn Hills. We know the kids and the little lady certainly seem to like it state-side, and it'd be a shame to have to pack up the house and move everyone back to Stuttgart permanently. But in all seriousness (or however serious we get), maybe Dr. Z's using this as a play to keep the board at bay, while he gives Tom "Slim-Faster, dammit!" LaSorda time to make cuts and level the boat again.

Overstock.com's Judd Bagley is now waging smear campaign agaisnt Bloomberg's Susan Antilla for calling him a liar, speaking truth, etc.

This one is typical of the tactics that Bagley and his boss Patrick Byrne deploy, in their frenzied campaign to keep people from writing about or criticizing their actions. I call it the IAS -- Intimidate and Smear -- strategy.

First Byrne tried to bully Antilla and Bloomberg by publishing her questions and his slippery, evasive responses on the Internet.

That failed, so they have now moved into the Smear phase of the strategy, in a post that Bagley published on the Investor Village message board this morning. It is titled "A wee bit of context on Susan Antilla."

Said Bagley:

The conventional wisdom has been that her husband, Dennis H Leibowitz , is with Credit Suisse First Boston. Wrong. In 2002 he left SCFB to start his own hedge fund. It's called Act 2.

Act 2 specializes in investing in the media space. Included in Act 2's portfolio is several million dollars worth of News Corp stock. You may also know News Corp as the company that owns the New York Post.

As usual with a Bagley smear on behalf of his wack-a-doo employer, he takes a faux-factual nugget and fashions it into a paranoid fantasy and lie.

This latest Overstock smear not only illustrates the intimidate-and-lie tactics used by this failing company, but also again focuses attention on Bagley's chosen forum for his smears -- the Investor Village Overstock message board.

On a more interesting note:

Some sort of seasonal affective disorder seems to have infected the media. Back in December it was all about celebrating the huge Wall Street bonuses and lavish spending. Now in the dark days of mid-February, it's all downer stories. Look at the rash of articles in the last couple of days detailing the depressing facts about being a top earner. As we explained this morning, your job on Wall Street won't get you laid. It may actually be driving the ladies away. And today the Times reports that tearing apart that floor-through you bought with your bonus and building the apartment of your dreams probably isn't going to make you happy either (via Gawker).

But the truly bad news comes from the New York Observer's Michael Thomas. No matter how much money you make, someone is making more. And that blows. (Also, you've to to love the shoutout Thomas gives to Grant's Interest Rate Observer, the source of the most prefect Wall Street envy cartoon ever. Hint: we've used it to illustrated this item.)

I recognized this dissonance as the earliest stage of a cancerous awareness that I have seen destroy the moral composure and joy in life of more than one vastly rich person—a vastly rich person, that is, whose vast riches date back less than a decade. For some reason, the oldveaux are spared; only the newveaux suffer. The bottom line, however, is that it’s horrible to watch, this inexorable wasting progress, a metastasizing realization that no matter how much money one has, someone out there has more—that there’s something they can afford that you can’t.

This is a disease for which there is no cure. No matter how lightly Artie and I tried to talk away from the subject, no matter how intently we focused on the mess in the subprime credit market (which has come as a great surprise to Wall Street and the rating agencies in recent weeks, although readers of Jim Grant’s indispensable Grant’s Interest Rate Observer have been aware of trouble to come for the better part of a year), I could sense Artie’s malaise. It lingered in the background, like Polonius concealed behind the arras.

When we hung up, I was sad. One of the heavier burdens borne by we who live in reduced circumstances is our inability to cheer up our richest friends. There was a time, I recall, when this was possible, when wit, intelligence and charm mattered, but this is no longer possible in an era in which Dun & Bradstreet is society’s matchmaker of choice and placement is determined by net worth.

[Cartoon Credit: ©2007 Grant's Interest Rate Observer.]

There are only two reasons we watch CNBC here in the DB HQs—1. For the off-chance that the $Honey will slip up and say something about Todd Thomson (“No bulging bracket there”) and 2. To objectify man candy Dylan Ratigan. Carney also watches Erin Burnett on mute at home in the dark by himself but that’s not something we care to, nor would you want us to, get into here. But thanks to one intrepid DealBreaker reader and CNBC watcher, we got our hands on (read: were tipped off to search for on CNBC’s brand spanking new!! and very user friendly website) this gem of a moment between Phil “I’m not going to let some pompous ass sitting in Boston tell me I can’t talk to somebody or give somebody information when they ask for it” Goldstein and CT AG Richard Blumenthal/Former SEC Commissioner Laura Unger. It’s essentially a 9 minute catfight wherein ‘regulators’ and ‘hedge funds’ and-- we're paraphrasing here-- ‘I will scratch your eyes out mercilessly, Blumenthal, and you, too, Unger, if you don’t watch yourself’ are thrown around and a $100,000 is placed on the table—i.e., the CNBC Video wet dream we’ve been having all these years.

-----Original Message-----

From: redacted

Sent: Wed 2/21/2007 7:33 PM

To: tips-db

Subject: Goldstein

You may have seen Philip Goldstein, on CNBC's On The Money, bet $100,000 each to Connecticut AG Blumenthal and some former SEC commissioner lady Laura something that he wins his upcoming case involving the bulldog investors website and soliciting business, whatever the hell it is, being brought by Massachusetts. Blumenthal flopped a joke that he was "not an accredited investor for that bet" and SEC lady said she would take the bet if CNBC backed up her end. Goldstein was quick to point out that he was betting HIS OWN money.

Goldstein also showed spunk when he effectively said he'll make it cost millions of Massachusetts taxpayer money because he'll take it all the way to the supreme court if he has to.

Gotta love this guy, completely ready to stick it to the regulator.

kmj

Update: Full transcript, after the jump.

Yesterday's executive compensation bonus pool filing by Bear Stearns provides a good opportunity to discuss the pseudo-scandal of backdating. And, if you've been following our scandal-skeptical coverage of backdating, you'll probably want to read this because we're going to take you along a quite different road here.

Let's back-up for a moment and look at yesterday's filing. What Bear Stearns has done is cap the total bonuses of its top five executives at $39.5 million, which is thirty percent of $165 million. That cap applies regardless of whether the bonus is awarded in cash, restricted stock or stock options. So what does this have to do with backdating?

Well, keep in mind that current rules prevent most backdating by requiring companies to disclose stock options grants to top executives almost contemporaneously with the date they are made. You can't really backdate a stock options grant by more than several days.

But let's imagine those rules went away, so that we're operating back under the old, pre-Sarbanes-Oxley accounting regime under which most of the backdating occurred. Now the Bear Stearns filing is an extreme example of something that a lot of corporate governance gurus have long called for—disclosure of the total bonus or compensation available to top executives. This sort of thing has its definite pluses—better information to the shareholders and markets, and less opportunity for directors to claim afterwards that they didn't understand the total compensation package. So you won't get any more Dick Grasso-NYSE type fights with a Bear Stearns type disclosure.

But it also demonstrates an opportunity where backdating a stock could be used to effectively inflate executive compensation.

After the jump, we explain why, in some cases, backdating might be a serious corporate scandal.

It's one of the perennial mysteries of life in New York City. Big shot young Wall Streeters find themselves shelling out for bottle service at the latest lounge or night club of the moment hoping to attract women, while guys who do things like "web design" or advertising seem to scoop up the girls effortlessly. It turns out that this is not just some sort of "grass is always greener" banker dystopian fantasy. It's scientifically true.

Here's the bad news from the BBC:

High-flying men are not as attractive to women looking for love as those with an average job, scientists say.

Perhaps unsurprisingly, the University of Central Lancashire research found the 186 female students asked preferred good-looking men.

But within that group, those without top careers were deemed most suitable, the Personality and Individual Differences journal reported.

The team said women seemed to feel high-flyers would not be good fathers.

We suggest that females see physically attractive, high status males as being more likely to pursue a mating strategy rather than a parenting strategy
Simon Chu, lead researcher

Lead researcher Simon Chu said the high-earning career men were deemed to be "too good to be true".

"Under particular circumstances, high socio-economic status in males can be subtly counter-productive in terms of attractiveness as a long-term partner.

"We suggest that females see physically attractive, high status males as being more likely to pursue a mating strategy rather than a parenting strategy.

Translation: you might be a BSD, but the women don't trust you to help them out with the kids and have already figured out you're going to cheat on them .

Why women fall for 'Mr Average' [BBC]

Is it too early to start talking about bonuses for 2007? Bear Stearns doesn't think so. It has already set up a bonus pool for its top executives, according to a recent SEC filing.

From Reuters:

A maximum bonus pool of $165 million has been established for a group of five senior executives that includes Bear Stearns Chief Executive James Cayne, the company said. Payout will be pegged to the company's return on equity. No executive can get more than 30 percent of the total pool, which can be as little as zero.

Bear Stearns' compensation committee also approved the performance goals for a second bonus pool for seven other top executives. The maximum amount will be $140 million, with awards based on pretax return on equity, departmental income and expense controls.

These numbers include cash and non-cash bonuses. So if you do the math, the maximum bonus for, say, James Cayne for 2007 will be $49.5 million, or about $3 million dollars less than the co-presidents of Goldman Sachs got for last year.

We can't help thinking that this suggests a new recruiting slogan for Bear Stearns: "Bear Stearns: It's like working for Goldman in 2005. Wall Street The Old Fashioned Way."

Bear Stearns Companies Inc 8-K [SEC]

Bear Stearns sets up $305 mln executive bonus pool [Reuters]

Whole Foods to acquire rival Wild Oats (MarketWatch)
Wild Oats has always been the poor man's Whole Foods. The Colorado-based natural good supermarket never quite gained the same level of national brand recognition or profit as its Austin-based rival. Now the two will become one, as Whole Foods announced the acquisition of Wild Oats. So, how will the government view this. Will it see the obvious reality, that the two companies compete with a range of stores, from traditional grocers to Wal-Mart and food co-ops? Or will they see Whole Foods as owning 100% of the natural good megachain market? We're guessing the former, but you never know.

Toll's Net Drops on Land Writedowns, Falling Orders (Bloomberg)
Luxury home builder Toll Brothers turned in another rough quarter, as earnings dropped by 67% due to falling sales and major writedowns of assets. The good news is that we've finally seen the bottom of the housing market. No really, this has to be it. Really, this has to be the floor. Turnaround city, here we come.

Global Economy Shrugs Off Oil, Housing Strains (WSJ)
Look around you, things are going pretty good. At least from an economic point of view, the big threats of housing collapses and and oil-induced recessions aren't playing out. Even Japan, home of little growth and the 0% interest rate is feeling confident enough to raise its to a growth-halting .5%. Ok, maybe that's not too much. But for a country that doesn't need to be told to stash its money away, the fact that it's interest rate is that high is saying something. Of course, there are worries, that investors are ignoring the dark side, assuming that everything from internet stocks to Ecuadorian bonds are going to pay off. But for now, everything's quiet, if not too quiet.

Dollar Strengthens as Fed Speakers May Signal Inflation Risks (Bloomberg)
Inflation isn't typically seen as a positive force for a currency. But in the sometimes seemingly backwards world of currency traders it can be. That's because in an environment where inflation remains a concern, we won't see any more interest rate cuts. In fact, we may even see a hike or a tightening, if you will. Of course, the stock market tends to behave just as silly. How many times have the markets rallied on bad economics news because it means the fed might slash rates?

$$$Hi Girls. I am in the middle of switching jobs so I have the 2 weeks in front of me and one of the things I want to try out is Yoga. So I am looking for a partner to go to yoga with. If you are already into yoga then it is a plus!!!

So here are a few things:
1) I am looking to hit up a yoga class sometime in the afternoon or late afternoon.
2) I would like to have a female partner, and I would also like for her to be attractive.
3)I am 28 yrs old. I trade bonds for a big wall street firm.
4) I am from Indian decent. 5'9" tall, fit and athletic. trust me I am very attractive. [Craiglist]

$$$Stanford GSB, Surveyed [Banker's Ball]

$$$Baidu Revisited: The Heat is On [Information Arbitrage]

$$$Lindsay contemplates the long and short of Auxilium’s (AUXL) new male enhancement cream, Testim. [WallStrip]

It's starting to look like its Blackstone day here at DealBreaker. Or maybe even Steve Schwarzman day. But then again, it's starting to look like a Steve Schwarzman world these days, so maybe it makes sense.

Here's a Wharton house organ quoting Schwarzman from a recent speech.

"I'm doing my sit-ups and watching CNBC. Suddenly somebody starts talking about me on television ....The business has gone into a weird zone of visibility. For those of us who have done it for a long time, it's strange," said Schwarzman in a keynote address at the recent Wharton Private Equity and Venture Capital Conference, whose theme was "Exploring New Frontiers."

He goes on to discuss how private equity brought him to a higher metaphysical plane.

"A $5 billion bid would have been unbelievable. For us to do a $36 billion offer -- one that was accepted -- is an out-of-body experience."

We cannot get the image of the spirit of Steve Shwarzman floating above $36 billion dollars out of our heads. His arms are spread out, fingers splayed. His sit-up honed taught belly floats several feet above the piles of money. His eyes are glowing. Steve Schwarzman controls not just the "most powerful" private equity firm. He controls the astral plane!

Private Equity Players Hit the Big Time [Knowledge@Wharton]

Having a column based entirely on your veiled hatred of one person is not as easy as it sounds. For instance, early on in my tenure as editor-in-chief of my high school newspaper, I got into a tiff with an older and unnecessarily rude, not to mention arbitrarily unfair cafeteria worker, who refused to let me buy an orange juice before class one morning because it was, apparently, “too close to the bell ringing.” Now if there was one thing I knew like the back of my hand it was that there was no rule about not being able to purchase a beverage prior to the bell ringing. After, yes, that would make sense. But not before. So, naturally, I stood there and argued with her and made some really insightful and, more importantly, RIGHT points as to why she should just “let me buy my fucking Tropicana,” to apparently no useful end because the bell rang and I had to go to English or whatever it was (I actually think it was French but who’s counting? Oh, yeah, me) sans juice.

Being prone to hold grudges and, conveniently, without a “Letter From The Editor” for our upcoming issue, I decided to take the withholder of juice to task and detail my experience for the whole school to see. I never anticipated the outpour from the student body that followed: laughs, tears, people coming forth to share similar testimonies based on interactions with the very same Cafeteria Gestapo. So I decided to continue my assault in no less than two more “Letter(s) From The Editor”.

By the fourth go, though I could have continued on pure rage alone (one of the things you should know about me if we’re ever going to live together is that getting between me and my morning orange juice is just not a good idea), I didn’t really have any new material (“And what’s the deal with her flipping out on us when we don’t have exact change? What’s the deal with that?” didn’t exactly make the fridge at home). I thought about trying to start a new fight with her (“Let me buy this muffin, bitch”) but it seemed a bit too contrived even for my low standards of journalistic ethics. Also, my parents told me that my next LFTE had to be an apology “or else” (let the record state that I’ll never try and stifle my offspring’s creativity). I did what I was (unreasonably) told to do, and my Letter following the “I’m sorry” missive was about four minutes not being enough time to get to class.

Last night we found ourselves at a birthday party being thrown for a young lady-architect at a very new bar called Nurse Betty on the lower east side. We discovered a couple of things. First, that there are still good bars on the lower east side, despite what we told the New York Observer's Chris Shott. Second, that when you are more-or-less crippled and confined by your crutches to a bar stool, it is very hard to get out of awkward conversations at parties. There is no graceful conversational exits when you have to hobble off.

And that's how we found ourselves trapped in conversation with someone who had a few bones to pick with DealBreaker. We ended up defending DealBreaker from the charge that we hate all existing business magazines. Because we don't. In fact, we kind of love them. If they all folded tomorrow, it would make our job of making fun of them much, much harder. But sometimes we wish they did a better job of what they did.

Today Jon Friedman at MarketWatch explains why he thinks the best business magazine, well, you'll see. Hint: it's published by Conde Nast. Hint: It's not Portfolio. Hint: There's a big picture of it on the left side of this item.

Call it the height of irony in publishing.

Conde Nast is spending big bucks to create the ballyhooed Portfolio, the "it" magazine launch of 2007 (if not the whole history of the world). The fabled publisher will have shelled out tens of millions of dollars by Portfolio's April debut.

Like any proud parent-to-be, Conde Nast fully expects an adoring public will hail its baby as the smartest and best-looking kid on the block. The irony is that Conde Nast already publishes the smartest and best-looking business magazine around. It's called Wired.

So what makes Wired so good? Well, we read Friedman's column and we're not sure. He likes the covers, especially the recent one featuring John Hodgman. We like that too. But that's because we like Hodgman. And we're not sure that putting him on the cover makes Wired a brilliant business magazine.

Oh, and he likes the fact that they avoid boring company profiles. And that when they do profile companies, these tend to be a bit edgier than the standard business mag stuff. There's also something about "challenging readers" but this part got a bit nerdy for us so we skimmed it.

What else?

What Wired does well on a consistent basis is force the readers to think. It seems to refrain from the kind of survey story that Time Inc. might publish (beware, Fortune) -- the 10 biggest this, and the 25 worst that sort of fare.

We guessWired is pretty good. But if you wanted to know why it might be the "best business magazine," you're on your own. Friedman doesn't exactly get around to that part. Maybe that's what he means by challenging his readers.

Why Wired is (already) the best biz magazine [MarketWatch]

Putting together lists is part of the business of business magazines. You've got your standard Fortune 500 for companies, Forbes 400 for wealthy people, and the Wired 40 for tech and innovation. But that only gets each magazine through one issue a year. Combine the laziness of editors with the reading public's appetite for lists, and you've got a recipe for endless lists. Last month saw Forbes' "Midas List" of hot shot venture capitalists. And now we've got Fortune's "Private Equity Power List."

Sigh.

Well, it seems we're not the only ones tired of tired lists. The new Fortune list, which hits the newsstands next week but is up on the magazine's website right now, is getting some pretty bad reviews.

DealBook complains that the list lacks fun, especially in its allegedly "fun facts" section.

For our part, we were a bit underwhelmed by the “fun fact” included for each the 10 entries in Fortune’s list. Most of them are not particularly fun, especially compared with previous eras. (Nothing like, say, Drexel Burnham Lambert’s Jeff “Mad Dog” Beck eating a whole box of Milk Bone dog treats while discussing a deal with RJR Nabisco chief Ross Johnson in 1986.) Maybe that’s a sign of a new seriousness in American business. Or bad-tasting dog biscuits. Or something.

Dan Primack has a bit more of a substantive complaint—the list is based on nothing short of fund size. So it's not really measuring anything like "power." Just fund raising prowess. And maybe there's a difference.

This list seems to do little more than rank firms in order of latest fund size. First-place Blackstone has a bigger fund than second-place KKR, which has a larger fund than third-place Carlyle, and so on. It’s also worth noting that “latest fund size”’ is really used collectively by Fortune. For example, it says that Bain Capital’s last fund netted $13 billion, but this actually includes the following current investment vehicles: $8 billion core fund, $2 billion co-investment fund, $1.2 billion European fund, $1 billion Asia fund and $1 billion employee co-invest fund (and, yes, it should therefore total $13.2 billion).

The only thing that gives me pause is the absence of either Goldman Sachs or Permira in the Fortune list, since both have fund sizes large enough to deserve inclusion. Or how about First Reserve? Were they simply forgotten, or were other metrics in play?

Private Equity Power List [Fortune]
Private Equity Rules (But Where’s the Fun?) [DealBook]
Private Equity Power? [PE Hub]

For the smartasses out there, RE: my December fatwa—I was just upset with Carney at the time, and probably made some promises I couldn’t keep. You all know me well enough to realize that I could never stay away from Goldman and its bonuses for very long. I’m weak, is that what you wanted to hear?

Goldman Sachs said in a regulatory filing Wednesday that it paid Gary D. Cohn and Jon Winkelried, the firm’s co-presidents and co-chief operating officers, about $52.4 million each in bonuses for its 2006 fiscal year.

That figure includes $26.7 million in cash bonuses, $15.4 million in restricted stock and what the bank estimated was $10.3 million worth of stock options.

By way of comparison, John J. Mack, the chairman and chief executive of rival Morgan Stanley, took home a $40 million bonus last year. Merrill Lynch chief executive Stanley O’Neal got $47.3 million.

Goldman Co-Presidents Out-Earned Many Wall St. Chiefs [DealBook]

The controversial conviction of NYSE specialist David Finnerty was thrown out by a federal judge this morning. Finnerty was convicted back in October after a surprisingly brief jury deliberation that led some to wonder whether the verdict would stand up on appeal. Now we know it didn't.

U.S. District Judge Denny Chin in New York today set aside the jury's guilty verdict. Jurors in Manhattan federal court found that Finnerty, who worked at Fleet Specialist Inc., illegally inserted his firm as a middleman in trades that should have been made directly between two customers.

The ruling is the latest blow to prosecutors in what was the biggest crackdown on illegal trading at the Big Board. Of 15 specialists charged with fraud by the U.S. in April 2005, three, including Finnerty, were convicted at trial, and two pleaded guilty. Two other specialists were acquitted, and prosecutors dismissed charges against seven others. One remains a fugitive.

Chin said prosecutors failed to present enough evidence to show that investors were defrauded. "What did customers expect when presenting an order to specialists?'' Chin said in a 37-page ruling. "What did customers `trust' the specialists to do? None of these questions were answered by the evidence.''

Fortune’s Nelson Schwartz has a helpful (if not entirely presumptuous) profile on the Man o’ the Hour today. It details several of the pillars of Blackstone's gargantuan success, and doesn’t shy away from making harsh (though clearly spot-on) interior design judgments.

Pillar #1: The Monday Morning Meeting. This is where—at the “long, slightly scuffed conference table in a windowless boardroom high above Park Avenue”—the magic happens. Everyone’s there—Blackstone Wingman Tony James; “real estate prodigy” Jonathan Gray; the new guy from the copy room.** This is where it all goes down.

The meeting always starts with private equity before moving quickly to Blackstone's newer divisions - real estate at 10:30, followed by hedge funds at 2 P.M. in another conference room, and finishing up with Blackstone's debt business at 4.

It was in this boardroom that Schwarzman and his team plotted to buy EOP, twice raising their bids before hitting the winning number of $39 billion. It's also here where the firm has often carved out niches in alternative investing, a nontraditional corner of Wall Street where newfangled investments, such as hedge funds specializing in distressed debt, can bring both greater risks and greater rewards.

"We go over every client situation, every deal," says Schwarzman. And what about lunch? "You must be kidding. We don't have time for lunch," he jokes, echoing the fictional avatar of 1980s Wall Street, Gordon Gekko.

Pillar #2: Hilarity (see above).

Pillar #3: Use of safe words, indoor voices.

How exactly do bank credit guys describe their job these days? It sounds a lot like it could be summed up as "pushing money out the door."

From Bloomberg:

Henry Kravis and Stephen Schwarzman never had an easier time getting the lowest interest rates on loans from their bankers.

Just three months after borrowing $12.8 billion to pay for hospital operator HCA Inc. in November, Kohlberg Kravis Roberts & Co. and its partners negotiated a new loan with lower rates. Schwarzman, chief executive officer of Blackstone Group LP, is doing the same for a $3.5 billion loan that financed the takeover of Freescale Semiconductor Inc., the mobile-phone-chip maker.

Leveraged buyout firms are leading borrowers refinancing $64 billion of loans so far this year, more than in all of 2006, according to ratings company Standard & Poor's. Banks are giving in and reducing rates because corporate defaults are near all- time lows.

"This is the best loan market for borrowers I have ever seen,'' said Kenneth Moore, a managing director at First Reserve Corp., a private equity firm in Greenwich, Connecticut, that manages more than $12.5 billion and specializes in buying energy companies.

Loans for companies rated four or five levels below investment grade yielded an average 2.26 percentage points more than the three-month London interbank offered rate in the week ending Feb. 15, S&P says. That gap over Libor, a lending benchmark, was the smallest ever and compared with more than 4 percentage points in 2003. The difference saves $17.4 million a year for every $1 billion a company borrows.

Oh. If you're keeping score at home, put another mark down under the column for "Private Equity Not In Trouble."

KKR, Blackstone Push for Record Low LBO Loan Rates [DealBreaker.com]

Is all not well in the house of CNBC? We've mentioned again and again the love that CNBC executives, and their bosses at GE, have for Maria Bartiromo. But is their love unrequited? San Antonio Express-News business columnist David Hendricks writes that Maria didn't even so much as mention the network at a recent speech in San Antonio.

Curiously, it was difficult to know from her speech Tuesday who employs Bartiromo: I don't remember her mentioning CNBC even once. She was busy instead dropping the names of the people she has interviewed, from President Bush to Bill and Melinda Gates and the heads of high-powered private equity firms.

So is Maria giving CNBC the cold-shoulder?

Actually, that excerpt is probably unfair to Maria and Hendrick's column, which makes it abundantly clear that she's "an asset to business journalism" who understands the financial world better than many "award winning" business journalists, including "how private-equity acquisitions of public companies boost the value of U.S. corporations." He just wishes she'd cut-out the "corporate promotional appearances"—which is the most polite way of describing all that time she spent with Citigroup executives we've seen in weeks.

Bartiromo avoids the difficult questions in San Antonio [San Antonio Express-News via Talking Biz News]

We're not sure why but we never really get tired of the PC-Mac parodies. This is from this year's batch of "Wharton Follies." It's a first year Wharton student comparing his "big night" with a second year student. They all start so fresh faced and eager. Not exactly "funny" but probably at least "Wharton funny."

The rest are all here (via BankersBall).

[Editor's note: the best bar in Philadelphia is McGlinchy's on South Fifteenth Street. Pints of lager for $1.65 and hotdogs for a quarter.]

Signs of the impending collapse are everywhere. And many of those dark clouds seem to hover above the Blackstone Group. Steven Schwarzman's birthday party? Obviously the kind of excess and hubris that the Gods will not tolerate. Blackstone's $39.2 billion purchase of Equity Office Properties. Clearly things have gone so far. A bad moon rising.

At least, that seems to be the official theme of the business press lately. But how bad is Blackstone doing with it's EOP deal? Sure there are lots of signs of trouble in the real estate market. And REIT yields are down. But Blackstone didn't get to be Blackstone by blowing in the macro-economic winds. And, so far, it seems to be doing very well with its EOP deal.

Let's do the math. Blackstone's EOP properties have been selling like hotcakes (whatever "hotcakes" are). Fortune has the figures:

California's Irvine Co. is the latest buyer, picking up 17-buildings in San Diego County for an undisclosed amount of money. Macklowe bought eight Manhattan buildings for $7 billion the day the EOP deal closed; Beacon Capital Partners bought properties in Washington and Seattle for $6.35 billion. Bloomberg reports that San Francisco-based Shorenstein bought buildings in Portland, Oregon for $1.2 billion, and rumors abound in the Sacramento market that Shorenstein will buy EOP holdings there as well

Add to that todays announcement that Maguire Properties Inc. was buying EOP properties in Los Angeles and Orange Country for $2.88 billion. So that's at least least $17.43 billion that Blackstone has already pushed off its books. Let's call it $20 billion with the Sacramento and San Diego Country properties. Which means that Blackstone only has somewhere in the neighborhood of $19.2 billion left to clear before it starts making money from the EOP deal. Got that? The Blackstoners have already made back half their investment. And, since we don't know the exact mix of debt and equity involved in the deals described, it's possible that the picture is even prettier than this.

So it might be a bit early to start ringing the alarm bells of "excess" or writing that the size of Blackstone's deals and parties "bodes ill." Right now, things seem to be boding quite well.

Questioning Blackstone's big deal [Fortune via CnnMoney.com]

Maguire to buy ex-EOP property from Blackstone [Reuters]

The bidding war for the Spanish-language television network Univision was one of the greatest private equity stories of last year. Now the winners of that auction--including, Thomas H. Lee Partners, Texas Pacific Group, Madison Dearborn Partners, Providence Equity Partners and media mogul Haim Saba--are on the hunt for a CEO. Choosing the right man to run a company is one of the things that private equity firms pride themselves on doing very well. According to the New York Post, the owners of Univision are very close to naming their man.

The announcement is expect in a week or two, and despite rumors it seems unlikely that Univision will be run by former Mexican president Vincente Fox. So who is going to run Univision?

From the Post

Univision is viewed as having strong talent internally, including current CFO Andy Hobson and President Ray Rodriguez.

But Univision's new owners are believed to be looking for a high-status bilingual exec with close ties to Mexico.

Leave your best guess in the comments section below. No points for answering "George W. Bush." He has other commitments until at least 2008.

Univision Narrowing Search For CEO

EU Fines Otis, Four Other Elevator Makers for Cartel (Bloomberg)
A few months ago, we pointed out that Europe was none too happy about an apparent elevator cabal, as the main players in the industry apparently kept an artificial floor on prices. So, the EU has levied a cool $1.3 billion fine on United Technology's Otis unit, along with four others, including ThyssenKrup. This fine is the biggest fine for a cartel since 2001, when the EU smashed the vitamin cartel. Just to be clear, Neelie Kroes is not to be messed with.

Justices Overturn $79.5 Million Tobacco Ruling (NYT)
We could've sworn that the era of big tobacco settlements was supposed to have been over a long time ago. Didn't the tobacco companies agree to some mega settlement with the states to put this stuff in the past? Either way, the industry clocked in a nice victory at the supreme court as the justices ruled 5-4 to overturn a $79.5 million judgment against Philip Morris. At issue was whether the jurors, when deciding on a payout, were seeking to punish the industry for its broader harm, as opposed to simply the harm its products did to the one individual "involved" in the suit. We put involved in quotes, since the smoker himself was dead -- his widow brought the suit. It's not clear what happens now, but the industry has a nice precedent and ruling it can take anywhere it wants to argue for lower damages.

Canadian hedge fund managers face proficiency tests (FT Alphaville)
It's not clear what they're going to look like, but apparently Canadian hedge fund managers will have to pass some sort of proficiency test if the want to keep plying their craft. Just so you have a heads up, you should probably go buy the Princeton Review's Hedge Fund Manager Study Guide now, or at least take the Kaplan classes that they offer. And if it works in Canada, American managers better start studying as well.

Nissan offers U.S. workers early retirement as truck, SUV sales slip (MarketWatch)
First, Nissan forced its workers to move from sunny California to sunny Tennessee, a move that angered many of them, probably quite understandably. And now that they've arrived in Tennessee, they're being told that they're no longer wante don the assembly line. The company, which is starting to face some headwinds (Carlos who? Thought so) is offering Detroit-style buyouts to a few thousand assembly-line workers, encouraging them to take an early retirement. We know what that means.

$$$Inside Lloyd Blankfein's substance abuse problem. [SuperMogul]

$$$Dumb People at Wharton? [Banker's Ball]

$$$Long or Short Capital Reports Q2′07 Results [Long or Short Capital]

$$$Lindsay? Is that you in there? [WallStrip]

You might have noticed that we've been hammering away today at the backdating reporting of the Wall Street Journal. In fact, we've been beating up on Friday's front-page story so much that we've haven't even had time to get to the breathless reporting in today's Journal.

So what's got us all hot and bothered? Well, to be frank, it's the news that the Journal's reporters are winning awards for their reporting on backdating. We're not picking on lightweights here. We think the public is entitled to a little better from prize winners.

But it's not really the news that a few fellas at the Journal won something called a George Polk Award that has us up-in-arms. It's the possibility—perhaps even the probability—that the Journal's reporters might win a Pulitzer for their reporting on backdating. There's little doubt that the Journal is gunning for a Pulitzer here. And before the awards are handed out, the laurels placed on brows and the round of congratulations start, we thought we'd try to put things in perspective and correct a few errors.

Once they give the boys a Pulitzer it'll be even harder to get the real story of backdating out.

Reporters for Journal Win George Polk Award [$$] [Wall Street Journal]

How many misunderstandings can the Wall Street Journal's reporters pack into one article on backdating? We're still counting.

Our earlier post focused on how the Journal's report was misleading about the rationales for awarding stock options and the how backdating affects those rationales. But the reporters also seem to misunderstand the process of how stock options are awarded.

The reporters note that the chief financial officer of Broadcom urged that the options awards to executives be dated on December 24th. They then add:

They were, and that was fortunate for recipients. Broadcom's share price rose 23% between the two dates. The pretense that the options had been granted on the earlier date made them extra valuable.

That sure is snide and sounds clever. But it rests on a very fundamental misunderstanding of how options are awarded. It's not very likely the executives of Broadcom was destined to get a set amount of options, and so pricing them on an earlier date inflated their pay. It's far more likely that the executives at Broadcom were going to receive total compensation packages worth a certain amount, and that dating the option grants earlier just allowed the company to issue fewer options.

The explicit nature of the chief financial officer's email makes it very clear that the intent was not to somehow conceal how much the executives were getting paid. Anyone with a pencil, a calculator and a piece of paper could figure out what the options granted on January 4th, but priced at December 24th's share price, were worth. This, in fact, is one of the advantages of backdating—pegging the grant to a date in the past on which the price is known, makes it easier to know how much the options are worth. Pegging them to a moving number—such as the share price on whatever day the options are actually awarded—makes the calculation more difficult.

What's more, a phenomenon that economists call the "endowment effect" seems to affect executive decision making here. Executives prefer options that seem to be already worth something on the date granted, even if those options will take years to vest and may actually be worthless (if the stock goes down) by then. In short, Broadcom's chief financial officer might have known he could cleverly shortchange the executives by granting them "in the money" backdated options since they would consider these worth more than even straight cash. It certainly would allow the company to preserve more of its cash.

There's another point worth making. Presumably the actions of the executives helped cause whatever it was that pushed Broadcom's stock price up 23% in 11 days. Is it totally unfair that they might expect to be able to benefit from this explosion in shareholder value? Or do we want to create incentives for executives to hold-off on releasing positive news about their companies until after they receive their options?

[Editors Note: Okay. We might be getting a little "flood-the-zone"-ish when it comes to Friday's big, front-page Wall Street Journal article on backdating. This is our third post on it. We'd like to say that we've covered it all but we haven't. More in a few moments.]

Probes of Backdating Move To A Faster Track
[$$] [Wall Street Journal]

Not sure how we missed this, what with our burning love of the NASDAQ and Socialite Rank (you guys read SR, right?), but last week blogging dandy/man-candy Derek Blasberg, Hearst scion-cum-jewelry designer Fabiola Beracasa, and slutty schoolgirl y aspiring writer Claire Bernard’s life long dreams of ringing the NASDAQ's Closing Bell were fulfilled. While the toast of New York society’s appearance at the market strikes us as a little bizarre (though that’s probably just our attempt to cover up our green-eyed monster envy over the whole deal—Carney’s exact words “Those bitches!”), what we’re actually thinking is that it marks the NASDAQ’s foray into Ladies Who Lunch as Bell Ringers campaign for ’07. Obviously, it’ll only be a short amount of time before the NAS’ contacts us for input as to who we think is most deserving of this special honor, so we’re putting it to you to tell us who should get to get her hands on the bell, so to speak, next. Our own personal algorithm of determination uses factors such as presumed financial expertise, conjectured number of people subject in question has slept with from the 3,200 companies listed on the market, sex appeal and gut reaction. But don’t feel obligated to constrict yourself to our model. This is an important decision—do what you think is best for the good of the people!

Harold Ford was once routinely referred to as an "up-and-coming" politicians. But up-and-comers are supposed to win hotly contested races. Ford lost in a race that the nabobs will always refer to as "controversial" at best and "dirty" at worst. But there is no getting around the facts: he lost.

But losing doesn't always mean losing, especially if you are a Wall Street friendly Democrat beloved by the media. Many Wall Street firms reportedly came calling after Ford. And the Democrat finally returned the calls of Merrill Lynch, where he has signed up to be a senior policy adviser and a vice chairman.

We may never know exactly why Ford felt he was called to Merrill Lynch above all others. But it wouldn't be a stretch that they came up with a few things that everyone else couldn't match. There's the title of "vice chairman," of course. And then the fact that Merrill Lynch is letting Ford keep an office in Nashville as well as New York City. (This keeps alive the possibility that he may return to politics and can't be accused of having totally cut-and-run from his home state when political tides turned against him.)

And then, of course, there is the money. Now for a man as bright and honorable as Ford, we're sure this wasn't the only deciding factor. But that $3 million pay check cited on "Page Six" today can't have hurt Merrill's chances of winning Ford over. A man's got to eat, after all.

We Hear... [New York Post]

That Wall Street Journal story we mentioned earlier opens with this tantalizing lede. Too bad it is so misleading.

On Jan. 4, 2002, the chief financial officer of Broadcom Corp. tapped out an email about stock options to his chief executive and others.

"I VERY strongly recommend that these options be priced as of December 24," he wrote.

They were, and that was fortunate for recipients. Broadcom's share price rose 23% between the two dates. The pretense that the options had been granted on the earlier date made them extra valuable.

It also violated the rationale of stock options. They give recipients a right to buy stock in the future at the price when the options are granted, so that recipients can profit only if the price of their company's stock goes up. Setting a lower "exercise price" for the options gives recipients a head start on profiting.

That last paragraph bears re-reading because it is, at the very least, quite contentious for a front-page news story. Remember, this isn't a Ben Stein rant or a Gretchen Morgenson screed. So it unfortunate that the reporters make the mistake of stating the pro-criminalization, anti-backdating case as a matter of fact.

Backdating does not necessarily "violate the rational of stock options." This is a point we made a long, long time ago. First of all, even the reporters statement of "the rationale" is questionable. There are many rationales for granting stock options. In addition to tying employee compensation to stock performance, stock options also allow a company to provide compensation to valuable employees without diminishing their immediate cash position. What's more, some employees prefer stock options to immediate cash payments because they want to participate in the potential upside growth of their companies. There are also powerful tax-incentives for accepting stock-options, since they are usually not taxed until a gain is realized.

More importantly, none of these rationales (save, perhaps, for the tax-deferment) is violated by granting backdated stock options. This should even be obvious for the rationale preferred by the Journal reporters. Holders of backdated stock options may have a "head start" on their options—the options are actually in the money when granted—but they still must usually hold the options for years before they can be cashed in, and their profits still increase with the rise of the share price. Their incentives are thus aligned exactly with those of other shareholders.

Backdating involved violations of some very complex accounting rules. And reporters, investigators and shareholders certainly have every right to expect companies not to play fast and loose with these rules. But it doesn't help the public understanding of this mess to paint backdating as some sort of corporate looting or embezzling or to pretend that backdating stock options destroys the very rationales for granting them in the first place.

Probes of Backdating Move to Faster Track [$$] [Wall Street Journal]

We're not in the business of watching the Today show so thank goodness somebody at Gawker is. Otherwise we might have missed this segment of Forbes managing editor Dennis Kneale breaking down into tears after being deprived of his email, cell phone, laptop and blackberry for 40 hours.

It's entertaining stuff but we've got to admit that we're just about at the end of our patience with this entire genre of anti-blackberry, anti-cell phone journalism. Sure its annoying when someone sends emails or texts while you're trying to have a conversation with them, or chats away on a cell phone while you need some peace and quiet. We applaud saloons, restaurants and private clubs that have banned using the devices indoors. (By the way, the New York Athletic Club and the Ear Inn seem to have struck the perfect balance by leaving in their old phone booths, with the phones stripped out, and restricting cell phone and blackberry use to the booths). But this is all going a bit too far now.

Mobile phones and blackberries are very useful devices. When one the DealBreaker staff was recently "mowed down" by a hit-and-run driver on the lower east side, an ambulance arrived in amazingly short order, thanks in part to the fact that someone on the scene summoned them with a mobile phone. When that same staffer was confined to the hospital for several days, we gained new appreciation of the benefits of mobile communication.

We've found blackberries and mobile phones useful in far more mundane ways as well. Back when we worked on deals that sometimes involved long periods of waiting around doing nothing at all while we waited for some documentation to be produced or new financial models to get worked out, we made it a habit of skipping out to a movie. We'd sit comfortably in a theater with stadium seating, having set our voicemail to forward to our cell phone and our knowing we'd get our emails instantly on our blackberries. It often meant walking out of a movie once our services were needed but it was far more pleasant than shuffling papers in a conference room. And, we later discovered, our constant practice of removing ourselves from deal rooms in such situations created the impression that we were very busy, and thus very important people.

But the benefits of mobile communications might go even further, as Steve Sailer has recently pointed out.

What device that spread throughout society in the 1990s made it radically easier for witnesses to report street crimes to the cops while they were happening, thus discouraging young people from making a career of being a street criminal?

Right: the cell phone.

All this blackberry and cell phone hating is starting to look like yet another reformist campaign against a practical and useful innovation. And, of course, it's being done in the name of our own physical and psychological health. We've had enough of that, thank you.

Dept. of How Stupid of Me Not to Have Thought of That Before [iSteve.com]

Last week we wondered aloud if recent comments coming from the Securities and Exchange Commission's enforcement division signaled that the regulators might be backing away from criminalizing the backdating of stock-options. The comments certainly seemed aimed at lowering expectations that the numerous investigations by federal authorities into the controversial practice would produce dozens, if not hundreds, of criminal cases.

On Friday, however, investigators seemed to answer our query about whether they were backing off with a loud and unequivocal: "Not a chance." The Wall Street Journal ran a story on the front page under the headline "Probes of Backdating Move to Faster Track."

Probes of Backdating Move to Faster Track [$$] [Wall Street Journal]

Viacom has jumped into bed with Joost, the Wall Street Journal reported today. Joost is a new internet video service from the creators of Skype and Kaaza. It aims to bring high-resolution, commercial video to users, rather than serve as a video sharing network that would compete with YouTube. The details of the deal haven't been disclosed but likely include some sort of agreement to share revenue from online advertising pegged to Viacom-owned content.

We're not sure whether this makes the possible LastFM acquisition we mentioned earlier more or less likely. But our instincts point to "more likely." Even the Journal's headline—Viacom Charts New Course Oneline—suggests that this isn't a "one-off" deal for Viacom but is part of a larger corporate strategy to expand its online presence. A deal to pickup LastFM would certainly fit that strategy.

Viacom Charts New Course Online [$$] [Wall Street Journal]

It’s widely known that Jamie Dimon’s been jonesing for a big acquisition for some time and, according to our semi-credible sources’ quasi-credible sources, Bear Stearns might just be the fix. While there’s been some whispering on the Street that Dimon could be eyeing Washington Mutual Inc., we’re told that Bear’s issued a firm-wide hiring freeze as a result of Dimon’s imminent shopping spree and Bear’s overtures. Know something we don’t? You can find us in our usual haunts. On a related note, Carney and I watched Heathers three times this weekend. (His idea).

That was the allegation (*cough*) flying around last week. Several large Citigroup investors were quoted in a Financial Times story complaining that Citigroup's board was dominated by chief executives from other large companies who were sticking up for Citigroup chief executive Chuck Prince because he is one of their own.

Some of Citigroup's biggest shareholders have raised questions about the strong public support for Chuck Prince, the chief executive, from the bank's board.

The large number of chief executives from other companies on the board made it "naturally sympathetic to Chuck", said one of Citigroup's top 30 investors, who declined to be named.

This very public criticism comes close on the heels of recent controversy at Citigroup following the firing Todd Thomson, a prominent wealth-management executive at the bank. Thomson was reportedly fired in part for his relationship with bigshot CNBC on-air personality Maria Bartiromo.

In a work of amazing Wall Street jujitsu, the Thomson-Bartiromo affair seems to be fueling criticism of the Citigroup CEO. Last week, Wall Street insiders heard rumors alleging that Thomson—who was until very recently considered as a potential successor to Prince—was fired because Prince viewed him as a threat to his position. According to these rumors, the Bartiromo affair was simply a pretext to get rid of Thomson.

A source familiar with the situation at Citigroup dismisses these rumors as "pure spin" likely coming from enemies of Prince. The Citigroup CEO certainly has his enemies. Prince inherited an ungainly and perhaps unmanageable corporate structure built by his predecessor, Sandy Weill. A legacy of scandal, corporate infighting, and rumors of high level resignations and job dissatisfaction, have not helped make the job of running Citigroup any easier. Some investors and analysts have been calling for Prince to dismantle Citigroup, a move Prince has strongly resisted.

Still, even if these rumors are nothing but the whispers of Prince's enemies, this can't be a comfortable time in the executive suites at Citigroup. It's clear that the sharks smell blood in the water.

Meanwhile, CNBC and its corporate parent, GE, have stuck by Bartiromo. GE big shot Jeffrey Immelt was quoted in press reports saying, "I support Maria and I support CNBC." Last week we reported that CNBC writers were allegedly penning some of Maria's apparently off-the-cuff remarks at recent speaking engagements, including her crack that she was late to a dinner where she was scheduled to speak because she "had to fly commercial"—a sly-reference, self-deprecating to the fact that she no longer has access to the Citigroup corporate jet.

But the final chapter in the Money Honey scandal may not yet have been written. We hear that while Bartiromo is no longer involved with Thomson, she has begun seeing another Wall Street executive. But that's probably way, way too good to be true.

Citi shareholders question support for Prince [Financial Times via MSNBC]

Viacom executives are in London negotiating the purchase of LastFM, the London based "online social music network" (read: internet radio station), according to a music business source familiar with the negotiations. The purchase price is said to be $450 million dollars.

Viacom has been reportedly looking to expand its online presence. Reports have claimed that Viacom executives were disappointed that they did not pickup YouTube. LastFM recently signed a deal with Warner Music Group giving the internet radio station the rights to play WMG's entire music catalog. Shortly before YouTube signed its deal to be acquired by Google, the video sharing network signed several rights deals with video content owners. There has been some speculation that LastFM's recent dealmaking might have cleared the way for an acquisition by a larger media or internet company.

Neither Viacom nor LastFM returned calls this morning seeking comment on the rumor.

We haven’t heard this anywhere else—which could conceivably mean it’s old news—but what the hey, it’s a short week and we’re feeling kind of frisky and peppier than usual thanks to three extra espresso shots in our standard iced coffee, etc., so here it is: is Jim Healy, head of fixed income at Credit Suisse about to resign from the bank out of resentment over his new place in the CS hierarchy, following the promotion of Diet Dr. Pepper-swilling Brady Dougan to chief executive and the hire of Michael Ryan from Goldman Sachs as head of securities? According to Dan Freed at Investment Dealers’ Digest, Healy’s hurt feelings may be more deep-seated than just the recent shake-up, more along the lines of Britney-pulling-a-Sinead-O’Connor-over-the-weekend-was-the-straw-that-broke-the-K-Fedian-camel’s-back and not exactly something that—let’s be honest—we weren’t all calling back in ’05 (or, you know, after Crossroads). Anyway, Freed writes:

While Healy and Dougan are long-time colleagues, there is friction between them, says the executive familiar with Healy's thinking. That is because Healy supported a decision by former CEO John Mack, now head of Morgan Stanley to send Dougan to London in March 2004, the executive says. That decision was widely viewed as a demotion for Dougan, but, according to news reports at the time, Dougan turned the tables on Mack, using his position in London to build relations with Credit Suisse influentials in Zurich. The board ousted Mack three months later and Dougan moved back to New York to become CEO of the investment bank. Spokespeople for Credit Suisse declined to make Dougan or any other executives available for comment, and they also declined all comment.

The hire of Ryan, announced Feb. 5, was effectively a demotion for Healy, as it inserted a new layer of management between him and Dougan. Prior to Ryan's recuitment, Healy had reported directly to Dougan as head of fixed income, alongside