$$$ The League Tables [Deal Journal]

$$$ Keep muff brooms out of board rooms, By Jeff Skilling [NewsGroper]

$$$ Wallstrip Halloween [WallStrip]

Sponsored by the Financial Times.

Investors began the morning warily. Trading volume was low and stocks climbed slowly and steadily. Last minute jitters before the Fed announcement sent the major indexes lower. But when the Fed revealed that even an economy growing faster than expected wouldn't stop it from giving Wall Street the rate cut it was demanding, stocks soared once more. The Dow Jones Industrial Average flew up 137.54, or 1%, to 13930.01. The S&P 500 bounded 18.36, or 1.2%, to 1549.38. The Nasdaq Composite Index rocketed 42.41, or 1.5%, to 2859.12. Volume on the New York Stock Exchange was 1.6 billion shares, which is pretty much standard these days.

The Fed's statement is largely being read as drawing a line in the sand. "This far we will cut and no further." It remains to be seen whether they will be believed or whether the Punch Bowl caucus will be back demanding another swipe at the punch before the year is out.

Happy Halloween!

FT Alphaville. Boo!

He tried to get a job at an investment bank, failed and went into hiding for about a year but Aleksey Vayner is back, my bitches, and doing what, you might ask? Trying to find a job. Yes, even people who can bench press one billion pounds on sheer exaggeration alone need some sort of way to pay the rent, and take it from someone who knows, 2-bedroom realities of one’s own making do not come cheap. Mr. Vayner has been making the rounds and just last week interviewed at a fund in New York that would only speak about the life change experience if we promised not to reveal its name, because taking a meeting with this guy (or not knowing who he was in the first place) does not tend to be good for anyone’s reputation.

We’re going to get the most disappointing stuff out of the way first, starting with the fact that Vayner’s no longer sending his CV out in video form. Bull shit, I know. Equally upsetting: AV’s resume no longer makes mention of the book he previously claimed to have written, “Women’s Silent Tears: A Unique Gendered Perspective on the Holocaust.” As a woman and a fan on the Holocaust who often cries inaudibly, I have to say, this one stings, and I’m not really sure what the rationale was behind it. Additional letdowns—he's now going by "Alex" and is said to have come off as “personable,” “chatty,” and “laid back.” It’s like, who the hell is this guy? Luckily, that only lasted for about five minutes, at which point he took off his normal person mask and became the monstrously arrogant and, dare we say it, sociopathic liar we all know and love.

Was the video he sent to UBS an error in judgment? No, was not an error in judgment, fuck you very much. It was just, in the words of the Maestro, “taken out of context.” Oh, and he’s got another book coming out (ETA, Summer 2008). It’s called the Millionaires’ Blueprint to Success , and is based on Aleksey’s experience with the rich people he met through tennis and skiing. He wrote it because, honestly, he’s read every professional development book out there, and they’re mostly full of crap. Obviously he could do better, so he did (that’s called initiative and the ability to do simple math, just two of the many qualities he offered the firm). Aleksey’s tome—a cross between a hard finance book and a self-help guide—works because it teaches you to “train your mind to have the right attitude toward money, and then shows you how to get it.” Seriously, just buy it, you’ll love it.

You’re probably wondering why Aleksey, who graduated in May, is just now looking for employment. Well wonder no longer—it’s because he was going to go pro in tennis, with a debut playing doubles in the US Open. Unfortunately, his partner hurt his wrist two hours before their match, and though he thought about playing as a single, Aleks just decided he might as well go into finance, at which he is equally if not more so adept.

Earlier: Everything we've ever written about Aleksey Vayner.

Aleksey Vayner's Somewhat Toned-Down Resumé [Word doc]

Slate is planning to launch a new site next year "devoted exclusively to business news and opinion," according to John Koblin at the New York Observer.

"We think there’s an opening for a really smart, analytical, opinionated Web site that could be Webby and fast and agile,” Slate editor David Plotz tells Koblin.

Portfolio Market Mover Felix Salmon applauds the move. "What's more, that space, which was very empty at the beginning of this year, could fill up very rapidly, to the benefit of all concerned," he writes.

It seems that they still haven't found an editor to run the new site. Koblin reports that they asked Elizabeth Spiers to take the job but she turned them down. Spiers running an edgy business news site? It's almost shocking that no-one has thought of this before.

Slate to Launch Business Site [New York Observer]
The Market for Online Business Opinion [Portfolio]

Fed funds and discount rate cuts.

In our reader poll, 61% of respondents predicted a 25 basis point cut.

Too much? Too little? Goldilocks' porridge? Leave your response in the comments section.

After the jump, the full release from the Fed.

October 31 Press Release [Federal Reserve]

When Goldman turned in it's third-quarter earnings and revealed the the credit-crunch was its friend, several eyebrows were raised by market watchers. How could Goldman have made the kind of money it claimed to have made by shorting subprime mortgages, more than person we spoke with asked.

Apparently, the same question is being asked over at the Securities and Exchange Commission. Writing in today's New York Post, John Crudele reports that the SEC is "curious" about whether Goldman's traders were tipped off by the firm's investment bankers, giving them an edge on the market. Interestingly, there seems to be some debate within the SEC about whether or not such tipping would constitute insider trading. We assume the crux of the matter is the technical legal question of whether the notoriously conflict-ridden Goldman could ever commit insider trading. If your clients already know you are on both sides of every trade, can you really be convicted of misappropriating from them?

We'd like to know a question Crudele doesn't ask: what kind of non-public information could have led Goldman to take on those winning positions?

SEC Eyes Goldman Sachs' Good Fortune [New York Post]

Tomorrow is the first day of Movember, a charity event started in Australia that gets men to grow mustaches (and ‘stache supporters to sponsor their efforts) in order to raise money for prostate cancer research. In years past, Mo Bro participation from the Aussie branches of Citigroup, Goldman Sachs, Deloitte and PricewaterhouseCoopers has been huge, and nearly 25% of funds generated since the organization was started four years ago have come from finance professionals. With Thursday marking the first time the contest is being held in the U.S., you would think that top banks would be gung-ho about their employees growing hair, just to prove themselves better than one another in a category other than record losses, but, apparently, not so much. We placed some calls today to find out which firms will officially be sporting wool and let’s just say that you should all be performing regular self-exams for early detection, because a cure is not around the corner. When asked if their CEOs would be setting good examples for their minions by growing moustaches this month (and, obviously, contractually obligating the plebes to do so, as well), Bear Stearns, Lehman Brothers and Citigroup all said no, and Goldman Sachs said it’d get back to us but hasn’t (which is probably a no and besides the point: Blankfein promised himself he’d never go back to his hobo days a long time ago). A spokeswoman for Merrill Lynch told us that, like all the other pro-cancer banks in New York, hers would not be asking employees to take part in the event, and reminded us that, at the present time, MER has no CEO on which to grow a ‘stache. When we casually wondered aloud whether or not the last guy to run the company would’ve seen the same fate had he worn some fur, she responded, “maybe not.” And honestly? Girl didn’t sound like she was kidding.

Do you have the ability to grow facial hair and the balls to say corporate culture be damned, I am not down with this life-threatening disease? Send photographic updates on your progress here.

Growing Facial Hair for Charity [WSJ]

In all the talk about losses at individual banks and brokerages, sometimes it's easy to lose sight of the bigger picture. A report issued by the New York City comptroller yesterday nicely pointed to the forest made up by those trees. The collective profit loss at Goldman Sachs, Morgan Stanley, Merrill Lynch, Citigroup, Lehman Brothers, J.P. Morgan Chase and Bear Stearns was 65%, according to the report. And the damage would have been even worse if not for Goldman's miraculous/evil genius performance.

New York City, State Budget Outlooks Dim as Wall Street Falters [Bloomberg]

Hey guys,

We realize this is kind of last minute, not very well thought out, and a lot to ask of the 20% of you who are still employed and have more important things to do today, but you've always said that if we ever found ourselves in trouble and had nowhere else to turn, we could come to you. Well, we're coming to you—we want to rehire this kid Heath Khan (no relation to Genghis) who used to work here but don't have the money (maybe if more of you had clicked on the Mike's ads, we wouldn't be in this situation). Can someone float us the funds? If we get enough page views with Heath back on the team, there's a chance we'll even be able to pay you back in cash at some point in the future, or you could take some equity in the company now. What do you say? Know what we say? Kidding! No one named Heath ever worked here. Little ‘trick’ for you, in honor of the day. Okay, but let's talk seriously for a second-- we really do have a friend who needs your help/charity. His name is Tim and he's in a major jam. Kid has no clue what to be for Halloween. We know you've got ideas for him. The only stipulation is that it doesn't cost too much, because he doesn't currently have a source if income, per se. It won't be hard to top last year's costume, which was apparently a lumberjack (this was just before Wall Street Warriors became a hit, you see, so the pressure wasn't really on him to think up something great), but that doesn't mean you shouldn't reach for the stars. We've come up with a few jumping off points, from which you can either pick one and say "Hey, great, and this is how you execute it, Tim" or come up with your own.

A hedge fund manager (he’s always wanted to be one, and Halloween is a holiday of aspiration)

Brian Hunter

Neil Cavuto (they’ve got the same hair)

Lolcat Ben Bernanke: I'z up in yer marketz, cutting yer inflation. (That was John’s idea)

A person who’s going to buy his book (so this might just require his regular street clothes, I don’t know)

Max Cordero

It's almost too good to be true. But it is true. Goldman Sachs chief executive Lloyd Blankfein lives in the same building at Merrill Lynch's ousted chief, Stan O'Neal, according to some at New York magazine who reads DealBook. The address: 941 Park Avenue, on 81st street.

Thanks to a reader, we were reminded this morning of a story in Nassim Taleb's Fooled by Randomness about the hard working lawyer from Brooklyn. Although he's a success by almost any measure, he is the poorest member of his Park Avenue Co-Op, and feels lousy about himself. The anecdote is used to illustrate how happiness is not just attained through material success but is also based on relative comparison. Nassim's point is that over reaching in order to "keep up with the Jones" can lead to excessive risk taking for a trader.

Suddenly, Stan's obsession with Goldman's earnings is starting to make sense.

"Just imagine that psychological trauma!" our reader writes. "If only Stan had moved into Jimmy Cayne's building he would still be CEO of Merrill."

As Merrill Reels, Goldman Glitters [DealBook]
Hello, Blankfein [New York Magazine]

Alcatel-Lucent deepens job cuts as it posts loss (MarketWatch)
More evidence that ALA-LU has become an ugly competition. Lesses again in the quarter and another 4000 job cuts. Among those leaving is the CFO, who is "pursuing other opportunities". We're not sure whether he's part of the 4000 cut jobs or whether he makes it 4001. Hopefully they'll clarify that at some point. Seems pretty obvious that CEO Patricia Russo is not long for this job either, though nobody ever thought she was.

Fans go loco for free tacos (Boston Herald)
The Red Sox' victory prompted quite a bit of underpricing of real assets. First there was that furniture store that was stuck $40,000 because of a promotion it had run earlier in the season pertaining to a Red Sox World Series victory. Then yesterday there were free tacos at Taco Bells all across the country, again because of some Red Sox-related promotion. We didn't get a chance to hit one up, but we hope there wasn't any violence, like that time that school district sold underpriced Macs

Crude Oil Falls a Second Day After Goldman Recommends Selling (Bloomberg)
Has Goldman turned bearish on Crude? That's not clear, but they have told clients to "take profits" on the brown stuff, just as its nearing $100. It's possible that the drop is related to this call, although it's also possible it could relate to any number of other things... like the Kurds or Bernanke. That being said, this might be the first time we've ever read one of these stories where the movement of oil was associated with an institutional call. To be honest, we didn't really realize they made calls on this stuff, though, it makes sense... just doesn't get much attention.

Greenspan warns of further pain for US property prices (Guardian)
Alan Greenspan is warnings that the housing market will get worse before it gets better. But get this, so is Robert Shiller, the creator of the S&P/Case Shiller index to track housing prices. Then again, saying Robert Shiller is negative on housing doesn't mean a whole lot, since he's just pretty much a negative guy on housing period. Meanwhile, you have to agree that for the moment, things do like mighty ugly.

$$$ Has Every Wall Streeter Gone Insane? A Graphical Guide. [NYM]

$$$ Comparing the Street's worst CEO's. [Market Beat Blog]

$$$ DCF Valuation of an Investment Banker’s Life [Banker's Ball]

$$$ Banker Halloween Party [Leveraged Sell-Out]

Sponsored by the Financial Times.

Stocks closed lower today on Fed uncertainty, even though the odds are pretty much stacked in favor of Ben Bernanke doing whatever the traders tell him to do. The DJIA was down 77.79 to 13792.47, the S&P 500 lost 9.97 to close at 1531.01, and the Nasdaq fell 0.73 to 2816.71. The firing of some guy at Merrill Lynch sent shares down 2.76% to $65.56.

Sadly, Carney got bumped on "Happy Hour," but can probably be found at the bar where they tape the greatest show on cable TV for at least the next few hours, if anyone's interested (Bull and Bear, in the Waldorf).

Want more? FT Alphaville.

The bottom feeders of private equity (we’re talking, like, analysts) are now making $215,000 a year, 29% more than in 2006. If you must know, the bump in pay apparently has more to do with some sort of pissing contest between buyout firms and hedge funds, re: who can retain the best talent, and less to do with Steve Schwarzman, 5’6”, warming up to his plebes, but take it from us and consider that a good thing. Those pokers will scratch your eye out.

Why Private Equity Is the MBA’s Mecca (Hint: $) [Deal Journal]

A. Why do the big 4 (accounting firms) feel the need to have a gay anthem?

B. If you had to pick a winner, would it be PWC's (courtesy of ESPN's TMQ) or Ernst and Young's?

(On a related note, Carney makes his debut on 'Happy Hour' tonight.)

If you’d told me yesterday that there were consequences for losing tons of money, I would’ve said, “Fuck you! Is this your idea of a sick joke?” But apparently? There are. According to DealBook, in one of its many efforts to cut costs following a not so good third quarter, that Swiss bank on Park will paying more of its bonuses in the form of UBS stock. Stock which, while it may be declining today, could possibly be worth something tomorrow, but could just as easily be worth even less, if employees fail to keep their eyes on the ball during the fourth quarter, which, historically, they’ve been known to do (not necessarily their faults: there are a lot of good Christmas specials on TV at this time. You'd lose focus, too).

As Bonuses Look Leaner, UBS Takes Stock [DealBook]

Christopher Pesce, the global head of prime brokerage at BoA Securities, has apparently quit his job for greener pastures. We don’t know which pastures, just that they’re better. Since he’s coming from Banc of America, there are almost too many to choose from. Perhaps the minions he was instrumental in getting fired might know of his whereabouts? If one among you hasn't yet had your internet access cut off, get in touch.

BofA Prime Brokerage Chief Quits [FINalternatives]

Oscar Wilde once said that a cynic "knows the price of everything and the value of nothing."

Today, as we spoke to sources in and around Merrill Lynch, our favorite line came from a Merrill veteran who cleverly turned around Wilde's line. According to the Merrill vet, the most common objection to giving Bob McCann the top spot--that he lacks fixed-income experience--should be regarded as a strength.

"Haven't we learned that a lot of these folks with fixed-income experience had no idea what they were doing? Didn't that just cost Merrill $8 billion. That's enough of that experience," he said. "The problem is that these guys know the alleged value of everything but the prices of nothing. Value without market price is pretty in poetry but ugly on Wall Street."

Speaking of which, we're supposed to be attending the Future of Business Media conference today at the Waldorf Astoria but we've been chasing the Merrill story all morning. We're heading back to the conference. Bess Levin is holding down the fort at DealBreaker's bunker HQ. Expect more from her shortly.

Dear Colleagues,

As we approach the close of 2007, I would like to take this opportunity to bring your attention to the continued effort around cost control, balance sheet management and overall efficiency. History has shown that the fourth quarter is where we have lost ground and focus on these key initiatives. Therefore, I encourage you to take all necessary measures to make sure that you don’t take your eyes off the ball and allow end of year cost creep to occur.

Thank you for your attention to this "timely" measure. I appreciate your leadership and partnership in finishing the year on a strong note.

Best,

Michael Weisberg
Global Head Products & Services

You can check out any time you like but you can never leave.

(Warning: link plays music and contains at least one brief image which a reader has said is potentially NSFW.)

"They made money."

That's the reason that Bob McCann, the president of Merrill Lynch's massive global wealth management group, is still considered the top-running candidate to become the next chief executive by the rank-and-file of the company. He is considered a long-shot by outsiders—and perhaps by members of the board of directors—but he has strong support inside Merrill Lynch.

In a disastrous third quarter for Merill, McCann's brokerage saw a 23 percent surge in revenues, taking in $3.3 billion in the third quarter. The brokers took control of $26 billion in net new client assets, its strongest quarter in more than six years.

It's well known that McCann is immensely popular with the 16,000 brokers at Merrill. But his support is much broader than that. Across the firm, many believe that McCann may be the person who can lead Merrill out of its current morass. The greatest opposition to McCann appears to be in those areas where there is the most fear that the elevation of McCann might oversee a retrenchment. But many who work in the fixed income groups, for instance, already believe that their days may be numbered.

The brokers are already moving to put pressure on the upper-ranks of the company to name a chief executive quickly. They are spreading the word that the uncertainty at the company may be putting the brokerage business at risk, as investors wonder whether their money is safe with a company with a conspicuous void at the top.

Water-cooler odds makers are putting their money on McCann. They believe that eventually the board will come around to the view that it needs to re-invigorate the firm with a popular chief executive with support within the firm, and McCann fits that description nicely.

Larry Fink, the chief of Blackrock, is also widely admired and would be welcomed by many within Merrill. But many at the company believe that he may have already turned down the job, perhaps because he is unwilling to leave Blackrock or perhaps because he has been put-off by the apparent lack of consensus about corporate strategy at the board level.

Thank god, the money managers have weighed in and decided: A-Rod was entirely justified in opting out of the final three seasons of his contract with the Yankees. According to Daniel Alpert, a partner at Westwood Capital, a boutique investment bank in New York that specializes in mortgage and related securities, “there’s nothing cold blooded about it.” And what’s Balestra Capital founder James L. Melcher’s take on the situation? “Not only do I have no problem with it, I’m cheering him.”

Can you imagine what would happen if these guys didn’t stick together? When you’re trying to rip people off, the moral support of your peers really counts for a lot. (Investors in) Absolute Capital know what we're talking about.

Rodriguez Not Greedy by Standard of Wall St. [NYT]

The news that Merrill Lynch had not selected even an interim chief executive caught many by surprise. The official line—that Merrill is waiting to choose a chief executive while it reviews its corporate strategy—is being applauded by many as a sober, thoughtful approach. But it may indicate that even greater write-downs are coming at the company.

We've heard from a source close to the board of directors that at least one potential candidate indicated that he did not want to sign as a the new chief executive until after the losses from derivatives and credit markets had been fully reviewed and new disclosures about deeper losses, which many analysts believe will have to be made, are announced. Stepping into a job that requires as its first public act the announcement of even larger losses is not the "fresh start" that many executives would look forward to.

But it's more than a potential public relations disaster. There is the risk of legal peril in taking the top job. Merrill Lynch will soon be filing its quarterly report with the Securities & Exchange Commission. These will include accounting for the losses, and under Sarbanes Oxley a new CEO would have to sign a written statement certifying that the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the company. That's something a new chief executive might not feel comfortable doing.

After days of chaos inside Merrill Lynch—chaos that was felt from the board room to the water coolers—Stan O'Neal has finally been allowed to retire. Confusion still reigned this morning as people inside the Wall Street firm read media reports claiming Ahmass Fakahany, Stan O'Neal apparatchik who had a hand in overseeing risk management, was resigning and only hours later learned that he was being retained as a co-president.

Nonetheless, the widespread view within Merrill Lynch's rank-and-file is that Ahmass has been fired in every way that matters. It seems that he has been moved over to operations, and away from the more important businesses at the firm, including risk management.

The failure to name even an interim has left many at Merrill with a sense of unease. With November fast approaching, many employees at all levels of the firm are scheduled to receive quarterly performance and shortly after that should learn their bonus numbers. But talk of a "new strategy" at Merrill and a void of leadership at the top has many feeling that although the initial period of chaos as passed, there remains too much uncertainty at the firm.

UBS announced its first quarterly loss in nearly five years today, rendering frowns on those Nazi-sympathizers’ faces that even a few anti-Semitic jokes couldn’t turn upside down, which means it must be really bad. The “unquestionably disappointing” $720 million net loss, which overshadowed record earnings in the wealth management operation, was blamed on that $4.4 billion writedown due to subprime issues and the fact that no one knew what was going on at the investment bank.

Unfortunately, UBS just recently fired a CEOi—Peter Wuffli—, and can’t very well make the only 4-month old Marcel Rohner the scapegoat in this situation (unless of course they’ve been dared to do so...in which case-- watch out, Rohner). Managing expectations of what the bank is capabale of (probably so that it can later be said that they “beat analysts’ expectations” and be rewarded for what, to the naked-eye, looks like just plain failure), UBS commented that “[Although] the fourth quarter has started with good results from all businesses, including the investment bank…UBS is not assuming that the quarter will continue as positively as it has begun or that the current difficulties will be resolved in the short term.”

UBS' Swiss Miss [NYP]
UBS to launch reporting season with losses and a warning [Times Online]

Merrill Lynch has finally announced the departure of Stan O’Neal**, but is, adorably, referring to it as a retirement, effective immediately. Apparently O’Neal and the board agreed that “a change in leadership” was in the best interest of the firm, in its quest to, and this is actually what they said, “maintain the strong operating performance of it businesses which the company reported last week were performing well, apart from sub-prime mortgages and CDOs.” Alberto Cribiore, a managing parter and founder of the private equity firm Brera Capital, has been named interim non-executive chairman. Ahmass Fakahany and Gregory Fleming will remain as co-presidents and COOs.

According to a press release, Stan feels “very fortunate to spend the past 21 years at Merrill Lynch,” which we bet he really does. He’d also like to “thank all of [his] colleagues for their contributions and support…and wish them the successful future they deserve," as first-year analysts at Bear Stearns.

Stan O’Neal Retires From Merrill Lynch; Alberto Cribiore to Serve as Interim Non-Executive Chairman and Chair Search Committee [Merrill Lynch]

*Yes, we could delete the whole thing and pretend like it never existed by you know what? It did and we don't practice revisionist history at DealBreaker (backdating the time stamps on posts? Yes. We're only human).

**Just wondering-- what do you think Carney's going to do to himself when he finds out this happened while he was being otherwise detained?

Ahmass Fakahany, the Merrill Lynch co-president who, if you want to go there, might not have done the greatest job overseeing risk management at the firm over the last several months, is expected to resign shortly, following the ousting of his main man Stan. He probably won’t be getting a package even close to the one O’Neal’s leaving with, but as a reward for exiting stage left without much of a fight, will be tossed a few extra shares of MER, because, as one member of the board put it, “They’re basically worthless anyway, if you ask me. You want me to be honest? I’d swap all my Merrill stock for a few stacks of unmarked Mozilo Bucks if I had shady enough contacts to find them, and that grin didn’t scare the shit out of me.”

On a related note, Chief Financial Officer Jeffrey Edwards apparently offered to quit at some point last week, but was told "No, no, your punishment for the $8.4 billion is that you have to stay."

Merrill co-president Fakahany seen leaving [Reuters]
Merrill Lynch CFO Edwards offered to quit [Reuters]

Oil Price Up Again Ahead of Fed Meeting (NYT)
So oil crossed the $93 mark, which means it's just a skip away from $100. Anyone who predicted $100 to get hit sooner rather than later... pat yourself on the back. Seriously. Now, as for oil up ahead of the Fed, is that a predictor of interest cuts? After all... cuts=weak dollar=high crude prices. So if there's really a connection between oil and the Fed, and we're not saying it is, then is the market telling us something?

774 Arrests in China Over Safety (NYT)
Nice picture at the top of this article, showing just what a product safety crackdown looks like in China. Anyway, the government there has done a big bust of 744 people, arresting them for all manners of safety infractions. Typical. There's obviously something unnerving about this news, cause you don't know what's going to happen to these people. But a victory for the New York Times, which has been totally fighting the good fight here, day in and day out cracking the whip on this issue.

How To Talk About Books You Haven't Read (Marginal Revolution)
We read something about this book the other day, but we'll go ahead and state the obvious, that we haven't read this Marginal Rev. post. Duh. So it's obvious this is just going to start a chain reaction of unread posts about the book, though if someone links here per this link, then they've really gone too far.

Nassim Taleb (Art de Vany)
One of our favorite things in the world is when someone we respect happens to be a fan of someone else we respect. You know, it's validation. Anyway, we still haven't finished the Black Swan, despite giddily picking it up the first day it hit bookstores. Not gonna lie, it's been a little hard to break into. And, we've read some good criticisms of Nassim Taleb's work, that deserve to be taken seriously. But, he's still an important thinker and some of his truths are undeniable. Anyway, Taleb is a fan of Opening Bell intellectual hero Art de Vany, who is a giant among men in all fields. Good to know Taleb feels the same way.

Can a Google Phone Connect With Carriers? (WSJ)
Here's the thing... the gPhone won't be an iPhone. Obviously, Google has some tricks up its sleeve and it knows how to do certain things scarily well. Nobody's denying that, to be sure. But nobody knows what the company's wireless strategy is going to be. It's probably going to be software related, and it probably won't blow your socks off the same way the iPhone did when you first saw (though it no longer does). Anyway, two weeks is is the new ETA for whatever Google's gonna bring.

$$$ Deals: Welcome Back, Private Equity: In our M&A Roundup for the week ended Oct. 28, it makes at least a limited return in the form of four billion-dollar deals to boost overall dealmaking to $11.28 billion. [CFO.com]

$$$ Dipping into Guacamole [LoSC]

$$$ The Man Who Helped Take Out Merrill’s Chief [DealBook]

500 laid off from structured finance and investment banking today. Severance has been paid, but no numbers on how much yet. We're going to go out on a limb and say more than Bear Stearns. Prove us right (or wrong, though that's highly unlikely).

Sponsored by the Financial Times.

Stocks nudged up a bit today. The major indexes gained as much as three-quarters of a percent each before declining a bit to close with gains nearer to one-half of a percent. The Dow Jones Industrial Average rose 63.56, or 0.5%, to 13870.26. The S&P 500 bloomed 5.70, or 0.4%, to 1540.98. The Nasdaq Composite Index, uhm, tuliped 13.25, or 0.5%, to 2817.44. The Amex Broker-Dealer Index saw even more action—both to the upside and the downside—today, and closed up 0.95%. On the New York Stock Exchange Monday, rising stocks beat decliners by 1.8:1.3. Volume declined a bit from recently elevated levels, so that just 1.2 billion shares traded hands electronic accounts.

After a brief dip downward following the opening bell, shares of Merrill mostly tracked the Broker-Dealer Index until around 1 PM, when they broke out to the upside. The stock closed with a gain of 2.01% for the day.

FT Alphaville. They liked alpha so much they made an entire village out of it.

Just how has referring to competitors as enemies whose “throats” must be “ripped out,” telling employees to act as though they are “at war,” and, on at least one occasion, making a visit to the trading floor to put his second-best earner’s tie through a shredder, in front of everyone, to make the point that “second best isn’t good enough” helped Dick Fuld to avoid the gigantic writedowns that have plagued Merrill, Citigroup and UBS, the hedge fund failures that have made a joke of Bear Stearns, and the accounting scandal that was Goldman third quarter earnings? How about because all of that is enough to scare the shit out of anyone, especially the people within arm’s length of the guy, into not fucking things up? Nobody wants to be the guy to tell “Gorilla” that things didn’t go so well this quarter, and while everyone else was having a pissing contest to see who could do the worst, Lehman’s minions were being intimidated into not having as horrible a Q3 as their “enemies,” if not necessarily an amazing one (earnings fell 3 percent, to $887 million, and there was a $700 million write-off). Even Mike Mayo, who’s intimidated by no one, gave the credit to Fuld, saying that the outcome was “helped by having one of the most consistent cultures on the Street—one C.E.O. for over a decade, a one-firm mentality and comprehensive risk management,” probably out of fear. Former colleague Stephen Schwarzman, who seems like the kind of guy who would be too petty to give someone else credit for anything, went out of his comfort zone to call Fuld “a survivor” and opine that “he’s got a sixth sense of when things are turning on you,” though, admittedly, Schwarzman’s praise-inducing intimidation could stem more from the height differential than anything else.

But a New York Times profile suggests that Fuld is losing his taste for human flesh, which could mean disaster for LEH. Examine the facts:

- When asked how he felt about “the war comment” from last year, Fuld shifted in his chair and said, “I don’t like the war comment…‘war’ connotes that we are trying to kill our enemies. That’s not the view that I want them to have.”

- After feigning offense at the accusation that he’s “mellowed,” Fuld “paused to collect his thoughts.”

- Then he said: “I think I have many of the same reactions; I just handle them differently…I’VE LEARNED, IN ALL FAIRNESS THERE IS ANOTHER VIEW.”

And the most egregious ?
- Lehman’s president, Joseph M. Gregory, says that Fuld “has improved” his attitude and “made it more comfortable for people to speak.”

This is a phenomenon the must be cut off at the knees (which the old Fuld would’ve already done, without compunction). It’s only a hop, skip and a jump from people not soiling themselves in your presence to Merrill Lynch.

The Survivor [NYT]

Speaking of Jimmy Cayne, he’s just announced layoffs of about 300 people. That’s about 1.9% of the firm.
Dow Jones newswire quotes from a memo titled "workforce reduction" that bears (heh) Cayne’s imprimatur. According to DJ, the cuts will come "in various business units at all levels of the organization." Their will also be an attempt to throw more resources into areas where growth opportunities are greatest reduce them in areas that "can no longer justify their current level of infrastructure."

These three hundred come on top the 550 layoffs from its two mortgage-origination units, as well as the asset management executives who were let go following the collapse of two Bear hedge funds.

“Does this mean Matt Cooper will call for Cayne to be fired again today?” we were asked by the words appearing on our screen as we typed this.

Also, we can't help but wonder if the number of layoffs was in anyway related to this.

Bear Stearns Lays Off 300 Employees Firmwide [DJ Newswire at CNNMoney.com]

Earlier this afternoon we asked if some of the guys at Bear Stearns might be smiling in the darker parts of their souls at the troubles—losses, snakepits, messes, ousting, disorganized succession plans—Merrill Lynch has been going through lately. Or, more likely, some of the guys who used to be at Bear Stearns, like former head of trading, equities, fixed income, energy and asset management Warren Spector.

We thought that maybe the guys who saw first their hedge funds and then their jobs go down the drain after a Merrill led rush of creditors started grabbing their assets—which, for all anyone knows now, might have turned out of have been worthless anyway—might be experiencing some joy at watching credit market losses take down some of the folks who took them down.

This afternoon Portfolio’s politics guy asks the same question but for a totally different reason. “If Stan O'Neal is out at Merrill, doesn't that offer some comfort to the likes of Warren Spector,” writes Matthew Cooper. “Merrill is a case of the guy at the top taking the fall. At Bear, it seemed like the number 3, Warren Spector, took the hit instead of James Cayne. Where's the fairness in that?”

We’re not sure that why exactly anyone would comforted by this. But whatever. Maybe that’s why we’re not writing about politics. But we’re not convinced that Cooper is right when he says that the “guy at the top ought to take the fall when things go so wrong.”

It’s not the first time he’s said it. Back in August Cooper wrote: “It's hard to see why the firm's chief executive, James Cayne, would summarily execute Spector but not take the rap himself. The Buck Stops Here, not there.” But we weren’t convinced that time either.

Cooper’s model is clearly a political one—although we can’t remember when the last time a top guy resigned after being disgraced by the activities of his underlings either. Well, we’ve heard about Nixon but that was a long, long time ago! And Nixon is not usually held up as a model of American leadership. So let’s say Cooper’s is a model an idealistic one that is rarely realized in reality.

It’s hard not to suspect that Cooper is trying for some sort of hobgoblinistic, liberal consistency. Liberals think Bush should step down or get impeached because of the activities of, say, Alberto Gonzalez. So that means everyone should step down when their underlings allegedly lead things off the rails.

But should Cayne go? The market, the business media and the rank-and-file if Bear is hardly clamoring for his ouster. There have been losses at Bear Stearns—and investors in those two ridiculously named funds lost buckets and buckets of money—but not on the scale of Merrill Lynch’s. And, perhaps more importantly, Cayne has left investors and employees with a feeling that he understands what went wrong and is acting to contain the damage. O’Neal failed this damage-control test, in part because he had made enough enemies who went for the kill when they scented blood. And that failure, more than anything else, appears to be what doomed him

That may not be ‘fair’ in some cosmic sense. But Wall Street is hardly a place to be if you want cosmic justice.

James Cayne v. Stan O'Neal [Capital blog, Portfolio]

This morning we credited Management Today, a UK publication we'd never heard of before this morning, with being the first to use the second part of Merrill Lynch's name as a pun for the ousting of Stan O'Neal. It came to our attention in the usual way such things do: they beat us over the head with it by reminding us that "O’Neal is one of the few African-Americans running big US companies" and describing Wall Street as "largely a white male preserve."

In case you missed it, we thought that with all that hand-wringing it was a little surprising a headline-writer would decide that it was totally great to make a clever pun about lynching Stan O'Neal. Or maybe it worked the other way around: they wanted to make the pun, so they decided to cover themselves with the hand-wringing. Somebody's over-compensating!

But we were wrong. As far as we can tell, the award/badge of shamelessness for the first lynching pun should have gone to Portfolio's pseudonymous Spin Blogger who calls himself Jack Flack. Yesterday, Flack's piece was titled "Merrill Lynch-Mob: How the Media Helped Fire Stan O'Neal."

We suppose that the function of the lynching pun in Jack's piece, like that in Management Today piece, could be said to be anti-racist. You see, he's accusing O'Neal's opponents of acting like a lynch mob. Or maybe he's accusing the media of being like a lynch mob. In any case, Flack is the first one we've found who somehow overcame the discomfort most reporters would have about calling the firing of one of America's most prominent black executives a lynching.

Merrill Lynch-Mob: How the Media Helped Fire Stan O'Neal [Spin Blog]

That’s really it. Bernankes and the Federal Reserve want to say no to an interest-rate cut this week but are apparently too scared of what a bunch of (what sound like really intimidating) traders (if you’re a puss) will do if they don’t. But they’ve got a plan! In order to make it look like the Fed’s in control, Ben will, yes, give in to a cut, but will, in addition, not promise any future ones. It’s almost as though those guys wrote the book on how not to be made someone else’s bitch, isn’t it? Also, even though no one was asking for the overshare, Bernanke went there twice in the last week, noting how “challenging” it is to make policy, and saying that he’s “doing the best [he] can*.” Not as good a job as Greenspan would do, according to Greenspan, but definitely his personal best.

Bernanke, `Reluctant' to Cut Rates, May End Up Doing So Anyway [Bloomberg]

*moment of truth: I made that last one up, but 10-1 he was thinking it.

You think James Cayne and whoever he’s playing golf with today (maybe Ralph Cioffi, but who really knows) are having a good laugh over the fact that Merrill lost billions and Stan O’Neal is getting canned? A of all, because this is exactly the kind of thing that Cayne likes to laugh about (people losing their jobs, dogs being born with only three legs, feline leukemia) and B of all, because Merrill tried to get back at Bear this summer for telling Komansky to get lost during the LTCM bailout, by selling off its assets that were in the “enhanced” fund, hastening its ultimate collapse? Could be a stretch, but apparently the theory’s not too crazy for Rich Marin to blog about, which sources tell us he’s doing as we speak. And is it really that crazy to laugh, or at the very least send a few mean-spirited emails (which we’ll reprint later) out over the fact that the firm that tried to screw you for screwing it like a thousand years ago is now taking it up the tailpipe? The answer is no. Go on James Cayne. Today you have our blessing to yuk it up (but only because we’ll probably write something cruel though maybe entirely justified about you tomorrow. Starting with a possible involvement in SAC's ho'mone case, and a penchant for Kung Pao chicken, stories we're running with unless you call us before 5). Anyway, the rest of you, answer our question.

Haven’t heard much from the Bear Stearns Department of Failure lately, have we? Probably because everyone’s too busy piling on Merrill and Stan (including Bear Stearns, which may have something to do with some unresolved anger toward MER for sort of screwing BSC this summer by grabbing assets from the funds with the impractically long names, and accelerating their demise). Good to know things are apparently still chugging along, business as usual: we’ve heard from a few places (probably all Stan O’Neal, calling from different numbers to throw us off) that Bear Stearns laid off approximately 600 people today, across all lines. Did you hear that, too?

"Worst paid employees" is not exactly a desirable reputation for a Wall Street firm looking to recover from huge losses and a chaotic, messy chief executive exit. But Merrill Lynch may be stuck with that unless it dramatically increases its compensation costs in the fourth quarter.

Reuters has run through the earnings reports for Wall Street compensation numbers, and the picture isn't pretty. Three out of five firms set aside less money for compensation in the first three-quarters of this year than they had last year. Only Goldman Sachs and Morgan Stanley have set aside more.

Interestingly, there has been some jockeying for position on Wall Street compensation. Last year, Merrill also was at the bottom of the list for the first three quarters. But it was neck-and-neck with Bear Stearns. This year it is close to $18,000 short of Bear. Morgan Stanley has moved ahead of Lehman, switching second for third place.

Of course, many of these firms may simply be engaging in managing their balance sheets and investor expectations by lowering compensation costs in what was a rough third-quarter for much of Wall Street. Indeed, Merrill all but promised those costs would jump in the third quarter. But if losses from missteps in the credit and derivatives markets are even worse than expected—and most analysts who have looked at the issue have predicted even greater losses at Merrill—that may prove difficult.

The compensation numbers are closely related to per employee revenues, Reuters writes. "Goldman is the top with revenue of nearly $1.2 million per employee for the year to date, while Merrill is at the bottom of the heap, with just $311,916 of revenue per employee," the report says.

After the jump: we run through the Reuters numbers from lowest to highest, with comparisons to last year's first three-quarters compensation figures.

Merrill on track to offer lowest pay on Wall Street [Reuters]

In layman's terms: not really. Though “sources close to” USVI Governor, John P. deJongh Jr., whose election campaign Epstein has donated approximately $1 million to, say there may be “concern” that deJongh will now be associated with what a bunch of prudes really just blowing things out of proportion are calling “a sexual predator,” the fact that Epstein employs deJongh’s wife and pays for the deJongh children’s private school tuition should keep things copacetic (in addition to the political contributions, obviously). Plus, it’s the Virgin Islands, where you can do whatever you want (ask us about James Cayne’s drug mule-cum-kept-boy later, with which deJongh has "no prob"). The Gov has already commented that he finds it “highly appropriate” for his wife to continue working as the director of Epstein’s J. Epstein Virgin Island Foundation, an organization which gives exceptionally motivated young teens (male or female, as long as they show promise) scholarships to massage school to be followed by placement in one of Epstein’s homes, and clearly, it is. And though he hasn’t said anything about it on the record, the fact that he was cool with Jeffrey “regularly ferrying boatloads”—think about that: “boatloads”—of young ladies to Little St. James, Epstein’s island off the coast of St. Thomas, for the past several years, more or less seems to be deJongh’s blessing to “do what you want.”

Epstein's Tropic Isle of Babes [NYP]

Almost everyone expected Merrill Lynch to make an announcement about the fate of its chief executive—and his replacement—before the market opened today. We actually worked the phones and our electronic mail messaging system over the weekend—no small task, considering that our weekend started with a voyage to Blackout Island on Thursday night and sailed through Friday Night Fights, too many Halloween parties, football all day Sunday and finally landed on the island of Red Sox nation Sunday night—on the premise that the board would want to resolve this thing soon rather than later.

And by all accounts, they do want to resolve it sooner rather than later. But chaos is reigning over at the Mothership. It's clear that the thundering herd is stampeding but no-one is sure where. One indicator of chaos has been their press office. When a firm has its act together, these people respond with the annoying precision of, well, corporate press officers. But they have to know the company line spin it off the reel and right now it's clear that they don't know it. Who is in charge? Who's getting tapped by the board? When? In our addled imagination, it's like that scene from airplane when the pilot asks the passengers not to panic. Your guess is probably as good as theirs is.

Speaking of which, who do you think gets tapped? Leave your nominations in the comments section below and we'll do a poll later this morning. Some of the more obvious candidates: A number of names currently under consideration are well known, including Laurence Fink (runs BlackRock, upside: well-liked by investors, downside: but may not want to step into a snake pit), Gregory Fleming (Merrill's co-president, upside: already in place, downside: board may want new blood), John Thain (head of NYSE, upside: Goldman minted leader, downside: Goldman minted leader), and Bob McCann (king of the brokers, upside: has a loyal following inside the Mothership, downside: may have too much of Stan's blood on his hands.)

Update 10:20 AM: Paul Kedrosky complains that the list of usual suspects of potential successor chief executives at Merrill consists of "gray and boring" candidates.

"What Merrill needs is someone better, someone with fresh ideas, someone more telegenic, someone with less subprime baggage .... hmmm, me!" he writes.

He adds that he has one qualification that most others seem to lack. "I have no specific ideas about what I would do at Merrill, so I have that blankness going for me, and I can promise with complete assurance that I wouldn't try to sell the company without asking my board first. What more could you ask for?" Kedrosky adds.

We'd nominate our Bess Levin but someone once told us that chief executives have to sign contracts with moral turpitude clauses, and just knowing the rest of DealBreaker's editorial staff probably disqualifies her.

You knew it was going to happen at some point. But now one publication has gone with it—the racially provocative headline that was screaming to be written but that no-one wanted to touch. Until now.

"O’Neal gets Merrill Lynched," the headline on England's Management Today reads this morning.

And just in case that was too subtle, Management Today says it that feels sorry for Stan O'Neal "particularly since O’Neal is one of the few African-Americans running big US companies."

"This obviously doesn’t give him any more right to hold onto his job, but it still seems a shame that the world of high finance – largely a white male preserve already – is about to get a little more homogenized," Management today adds.

If you want a slightly less salacious—if much more informative—take on the story of how Stan O'Neal ended up discovering that he had so few friends at the take, we suggest sticking to the more traditional sources. We know that's sadly boring and we apologize. Both use the word "mess" to describe the situation at Merrill.

The New York Times seems to have backed-off a bit from it's "scoop" from last week about that nonsense Wachovia merger. Don't get us wrong—that conversation between the top guy at Merrill and the top guy at Wachovia probably happened, and probably annoyed brokers at Merrill—but from the start it sounded like an ex-post facto rationale. It read too neatly: a clean story with a familiar storyline—rogue CEO—to explain the sudden turn against O'Neal in a way that totally cleared the company's board and didn't focus too much attention on recent losses. It was also a story that no-one else had, and obviously was leaked to the Times reporters by someone trying to leak it. (As Charlie Gasparino pointed out this morning, a lot of speculation is that "someone" in this case was king of the Merrill brokers, Bob McCann). In any case, the story was spinning like a top.

Today the Times adopts a more likely line: O'Neal had ticked off the thundering stampede of Merrill's brokers. "His fall is also a reminder of how dangerous it is to tinker with a firm's culture. Having declared the idea of a nurturing Mother Merrill passé, O'Neal has discovered how angry and powerful a spurned mother can be," Jenny Anderson and Landon Thomas writes.

Bloomberg takes as similar line, although you have to read it like you most Bloomberg stories—skip to the third paragraph to get the real lede. "To his predecessors, many of whom resented his penchant for getting rid of dozens of Merrill loyalists, the losses are a painful reminder of how much has changed at the brokerage they used to call 'Mother Merrill,'" Bloomberg's Bradley Keoun writes. (PS: It's not the reporters fault they bury the ledes. It's just that someone at the top has apparently decided that people need to be reminded each and every time all of what are now background deals to this story.)

The best line of the Bloomberg story comes from always entertaining Pun Ziegel analyst Richard Bove who calls Merrill "a snake pit with political infighting."

The Wall Street Journal broke out the big fonts today for their story, so it would be cruel to neglect Randall Smith's story. The Journal takes a different—and slightly more interesting—line: the cost of Goldman Sachs anxiety.

"Merrill Chief Executive Stan O'Neal would grill his executives about why, for instance, Goldman was showing faster growth in bond-trading profits. Subordinates would scurry to analyze the Goldman earnings to get answers to Mr. O'Neal. 'It got to the point where you didn't want to be in the office' on Goldman earnings days, one former Merrill executive recalls," Smith writes.

O’Neal gets Merrill Lynched [Management Today]
O'Neal Ouster Makes Mess of Maternal Merrill Lynch [Bloomberg]
At Merrill, the rise of E. Stanley O'Neal ends with a messy undoing [New York Times via International Herald Tribune]
O'Neal Out as Merrill Reels From Loss [Wall Street Journal]

O'Neal Out as Merrill Reels From Loss (WSJ)
No press release just yet from Merrill, but nobody seems to have any doubt that today is the day of O'Neal's departure. The only real unanswered question, it seems, is how much severance he'll be getting. And then of course, it's not clear who will be succeeding him. An internal and external search is expected.

Lehman Brothers CEO sees US economic growth slowing after credit market crisis (Dow Jones)
Lehman Brothers CEO Dick Fuld sees the US economy s;owing down as a result of the credit market. Thing is, he told this to German newspaper Handelsblatt. Maybe he didn't realize that there would be some English speakers that can also read German, who would then translate the story and rewrite it as a Dow Jones Newswires story... very sneaky indeed. Looks like his plan to keep the bad news from Wall St. was foiled. He still says, however, that he isn't predicting a recession, but that could have something to do with translation issues.

Gap Vows Action After Child Labor Report (AP)
Gap says it will make a serious effort to stamp out child labor at its Indian operations, after allegations that the company's clothes are made by kids. Crazy, this company has been dealing with the same charges for some 15 years now, and every time the response is always the same. Granted, the folks making the charges aren't typically the most informed... child labor is a big cause among high schoolers, as sort of a starter political issue. Still, you'd think by now Gap would now a bit more about heading off the issue.

China's Yuan Rises Most Since Dollar Link Ended; Bonds Decline (Bloomberg)
The Yuan rose 0.3%, the largest move since the iron link between it and the Dollar was lifted. Not that there are any measures that will really cool off China, but policymakers are still clinging to the notion that a few tweaks here and there, will be able to slowly correct some of the major imbalances out there. Best of luck to 'em.

Red Sox Win!: They're shipping up to Boston with the World Series trophy. Our friend Will Leitch at Deadspin said it best: "The Rockies did the best they could to make a game, or a series, out of it, but it just wasn't happening: The Boston Red Sox were not to be denied." We're not going anywhere Professor Thom's tonight but congratulations to all our lads and lasses up in the New York City embassy of Red Sox nation. (10.29.07)

Portfolio: The connection between the news media and back-room power-plays. (10.28.07)

[Editor's note: It is 7:55. And that's probably our last update for a while. Time to see if Colorado gets swept. Assuming the bartender at our local pub doesn't over-serve us, we'll check back in after the game. In the meantime, feel free to leave any updates in the comments section below or email us at tips@dealbreaker.com. If nothing new develops from the Merrill board tonight (which seems likely given the hour), we'll see you back here tomorrow morning. ]

CNBC: Merrill's board considered offering Stan O'Neal the position of interim CEO while they choose a permanent director. Sources close to the situation initially said that a member of the Merrill board would be named interim chairman. (10.28.07)

Bloomberg: The pile-on begins! Daniel Tully, who ran Merrill Lynch in the 1990s, calls firm's third-quarter losses "sickening."

WSJ: Stan has "decided to leave," according to familiar people! (10.28.07)

CNBC: Stan O'Neal "has been ousted as chairman and chief executive officer of Merrill Lynch that much is certain," reports Charlie Gasparino. (10.28.07)

Reuters: Blackrock boss Larry Fink says he's unaware that he's a candidate for the top spot at Merrill Lynch. That would make him the only one who is unaware. (10.28.07)

NYT: The Merrill board has reached a broad consensus that Stan will go, according to people briefed on the discussions. (10.28.07)

IHT: The price-tag of ousting O'Neal: $159 million. (10.28.07)

WSJ: O'Neal is expected to step down, according to someone familiar with the firm's plans. (10.27.07)

As we told you five hours ago, the board of directors of Merrill Lynch an unscheduled meeting today to discuss giving Stan O'Neal his walking papers. The Wall Street Journal is now reporting that those "people familiar with the matter" have confirmed that the meeting took place.

Merrill's Board Discusses CEO's Fate [Wall Street Journal]

$$$ Hey look! It's those "people familiar with the situation" we were asking about earlier. They are "considering whether to replace Chief Executive Stan O'Neal." Thanks familiar people! [Reuters]

$$$ Record month for LBO volume, deals body blow to banks [Deal Zone]

$$$ Dick Parsons' Value to TWX = -$1.5 Billion [Alley Insider]

$$$ A Day in the Life of Stan O'Neal [thestreet.com]

$$$ The Secret Diary of Steve Jobs. [WallStrip]

Sponsored by the Financial Times.

The Dow Jones Industrial Average rose134.78, or 1%, to 13806.70. The S&P 500 added 20.88, or 1.4%, to 1535.28. The Nasdaq Composite Index shot up 53.33, or 1.9%, to 2804.19. One billion, four-hundred million shares traded hands on the New York Stock Exchange.

The Amex Broker-Dealer Index gained 3.41%, helped along by Merill Lynch's 8.52% surge. Countrywide surged even higher after it's executives held a two-and-half hour conference call to report earnings.

FT Alphaville. It's what's for breakfast.

As we pointed out earlier, it's Merrill Lynch day here at DealBreaker. And in keep with this theme, we reached into our career center to find you a job with the thundering stampede. And not just any job. It seems that Merrill Lynch's Chief Financial Office needs help assuring "the accurancy of critical financial information."

They are looking to hire a Vice President who will report to a Director in the Treasury Finance Group and will have responsibility for analyzing and reporting on all aspects of Merrill Lynch’s balance sheet and funding. Sounds like this job might be hard!

Vice President, Balance Sheet [DealBreaker Career Center]

Isn’t it nice to know that Stanley O’Neal didn’t have any trouble fitting in time to play golf while his firm was busy losing billions of dollars? Bespoke Investors notes that while the MER chief may be horrible at making money, he’s actually got the best handicap of all his peers, which can probably be attributed to the fact that he’s apparently a fan of the Jimmy Cayne style of management, wherein you play games instead of coming into the office, and has plenty of time to practice. Pretty cool that in the very near future, he’ll be able to stop faking sick whenever he wants to hit the links, seeing as how he’s probably going to be unemployed.

Stan O'neal Gets Better Under Pressure [Bespoke Investment Group]

It's no secret that Fox Business News is not exactly light on the lookers. But can you tell the difference between the Foxes and porn stars? Today Radar magazine's website is putting you to the test.

We're not sure whether we should be proud or humiliated that we scored a perfect 10 out of 10 on the quiz.

Fox News Anchor or Porn Star? [Radar]

Paul Elder is a psychic. He uses his extrasensory abilities to help locate missing children (only one live one so far though) and also? To advise a certain U.S-based hedge fund on upcoming “fluctuations” in the markets. Prick won’t say which though, and damn it, we want to know. So here it is—no one goes home ‘til we’ve figured it out. You can cross off Global Alpha straight away, for obvious reasons, and probably Third Point, too, because it’s widely known fact that Daniel Loeb hates fortune tellers and anything “like fortune tellers” (Magic 8-balls, Tarot card readers, etc.) Begin.

Former Edmonton mayor shares his psychic side [Edmonton Sun]

Word is starting to spread that the board of directors of Merrill Lynch is meeting right now! At this point it's just a rumor so we decided to do some checking.

How do you check this kind of thing? Simple really. We called every single one of the members of the board of directors of Merrill to ask them about it. Of course, not one of them took our call. To a man—or a woman—we were told that the board member we were calling was unavailable.

Not exactly an official confirmation of the rumor. But close enough! We say they are meeting!

We were listening in on the Countrywide conference call just now—mostly because we didn't know that David Gaffen was liveblogging it so we don't have to—and about four minutes into the thing everything goes haywire. A full minute of what sounds like static and lambs or babies screaming. We just assumed it was a subprime phone line or that Angelo Mozzillo's self-tanner had leaked into the telephone console.

But a reader writes that what actually happened was that somebody hacked the call and started yelling "Mozillo is a criminal." Anybody else hear that part? Can a brother get a confirmation?

Tilt. Another reader asks: "Is Angelo Mozilo's tan getting darker from heat he's taking from the Board, or is it the radiant energy coming off his rapid fast CFC sell execution orders?" He puts it at 50/50.

Update: Countrywide shares up a gazillion percent. The market loves endless conference calls!

Live-Blogging the Countrywide Call [Market Beat]

Stan O'Neal is having the best day ever. We're pretty sure he's getting ready to pull the old "I just got fired" thing that our little brother did back when the market crashed in 2001. You know, that's where you take your box of belongings and stolen office supplies into the bar and get everyone to buy you drinks because you just got laid off. (This worked so well to get free drinks for our brother that he has been doing this for about six years now.)

Wait. What were talking about? Oh. Right. Merrill Lynch. That's pretty much all we're talking about today. So, where were we?

Hmmm. Oh. Right. Again. We're back.

So the share price of Merrill is shooting up (we already made that joke) while everyone talks about Stan O'Neal getting the boot. And we're having one of those "dog that didn't bark" moments. Ordinarily, when the lads get to yapping like this, a company will officially say it "does not comment on market speculation" but someone "familiar with the situation" will tell that David Faber fellow to quash the rumor.

And you know what's not happening? There's no anonymous sources quashing the rumor. If Stan wasn't three steps from the door, someone would be giving a "not for attribution" denial about the rumor. But no one is. Dog not barking.

Oil costs like a billion dollars a barrel now. And, according to a Bloomberg survey, 2/3 of the American public think we're headed for a recession.

Of course, the "American public" is kind of dumb. As Barry Ritholtz says, they've predicted 9 out of the last four recessions. But just because you're stupid doesn't mean you're wrong!

Americans Turn Negative on Economy, Expect Recession, Poll Says [Bloomberg]
2/3rds Americans Say Recession is Likely [The Big Picture]

Despite a quarterly loss of $1.2 billion, compared to a profit of $647.6 million last year, Countrywide’s shares rose the most since May 2000 on the wishful thinking that the company will be profitable in the fourth quarter. Morgan Stanley’s Kenneth Posner said that his team feels “substantially more confident in the company’s liquidity after [their] first glance at the results.” Peter Plaut, an analyst at Sanno Point Capital Management even went so far as to call the mortgage lender “a survivor,” and congratulated it for turning results that “were not as bad as market participants anticipated.” President David Sambol characterized the Q3 loss as an “earnings trough,” and predicted that fourth-quarter profits could be anywhere from 25 to 75 cents per diluted share.

Countrywide Posts Loss, Shares Advance on Forecast [Bloomberg]
Countrywide Gets Off the Mat [MarketBeat]

No. Really. Are we still writing about this? Yes we are. As it turns out, Stan O'Neal is still the chief executive of Merrill Lynch.

At least for a couple of minutes more.

But one thing that is clear is that investors figure the sooner he goes the way of a subprime mortgage originator the better. Shares of Merrill are up like 5.2% right now on the rumor that O'Neal is O'Outta Here. This is one of the brilliant things about the stock market: it totally lets you know when you've over-stayed your welcome. No sitting around drinking the third bottle of red wine and thinking you are totally entertaining.

Someone should tell Chuck Prince about this, though.

Oh. Please. When will it end? Remember when we used to write about a variety of topics? Like proxy access, Halloween custumes, Bank of America, chocolate, backdating and Bess Levin's nocturnal habits. That's so over. Now it's just Merrill. Merrill. Merrill Merrill.

Yes. We've got more Merrill on the brain. Our pal Charlie Gasparino is reporting that Merrill Lynch head honcho Stanley O'Neal has told "associates" (read: people who pretend they like you but are totally talking about you behind your back) that he's likely to be ousted as CEO in the coming days as the big brokerage firm's financial problems mount.

(See what we mean?)

Chuck G (who is totally unrelated to Flavor Flav and was never, ever in either Public Enemy or that band named for that shit that was going to kill us all in late 2001 but never did) says that John Thain and Larry Fink are in the running to run Merrill—despite their menacing names!

Also: hey. Enough with the halloween costumes. We're totally writing more stuff now. Look up here!

Update: That band was called Anthrax! Thanks anonymous tipster Hank Poll-Son!

Merrill's O'Neal Adieu By Weekend [CNBC.com]

Wow! Can we write about anything else? Apparently not. Yesterday was all about Bank of We Lost Your Money. Today it's all Merrill Lynch all the time this morning. MerrillBreaker.

Anyway, Merrill shares are shooting up like, uhm, Sid Vicious on a good night with Nancy. (Or should that be a bad night? Whatevs.) And what seems to be driving the buying is the speculation that Merrill could do that thing that might get Stan O'Neal fired. You know, merge with the company we used to think was pronounced "Watch Ova Ya."

But now Dangerous Dana Cimullica of Deal Journal is calling bullshit on the deal. According to Cimullica, the deal isn't happening. Why? It's over-determined!

• Wachovia top jock Ken Thompson may have chatted with Stan the Man, but he never took the issue to his own board. Hint: that means he doesn't think a deal is in the works.
• Thompson's totally worn out from merging with Golden West. Deals are hard!
• As it turns out, we still have anti-trust laws. And, apparently, people think that bringing the 15,000 strong thundering Merrill stampede together with Wachovia's 10,000 brokers might tick off people who work for the government and think they know how big a brokerage should be.
• Also, the world is heavily populated by Chinese people and Arabs! And a lot of them are rich. Way before Wachovia got in on this deal, those rich foreign types would totally be in there buying up yer sherz.
• Actually, that might be what's happeing right now! (Hey! This might mark the first time in recent memory that inexplicable market movements have been attributed to the Arabs. Michael "I banged the MTV chick" Lewis call you effin office.)

Why a Merrill-Wachovia Deal is Unlikely [Wall Street Journal]

So, as it turns out, Stan O'Neal might not be fired for turning Merrill Lynch into a subprime hedge fund. But he may be fired for talking to Wachovia about a merger without first consulting with Merrill's board. For reals!

"Facing billions of dollars in losses from the subprime mortgage crisis, Merrill Lynch chairman and chief executive, E. Stanley O’Neal, floated the idea of a merger with a large bank, a foray that angered Merrill’s board and could cost him his job, according to people close to the beleaguered Wall Street firm," New York Times hottie Jenny Anderson and some other dude report.

Why fire O'Neal over this talking out of turn thing rather than the massive losses? Pay attention! You see, the losses stemmed from decisions that board of directors of the bank approved. So they can't exactly fire Stan over that without admitting that they kind of suck too. But a phone call with someone at Wachovia that wasn't authorized by the board? That's it! He can totally be fired for that without indicting the board. The lesson: don't answer the phone. Ever. Ev.Er.

Actually, we're pretty sure this is such a cop-out that even Merrill's board couldn't really own up to it.

Merrill’s Chief Is Said to Consider a Bid to Merge [New York Times]

Hey, what are you being for Halloween? Bess and I have been invited to a variety of Halloween parties and apparently Halloween falling in the middle of the week means that everyone feels entitled to tell you that you must wear a costume for, like, five days. Horrendous. Or even worse. So, we need your help. What should we dress up as this week.

We've got some conceptual ideas but we need your suggestions about how we should make these happen. Please let us know what you think the best ways to dress as the following.

• Credit Crunch.
• Oil roaring to record levels.
• Write downs.
• Ben Bernanke.
• Ben Bernake's helicopter.
• Slutty Nasdaq.
• Slutty China.
• Slutty Warren Buffett.
• Slutty and Pregnant Becky Quick.
• Maria Bartiromo.
• Opec.
• Free furniture.
• Cheap chocolate.
• Proxy access.

1. The whole firm hates him.

2. He took risks.

3. That strategy turned out to be a bad one.

4. He left the office early to go return some videotapes.

5. Posing for that picture.

Charlie also added a reason why O'Neal *isn't* (or shouldn't be) getting fired: because he tried to merge Merrill with Wachovia. And if he does get fired for trying to merge with Wachovia? According to Gasparino, "It'll be a bigger story than the Ping Jiang hormones deal." Not as big as Epstein and the tranny, but big, still. Robert McCann and Greg Fleming are the mostly likely candidates to take over.

Merrill's O'Neal Adieu by Weekend [CNBC]

Baidu profit doubles, but shares slip on forecast (Reuters)
Ruh-roh. Remember a few weeks ago when the market tanked and everyone said it was because Baidu had been downgraded that day? Didn't make much sense, but let's just play hypotheticals for a second. Now the company has actually given a moderate outlook, prompting an after-hours fall in the shares. If a mere downgraded crushed the market, just think of how things are going to play out today. We can only hope that Microsoft's strong earnings prove to be a mitigating factor.

UPDATE: Oracle Tells BEA That $17 A Share Is Its 'only Offer' (Reuters)
So BEA says it won't sell for less than $21 per share and Oracle has countered that it won't offer anything greater than $17. All we can say is that this won't end well for BEA management. With Carl Icahn and Larry Ellison breathing down their necks and the appearance that they're risking a deal, it just looks like a lose-lose situation. This is PeopleSoft 2.0, and we all know how that worked out. Oh, and here's our Fox Business explainer: Although the gap is only $4, it's actually much greater than that cause it's $4 times all of BEA's shares, not just $4.

Vonage settles Verizon's patent suit for $120M (San Jose Mercury News)
Another $120 million flies out Vonage's doors, as the internet phone company settles its suit with Verizon. Here's a theory, the company is doing everything it can to run out of money so it can declare bankruptcy again. Seriously, why prolong the inevitable. They can't be blamed for paying Verizon, because a jury demanded as such. Soon management will be free to go on with their lives, rather than hanging around the sinking ship.

Merrill’s Chief Is Said to Consider a Bid to Merge (NYT)
The Times reports that Merrill Lynch CEO Stan O'neal took it upon himself to talk merger with Wachovia without consulting the board. We love this kind of story (didn't something similar happen with DuPont, except with some low-level guys?). Seeing as hell hath no fury like a director spurned, the move didn't win O'neal any friends with the company and his job could be in jeopardy. No doubt the broader troubles facing the company and its sector have something to do with it. Insiders went so far as to discuss replacements, including John Thain.

$$$ Got a whole bag of "shh" with your name on it, Greenspan. [LoSC]

$$$ Fuck You: Guidelines on Swearing at Work [Banker's Ball]

$$$ Anticipating Countrywide’s Debacle [MarketBeat Blog]

Sponsored by the Financial Times.

Equities. After a slow start, the stock market worked its way into another day of high volume and volatility. Shares we up and down a bit in the morning and then took a downward tumble midday. The down and the S&P climbed almost back to flat in afternoon trading, with the Nasdaq once again falling behind. By the closing bell, the Dow was down 3.33, or 0.02%, to 13671.92. This was a slightly deeper drop than yesterday’s. The S&P fell 1.48, or 0.1%, to 1514.40. A slightly shallower drop than yesterday. The Nasdaq dropped 23.90, or 0.9%, to 2750.86. Also a shallower drop than yesterday. One billion, six hundred million shares traded hands on the New York Stock Exchange.

Bonds. Treasuries were all over the place today today. Yields on the two year t-bills fell to their lowest point in more than two years, but recovered to end down just 2/32s. The auction on the 5-year note generated relatively more interest than yesterday's 2-year note auction had, but foreign central banks still seem to be avoiding US debt. Five-year Treasury notes were down 4/32 in price for a 4.03 percent yield. The 10-year note was unchanged for most of the day, and moved down 10/32 in after hours trading. The thirty year was down 18/32s.

Fed futures are showing an 86 percent chance of a quarter-percentage point to 4.5 percent at next week's meeting. Yesterday some traders began betting on a 50 basis point cut, and the futures now indicate a 14 percent chance of the deeper cut.

FT Alphaville. Putting the Ha back in Alpha.

Terrified that Merrill Lynch is serious about plans to build a $4 billion, 3 million square foot building across the street from Penn Station and abandon Eliot Spitzer et al.’s attempt to re-establish ground zero as a financial center, state officials are said to be “holding out hope” that the company’s current and future “financial situation will prompt it to reconsider leaving Lower Manhattan.” Though it will not be easy to beat Chief Executive Stanley’ O’Neal’s lifelong dream of working within walking distance of an Auntie Anne’s—regardless of the cost—, not to mention that of many a MER employee, which is easy access to the LIRR, the fourth quarter $4 billion writedown that CIBC analyst Meredith Whitney is predicting for the firm may do the trick. It’ll probably also encourage the board to take a second to ponder how great a job Mr. O’Neal is actually doing, and maybe even do a little recon on the names (via FaceBook, naturally) that have been proposed to take over (Co-presidents Greg Fleming and Ahmass Fakahany, GWM president Robert McCann, BlackRock founder Larry Fink, erstwhile BSC president and co-COO Warren Spector, and John Thain). They’ll probably just ruminate on that for literally just second though, and ultimately fire some lower-ranking-than-O’Neal official instead. But who?

Rumors Flying On New CEO [NYP]
Merrill Lynch May Write Down $4 Billion More, CIBC Analyst Says [Bloomberg]
Merrill Lynch Expected to Quit Downtown for Midtown [NYT]

Around noon today we started getting emails about American International Group. And right around that time, shares in the world's largest insurer dropped further than they had the most in two years, while the costs to insure AIG’s debt rocked 55 percent. The rumor that seemed to be driving the selling was word that the company would have to write down $10 billion in losses on assets linked to subprime mortgages.

The rumors are all over the wires now, of course. We almost regret we didn’t print it earlier—it’s kind of depressing when we can’t beat newswires with rampant speculations—but even here at DealBreaker we’re cautious about these things. There’s money to be made in rumors, and it’s important for even rumor mongers to make sure you’re not getting played by someone looking to manipulate the market. We were skeptical about the rumors because no-one we spoke to in a position to know had heard about the write-offs. The only people talking about it were people who had heard from someone who had heard from someone.

What seems to have driven the rumor is speculation following news that MBIA, the world’s biggest bond insurer, had reported a quarterly loss for the first time in its history after it was forced to mark down the value of guarantees on collateralized debt obligations. This combined with the fact that until this afternoon, AIG had no set a date for a release of its third-quarter earnings.

But what’s more startling is the quick recovery in AIG shares. After just about two hours of getting beaten down, the stock surged upward. At it’s low point today, AIG had dropped $4.31, or 6.8 percent, to $59.53. It closed today at $63.85, down just $1.84 or 2.88%. It seems that is was CNBC’s David Faber who pulled AIG out of the fire when facing a large securities write-down were "not true." His source was “someone in a position to know” which we take to mean AIG’s management itself. AIG helped things along by announcing that while they wouldn’t comment on market speculation they had suddenly decided that they will announce earnings on November 9th.

The fall and bounce of AIG today demonstrates how rattled investors are about these credit crunch write-downs. After Merrill’s losses turned out to be much worse than they had led investors to believe, many investors are ready to believe the worst. Rumors are driving markets because fear, doubt and uncertainty is everywhere.

AIG Write-Off Rumors Untrue [CNBC.com]
AIG Falls on Speculation About Subprime Writedown [Bloomberg]

One of the things that Merrill Lynch did to pare its losses in it’s disasterous third-quarter is to dramatically slash compensation costs. Merrill Lynch recorded just under $2 billion on compensation and benefits costs during the third quarter, about half of what of it said it spent during the same period a year ago and less than half of the $4.76 billion it recorded for second quarter of 2007. At the same time, the bank’s employment rolls have grown to 64,200, an additional 8,900 more than a year ago.

Now some of this might be simply accounting hocus-pocus, attempting to reduce costs so that their no-good, very bad fiscal quarter doesn’t look quite so bad. Indeed, Merrill admits as much when it says it may have to accrue compensation costs at higher levels in the fourth quarter. To the extent that this is true, they’re just using phony numbers, which is hardly inspiring in a bank that seems to not to have been too good about estimating losses.

But it’s a grim sign for investment bankers awaiting year-end bonuses. Indeed, it seems that Merrill bankers may lose out in the bonus race this year to colleagues at competing firms. Goldman, for instance, actually increased the amount it recorded for bonus and salary compensation this year.

Even the re-assuring noises the bank is making are, well, less than re-assuring.

“Merrill Lynch remains focused on paying its best performing employees competitively,' the company said in a statement. But apparently it believes it doesn’t have very many of these “best performing employees” this year.

Update: We're not sure if this will make our lads and lasses at Merrill feel better or worse. But here's news that white Merrill's compensation is shrinking, it's not shrinking as fast as earnings. That means the stampeding horde may get a larger portion of the smaller pie. But, of course, since the pie is smaller, the slice will still be smaller than last year.

Merrill Lynch cuts compensation in half [Thomson Financial via CNNMoney]

It’s late October, and that means it’s promotion time at Goldman Sachs. Every year, shortly before Halloween, the firm names new managing directors, and every other year it names the elite partnership managing directors.

Today Goldman set a new record, naming 299 spanking new managing directors. (Last year 263 were tapped.) Officially, the firm is “inviting” these employees to become MDs on December 1st, although we’ve never head of anyone declining the invitation.

Reflecting the fact that Goldman increasingly runs the entire world, and not just America, fifty-seven percent of the new managing directors work outside the U.S. Bloomberg reports that 30% of the class of 2007 Europe, the Middle East and Africa, 10% in Japan and 17% in the rest of Asia including China and India.

And it’s not just the number of managing directors that’s going up this year. The amount Goldman set aside for bonuses is going up too. “Chairman and CEO Lloyd Blankfein and Goldman set aside $16.9 billion to pay salaries, benefits and bonuses in the first nine months of the year, surpassing the record for all of last year,” Bloomberg notes.

The increased numbers—both in compensation and number of new MDs—reflects the fact that Goldman has broken away from the pack this year. As we noted yesterday, Goldman—which reported profits during the credit crunch as many banks took gigantic losses—is just about the only firm on Wall Street with a positive stock performance for the year.

Congratulations, lads and lasses. You are buying tonight, of course.

Goldman Sachs Announces New Managing Directors [Goldman Sachs press release]

Goldman Names 299 New Managing Directors, Most Ever [Bloomberg]

Kinkos Employee, Who Heard About BoA’s Third Quarter: You want me to print up some new materials to more accurately reflect your position in the i-banking game? “Best Global Bank” is kind of misleading. And “opportunities”? That’s just an outright lie.

BoA Head of On-Campus Recruiting: No, Kinkos Employee, it’s neither misleading nor a lie. Where else can you “Eat dinner with other analysts and associates, pay bills online, and put together a memo to the firm regarding a fixed income transaction that we priced today for a subsidiary of a $10 billion market cap industrial giant…every day”?

BofA Recruiting [PDF]

(It kind of seems like we have it out for Bank of America today, but this last one affected the children, and we would've been remiss not to mention it. Plus, we're junkies for this stuff and couldn't stop ourselves even if we wanted to. Additionally, Sandy Weill won't stop pressuring us via IMs (DaSandMan2000, FYI) to "write enough damning shit about BoA to drive the stock price down enough that I might buy it in cash and combine it with Citi and create the biggest bank in the world, BY FAR. Of course, this will necessitate me pushing out Prince first, but, heh, let's be honest, that shouldn't be too hard." Anyway, we're going to try really hard to make this the last BoA post of the day, mostly because we've devoted barely any time hating on Merrill.)

We decided to write about the Chocolate Wars yesterday because it nicely illustrated a recurrent economic dynamic—the way companies attempt to use government regulation to gain competitive advantage. Alexandra Wolfe’s article in Portfolio touched on an important aspect of this dynamic when she described the efforts of the Chocolate Manufacturers Association, a trade group dominated by the biggest names in chocolate, to get the government to lift restrictions on the recipe for anything called chocolate. Big Chocolate, really from competition from artisanal chocolate makers and increases in the price of cocoa butter, wants to use cheaper ingredients to cut the costs of manufacturing the stuff.

We wanted to emphasize the other side of this regulatory battle—the economic motives of the artisanal chocolate makers who are lobbying against the Big Chocolate reforms. The artisanal crowd makes lots of unsustainable arguments against the proposed reforms that serve to cover up what’s really going on. And what’s really going on is what’s always going on, businesses seeking advantage over competitors.

The artisanal chocolate makers advance some extremely unsound arguments. The first is that chocolate made with substitutes for cocoa butter—a smoothing ingredient that adds texture to chocolate—are vastly inferior. But if this were true, they’d welcome Big Chocolate’s move. Customers would turn away from New Chocolate the way they turned against New Coke, opening up a huge market for the artisanals.

What the artisinals seem to fear is that New Chocolate won’t be bad enough to drive away customers from Big Chocolate. To put it differently, they suspect that chocolate consumers may decide that they’d rather eat cheaper stuff made without cocoa butter than pay a premium for the old-fashioned product. And they want to make sure that consumers are given the opportunity to make this choice. And what they really want is to prevent Big Chocolate from engaging in price competition with their more expensive products by finding cheaper ways to make chocolate.

[More on the Chocolate Wars after the jump.]

Those sound a bit rich, even for the employed first-year bankers in the BoA family.

Just thinking aloud for a second, but is it possible that the fact that “order[ing] dinner” is the only task accomplished between the hours of 6 and 7 p.m. on a typical day by your average Bank of America investment banker contributed to the bank’s Q3 results?

Day in the Life (For some reason, you can't go directly to the DITL page, presumably because the Webmaster is updating it to more accurately reflect what kind of stuff someone from the BoA team might be up to during a typical 9-5. For those interested: U.S. full-time analysts --> Investment Banking and Capital Markets --> Day in the Life.) [Bank of America]

Incidentally, this Nalgene, promoting the career section on BoA's website, was recently delivered to the office. Nice to know they haven’t lost their sense of humor and nice for us, ‘cause ours was getting that funky smell all 'genes get after a while, and needed to be replaced. (Ken Lewis knows what we're talking about.)

It's widely known that Jesus roots for the Colorado Rockies. But now they have a much more important fan: legendary investor Warren Buffet, who is cheering on the Rockies because Berkshire Hathaway chain Jordan's Furniture promised certain customers free furniture if the Red Sox win the World Series.

Why Buffett's Rooting Against the Red Sox [TheStreet.com]

When profits in investment banking fall an astounding 93 percent to $100 million, which is less than what the cast of Friends made in the show's final season, it's time to cut your losses and run. So Chief Executive Officer Ken Lewis is taking the wisdom of a bum who yelled at him, "You should just give up," from across the street on the way into the office yesterday, and has decided to shutter Bank of America. The whole thing. Even the ATMs and the shitty, shitty online banking operation. I'm kidding! What's scary is, I could be dead serious. It would be shocking, yes, but would it really be *that* shocking? Say what you want, but the answer's "no."

Anyway, as you know, BoA is firing 3,000 of its employees, mostly from the essentially-non-performing investment banking sector, replacing a "retiring" Gene Taylor with Brian Moynihan as president of global corporate and investment banking (whose position as head of wealth management will be filled by Keith Banks, currently running the Columbia Management mutal fund arm), and-- and this seems wise-- reevaluating its goal of boosting corporate and investment banking profit by 70 percent and revenue by 50 percent within the next five years (Moynihan called it "a reshaping of the business to meet...reality"). On another note, the Journal recalls that Ken Lewis and Gene Taylor were once part of a "brash, aggressive group of bankers known as the "Florida mafia." Marinade on that, then we'll discuss the changes afoot at $8.4-billion-writedown-shop Merrill. I don't want to spoil the surprise so I'll just say that it has to do with talk of an even more Fascist sick-day policy.

BoA's Wall Street Retreat [WSJ]

“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all group.”--Henry Hazlitt, Economics in One Lesson.

You know what would be totally amazing? If the destruction by fire of more than 1,600 homes and buildings, massive evacuations and widespread business closures turned out to actually be an economic boon. Sure money is a small consolation to those who have suffered losses from the fires. No-one want to sound too happy about this thing. But an upside is an upside, right?

You can tell a lot of people wish the world worked like this because they keep pretending it does.

“Economists have noted the perverse reality that in the wake of disasters, re-construction spending helps the economy, even as people are still struggling to recover from their personal losses,” Tom Beemis wrote on Market Watch on Tuesday. And here’s more of the same from the Los Angeles Times. And more from the usually whip-smart Mark Lacter at LA Biz Observed. Some even took issue with our very own Joe Weisenthal's skepticism about wildfires as an economic boon.

One indication that this isn’t quite how things work is the fact that we jail arsonists. If burning down buildings and shutting down businesses was an economic boon, we’d treat arsonists like investment bankers. Or at least philanthropists.

Unfortunately, for arsonists and the rest of us, this isn’t how it works. While some California home builders and other’s who will help clean up the mess after the fires may gain, this gain is merely the loss of business and investment that would have gone elsewhere. Even money paid out by insurance companies is money that is now going to rebuild what we already had instead of getting invested in wealth increasing activities.

It’s easy to overlook this because we’re dealing with a counter-factual, with investments and purchases that won’t happen because the money is now being used to pay to repair the damage from the fire. But one thing that is certain is that the activities being described as helping the economy, and the money used to undertake those activities, are being done at the expense of what would have been done had the losses from the fire not occurred. There’s no stimulus here that isn’t being replicated as a loss in other parts of the economy.

The losses from the fire are terrible. One reader estimates they might add up to as much as $2.8 billion. It’s like California was run by Stan O’Neal for six months. There’s no upside, unless you happen to root for California home builders to gain at the expense of others. There’s no economic blessing rising from the ashes.

But it’s pretty to think so.

Could Calif. fires draw a line under housing crash? [Market Watch]
Fires won't hurt long term, economists say [LA Times]
Fires and broken windows [LA Biz Observed]

Facebook’s Stratospheric Earnings Multiple (Deal Journal)
So yeah, as you knows, Mr. Softy paid $240 million for a mere sliver of Facebook, giving the company a $15 billion valuation. This is the valuation that everyone has been talking about... but it still sort of hits you in the gut when it's actually announced. Deal Journal puts it into some perspective: "The Redmond, Washington-based company’s $240 million investment in Facebook values the social-networking Web site at 500 times its estimated 2007 earnings of $30 million, based on figures from this Wall Street Journal article. That’s right, unlike past meteoric technology risers, the three-year-old company is actually profitable. Facebook’s valuation also equates to 100 times its $150 million of annual revenue. To put a valuation like that into perspective, if you slapped it on General Electric, the industrial conglomerate would have a market cap of $11 trillion, just $1 trillion short of the total U.S. GDP." Granted, such analysis doesn't offer too much, other than to say that a $15 billion valuation is, er, lofty, to say the least.

Intel to pay $250 million to Transmeta to settle patent lawsuits (San Jose Mercury News)
Then again, if you had to pay $240 million for a slice in Facebook, or $250 million to pay off a patent lawsuit, we'd probably take the former. You would too, no?

PetroChina Threatens To Unseat Exxon Mobil (Forbes)
It's almost surprising this hasn't happened already... PetroChina is getting closer to assuming the #1 spot for the world's largest oil company. The US-listed company is getting set to sell shares in Shanghai, and if there's anyone more crazy about China stocks than the US, it's the Chinese. Of course, it's not so much about valuation there as much as it is supply and demand (ok, technically it's the same here, but you know what we're saying).

Progress in California Fires (WSJ)
Unfortunately for the California economy, some measures have worked in containing the big fire. Guess that means limited insurance payments and stimulus for the region's beleaguered housing segment. If only the regional economy had some other means of profiting from a big deadweight loss... oh wait.

$$$ The Case of the Mysterious Lehman Rumors [DealBook]

$$$ Imagining a World Without Investment Banks [Deal Journal]

$$$ Bernanke Warns [CWS]

$$$ "I work as an equity trader (no, not a stock broker, i will stab you if you call it that :P lol HUGE DIFFERENCE)" [craigslist]

Sponsored by the Financial Times.

Equities: It was a whiplash day on the stock markets, as the major stock indexes made sharp reversals from gains in the first two days of trading this week and then rallied back to flat or nearly so in the last two hours of trading. “Trimming steep losses” and “well above the lows of the session” seem to be the favorite phrases of people who get paid to craft such sentences.

The Dow Jones Industrial Average was down a smidge, 0.98 points, or 0.01%, to close at 13675.25. The broader S&P 500-stock index fell further, 3.71 points, or 0.24%, to 1515.88. The Nasdaq Composite Index saw the nastiest day, losing 24.50, or 1.2%, to 2774.76. Volume climbed higher today as well, with the 1.59 million shares trading hands on the New York Stock Exchange. Sinkers beat climbers by a ratio of 2:1.2 on the NYSE.

Now a quick tour of some of the news that may or may not have driven part of today’s market action. Home resales declined, as did the median home price. People realized that there are no more Harry Potter books, and pushed Amazon prices lower. Merrill’s earnings showed it had the biggest losses from the subprime meltdown and credit crunch, gave more detailed disclosures of the losses than any other firm on Wall Street but didn’t satisfy investors with its conference call. The stock dropped dramatically after the call. Cablevision shareholders rejected a $10.6 billion offer from the Dolan family to take the company private. CEO James Dolan said he was "disappointed" by the vote. A Cablevision employees who spoke to DealBreaker on the condition of anonymity said “Yay!” After the closing bell, Microsoft admitted that it is investing $240 million for a minority stake in Facebook, which values the site at $15 billion.

Federal Reserve. With the last of the Wall Street earnings reports behind us, a lot of the babble bubbled about the depth and timing of a rate cut from the Federal Reserve. Nearly everyone seems to agree that another cut is coming because the credit, financial and housing markets still aren’t behaving the way the Federal Reserve would like them to. The questions are now how deep will the cut come. Some, like former Fed honcho Wayne Angell are calling for the Fed to cut rates down to as much as 3.5%. Others are speculating about a cut before next weeks meeting, either in the discount window or in the fed-funds target rate.

Bonds and Credit. U.S. Treasuries rallied, sending the two-year Treasury note's yield to its lowest level since September 2005. The Treasury sold $20 billion of new two-year notes but the market didn’t seem to notice. Foreign central banks and other indirect bidders bought only about 22 percent of the sale. That’s below the average for such things, and a possible indication that demand for the debt of the US government is sinking with the dollar.

The two-year note traded up 5/32 in price for a yield of 3.73 percent . The 10-year note added 17/32, for a yield of 4.347%. The 30-year bond was up 27/32, yielding 4.646%.

The offering for TXU debt was said to be "massively oversubscribed" today. The underwriters succeeded in placing $7.5 billion of low-rated debt, making it the the largest U.S. junk bond sale ever.

FT Alphaville. Read Fresh.

It’s hard to underestimate the confusion that afflicts journalists when their journeys take them to any place where wealth intersects with politics. Even otherwise sharp writers can find themselves befuddled. A typical response is to retreat into a storied morality tale in which the “workers” or some small business—typically, a business that makes things the smart-set likes—fights against bigger businesses attempts to warp the political machinery in their favor.

A great demonstration of this befuddlement and retreat to orthodoxy can be seen in the latest issue of Portfolio. And don't worry, we're not going to write another three-thousand word dissection of the entire magazine. We've decided that even Portfolio deserves a chance to grow into its potential. So we'll wait at least until the next issue before doing that again. (Probably.)

In “Chocolate Wars,” writer Alexandra Wolfe—the daughter of author Tom Wolfe—tells the tale of a struggle between the mass producers of chocolate—think Hershey or Nestle—and boutique makers of higher-quality chocolate. It’s a fine enough story, certainly worth telling. In fact, it was the first thing we read when the new issue came out. And Wolfe is a more than capable writer, drawing the lines of battle and the reasons for it quite well. But it’s also quite obvious that she never gets beyond the orthodox morality tale to see what’s really happening.

[Things get messy after the jump.]

When we said we weren’t fucking with you about continuing to write about the Jeffrey Epstein case, we weren’t fucking with you. The new allegations from Maximilia née Maximilian Cordero via her lawyer, William Unroch, about what went on when she/he/whatever hung out at Jeffrey Epstein’s apartment a few times during 2000 in an effort to “just be a model” are, among other things, that: Epstein knew that Cordero was a man and told Max, “You know we’re friends, you should not feel bad. Victoria’s Secret is that a lot of models are transgender. Why do you think they are so tall? Most runway models are, that’s why the height and body requirements are so rare”; an employee of Epstein (presumably Sarah Kellen), quelled Cordero’s reservations about the type of massage Epstein is known to be fond of by describing it as “a special massage” and saying “don’t worry, Rome wasn’t built in a day”; Victoria's Secret head Leslie Wexner gave Epstein permission to use the VS name to “harass and trap young models and teenage girl into performing sex acts…in return for promises of a modeling career” with the lingerie company; during one of the many spa sessions that took place, Epstein put on a red wig and lipstick and said to Cordero, “Call me Janice”; and that on at least on occasion, Cordero told Epstein “I’m Old Yella,” barked like a dog, and threatened to bite him.

What we’re getting from all this is that we are in the presence of two freaks in love who’ve yet to find other people with whom they can have truly freaky though perhaps-at-times-tender sex. Honestly, would you really be surprised if we found out this whole thing wasn’t some sort of elaborate hoax cooked up by Epstein and Cordero that the two are getting off on as we speak? I submit you would not. We (but mostly John) are all just pawns in their sick game. Kind of makes you feel bad for Unroch, who probably doesn’t even know he’s getting played by that tranny. Oh well-- it'll make a good story for the blog.

(And if it’s not a joke between Epstein and Cordero, then Unroch took it too far with the wig and lipstick. That’s just not believable. Epstein’s about massages and jerking off into terry-cloth, not cross-dressing. Rule ONE of extortion states that you must know your victim’s M.O. before you try to rob him blind. Honestly, it’s like learn your fucking lesson day around here.)

Epstein: 'Call Me Janice' [Radar]

During this morning’s conference call to discuss Merrill Lynch’s $8.4 billion writedown and $2.24 billion loss, CEO Stan O’Neal, quite predictably, attempted to steal the spotlight and hog all the firm’s third-quarter glory by saying, "No one is more disappointed than I am," the greedy bastard. At the time, no one said anything like, “Now wait there one minute, bub,” not even Deutsche Bank’s Mike Mayo, but we’ve been thinking that actually, Stanley, you might not be the one who’s most disappointed in your utter and complete failure.

In the grand tradition of trying to turn the (real or imaginary) sexual assault you suffered at the hands of a creepy old guy into stocks and bonds, everyone knows you don’t start at the top of the food chain. You get a few starter suits under your belt first, THEN you go to the top. Got to walk before you can run, got to allege “he put his hand on my knee and I didn’t like it” before you allege “he jerked off into a towel while I stood there awkwardly, and I think there might’ve been a purple vibrator in there, too” (those are just for instances).

A few years ago, Maximilia née Maximilian Cordero filed a $10 million lawsuit that accused her former lawyer, Glen Gentile, of statutory rape and endangering the welfare of a minor 2002, when she was “under the age of 17” (representing Cordero was her new—at the time—boyfriend/attorney, William Unroch). Unfortunately, the case got thrown out when the court informed Cordero (yes, it informed her) that in 2002, she was over the age of 17, and, actually almost 19. (For her part, Cordero said that she was “shocked” to find out how old she was.)

Not that anyone asked, but we blame Unroch in this situation, as he was probably receiving some sort of compensation to get this shit right. Cordero probably should’ve sacked her counsel then and there, but things get sticky when your lawyer’s also your boyfriend. Mercifully, this time, someone, presumably a third party, did the math, and placed Cordero’s repeated visits to Jeffrey Epstein’s house of perversion in their proper under-17 years-old place of 2000. Thank god, because otherwise, this whole thing might’ve come off as disingenuous. Anyway, enough of this inanity—where the hell is Loch Ness? No more on this case* ‘til we’ve heard her story.

S(h)e Has A History

*I kid-- we'd sooner stop writing about Tim Sykes.

This has been a rough year for investors in Wall Street firms, many of whom work at the firms themselves. The Amex Broker-Dealer Index is down for the year, as are the shares of nearly every Wall Street investment bank and brokerage. With the exception of Citigroup, most started the year out with gains in their share prices. But when the broader markets plunged in February, the stocks of the banks and brokerages saw much steeper losses and few every recovered. Although there have been up weeks and down weeks, for long term investors, investing in these companies has been a losing strategy this year.

Morgan Stanley, JP Morgan Chase and Goldman Sachs all recovered into positive territory, while Merrill Lynch, Lehman Brothers and Bear Stearns struggled and, except for brief pops for Citi and Lehman, shareholders found themselves losing money all year. News of the credit crunch and subprime mortgaged related losses in late July and August, bringing the stocks in the group down even further. None of the Wall Street firms have traded higher than they did at the start of the year since July.

The sole exception to this has been the recovery of Goldman Sachs, which rose after its third-quarter earnings report revealed it had made massive gains in the areas where so many of its competitors have stumbled. It's stock is up close to 12% year-to-date. The next be performer, with a share price decline of less than 5% for the year, is JP Morgan Chase. All of the others have declined by more than 20%. At the bottom of the barrel are Merrill and Bear, which are quickly closing in on declines as high as 30% for the year.

This is horrifying—the securities firm that just lost $2.24 billion in one quarter is now saying it may be reducing year-end bonuses. Never have we ever been so inclined to say, WTF, O'Neal? WTF. Oh wait, hold on: MER “remains focused on paying its best performing employees competitively.” So what all you Lynchies need to do is ask yourselves, “How much did I suck this quarter, and was it more or less than the guy to my right/left?” Should give you a decent idea about what to expect.

Merrill Lynched [FT Alphaville]

Skirt-chasing supermarket mogul Ron Burkle is often said to have done for Bill Clinton on the west coast what Jeffrey Epstein did for the former president on the east coast. (Whatever that is.) So with Epstein now facing lawsuits from the Loch Ness monster and other creatures who allege that they were victims of his unsavory appetites, it only makes sense that Burkle would find himself in the headlines again.

Of course, the charges against Burkle are not so much criminal as potentially embarrassing. An alleged former paramour has told Page Six that Burkle is a "sexually inept lover." Chevyn McClintock describes her attempts to bolster his sexual confidence by getting him drunk. "The only area in life he appeared not to have confidence in was in natural sexual aggression, so I would initiate that transition after a few strong cocktails or large glasses of wine," she writes in her untitled memoir she is hoping will attract the attention of a publisher.

So who is Cheyvn? Her website gives her version of the story of her "beautiful gracious life." (Although writing about how you got a rich guy drunk to get him into the sack and then complaining about his performance is hardly what we might call "gracious.")

From her birth into a classic, traditional, elegant American family, Chevyn has continuously lived a beautiful gracious life. Ms. McClintock has extensive experience in interior design (award-winning, published and televised) Feng Shui Master; Art & Antiquities private dealer (clientele includes some of the most important and influential collectors in America) hostess extraordinaire in Los Angeles, Texas and New York City; fine wine connoisseur and collector (as acknowledged in the New York Times) and patron & fund-raiser for numerous social and charitable origanizations.

Claim: Burkle's A Dud In Bed [Page Six]

Cheyvn McClintock [Cheyvn.com]

Finance professor and author of "100 Years of Wall Street" told Bloomberg, re: Merrill: ``It's safe to say this is the largest writedown' by a [U.S. securities firm]. The only other time we had such big losses was the third-world debt crisis in the 1980s. Even then, the losses didn't match this one.''

They said it was impossible but god damn it, Stanley O’Neal doesn’t know the meaning of the word. Yes, people, Merrill Lynch reported the biggest quarterly loss in the history of Merrill Lynch today following a $8.4 billion writedown. The $2.24 billion, $2.82/share loss was a whopping six times higher than the Lynchettes estimated on October 5. I’d never listened to a conference call before, not even the Global Alpha one, mostly because I think I’m too good for them, but I figured if there was ever a time to listen to a bunch of guys rationalize the way they put a bunch of money in a paper bag and lit it on fire, it was now. Plus, someone told me that Stan O’Neal would be making a rare appearance, and I wanted to see if he’d last any longer than 2-Minute Man Jimmy Cayne. Unfortunately, I was a little late getting into the office this morning, and didn’t plug my headphones in ‘til, oh, I don’t know, 10:38. Sure, the whole thing was being recorded, and if I wanted to, I could’ve listened to it from the beginning, but it’s like Carney always says, “Why bother?” So I’ll just tell you what I liked about the call from the time I started listening:

I Liked when:

- CFO Jeff Edwards pats Merrill Lynch on the back for providing “an extraordinarily high level of disclosure.”

- A Deutsche Bank analyst, Mike Mayo, says to Edwards, “Your peers didn’t take an $8 billion writedown.”
That’s a lot of ‘tude for a Deutsche Bank analyst, but then again, this is textbook Mike. Guy's not afraid to sound like an asshole when it comes to earnings (or lackthereof). LIKE IT. Understand it. Identify with it.

- Jeff Edwards calls Citigroup analyst Prashant Bhatia “son.” So dismissive. Don’t just like it, LOVE IT.

- A smoke alarm system test is heard over the Merrill Lynch loudspeaker. Everyone laughs, but if this were taking place in California, it probably wouldn’t be as funny, and it probably wouldn't be a test.

Merrill Lynch Reports Loss on $8.4 Billion Writedown [Bloomberg]
Merrill Lynch posts $2.3 bln quarterly loss [Reuters]

So Merrill Lynch beat the lower expectations it put out into the market yesterday by taking only $7.9 billion in writedowns for collateralized debt obligations and U.S. subprime mortgages. Of course that's much higher than the $5.5 billion write down they said they'd be taking a month ago, but this time they promise they really mean it. Some analysts are already saying they are confident that this time Merrill threw in the "kitchen sink" and won't be taking further write-downs. Which totally makes sense, because what are the odds they'd be spectacularly wrong twice.

The stock moved up as news of the much-worse-than-projected-but-not-as-bad-as-whispered losses spread. DealBreaker's Closing Bell, CNBC's Charlie Gasparino and the Wall Street Journal had all reported that losses would be higher than projected but it seems that the New York Times came closest to pinning the tail on Stan O'Neal. Tuesday afternoon it reported that Merrill was already expecting about $2.5 billion in losses on top of the $5 billion it had announced earlier this month.

And how did the Times come so close? Well, apparently, they came so close because Merrill told them wha the numbers would be. Or told someone who told the Times, which is pretty much the same thing. DealBook, the blog of the the Times business section, reports this morning. "And where did those figures come from? Merrill itself, via undisclosed sources."

And, actually, Merrill still managed to miss the number leaked to the Times. Or did things get $400 million worse overnight?

Both journalists and investors are now questioning whether Merrill Lynch has been...uhm, what's the polite word? Oh, right...forthcoming enough about it's losses. (The impolite way of saying it is that they seem to have been dishonest about its losses.) As Charlie Gasparino pointed out, when he was reporting three weeks ago that the losses would be worse, the bank's spokespeople did it's best to dampen that story and claimed that losses would be in line with the $5 billion it had put out a month ago. This morning on Squawk Box, Gasparino more or less questioned why anyone would want to start believing Merrill now given their past behavior.

Oh, and over at Market Beat, David Gaffen is listening to the earning's call so you don't have to.

And coming up in a few moments, Bess Levin gives us more...uhm, well, is "analysis" the right word? She gives us more of that thing she does but aims it at Merrill.

Earnings Release [Merrill Lynch]
Earnings Release [Merrill Lynch; pdf file]
Financial Spreadsheet [Merrill Lynch; Excel file]
Managing Expectations of Merrill’s Losses [DealBook]
Live-Blogging the Merrill Conference Call [Market Beat]

The lads and lasses at College Humor imagine what it would be like if people reacted behaved in business meeting like they do on website comment boards.

Internet Commenter Business Meeting [YouTube.com]

Could Calif. fires draw a line under housing crash?
So this has to be one of the more ludicrous things we've ever read in our entire lives. The fire could staunch the housing bust, is the point here, which obviously doesn't make any sense. Check out this line: So in Southern California, one of the hardest hit housing markets in the country, the temporary reduction of available supply may not be enough to turn things around completely, but it could at least act as a brake on the housing crash. Here's a nice book recommendation for ya -- Economics in One Lesson. The very first chapter is on the 'broken window fallacy''; reading it would spare anyone from writing articles such as this.

Cablevision Vote May Be Close (New York Post)
We might learn Cablevision's fate today, or maybe tomorrow. But the deal, which just last week had looked sunk, may still have hope. Thing is, if shareholders vote against the Dolan's taking it private, then they're just giving money away, at least in the short term. Granted, some may feel that there is more long term value there, but over the long term there's also uncertainty and opportunity cost. So maybe they'll just say eff it and vote for it.

Countrywide's New Scare (WSJ)
And another class of mortgages is said to be on the fritz now. Option ARMs, which are like ARMs, but offer more flexible payment terms, are increasingly causing trouble. An analysis done by UBS indicates that 3.5 percent of them are now at least 60 days past due. And since Countrywide, not surprisingly, has been a leader in selling these, it's just another pile it has to claw out of.

Greenback Blues? Not In Techville (GigaOM)
A number of tech companies have reported meaningful currency boosts, showing that there is an upside to the declining Dollar. Amazon's report yesterday indicated that the weak buck helped push revenue up by $75 million. Ah, but the company can't really benefit, cause investors can see right through it. Sure they beat the number, but it was like they cheated, or rather sold out, profiting from the broader economic concerns.

“I feel great,” Bear Stearns chief executive James Cayne tells London Thomas of the New York Times.

But it wasn’t clear the editors at the Times are entirely persuaded. They headlined the story with a metaphor that seemed to hint that Cayne might not be at full strength. “Ailing Firm Gets Tonic From China,” the headline proclaims. Thomas uses similar language in the article to describe the firm’s condition and mentions that Cayne recently spent several days in the hospital.

Charlie Gasparino, who first broke the story of Cayne’s hospitalization, is now reporting that his condition was more serious than indicated in earlier reports. At the time, it was reported that Cayne was hospitalized for a urinary tract infection. On CNBC’s Fast Money tonight, however, Gasparino reported that Cayne was hospitalized instead for a prostate infection. Acute prostate infections are usually treatable with antibiotics but sometimes require a hospital stay. Severe cases can be fatal. It is not related to more serious conditions such as prostate cancer.

$$$ Wouldn't It Suck If You Were Rich? [Gawker]

$$$ Frisky Financier Seeks Scintillating Siren [craigslist]

$$$ LMI Aerospace Inc. (LMIA)

Sponsored by the Financial Times.

Stocks opened sharply higher this morning, took a brief dip two hours into the trading day, and the blazed right back up. The Nasdaq kept climbing for most of the day, while the Dow and the S&P took a brief dip as we went into the final hour of trading. But all three rallied strongly going into the closing bell. The Nasdaq Composite Index shot up 45.33, or 1.7%, to 2799.26. The Dow Jones Industrial Average climbed 109.26, or 0.81%, to 13676.23. The S&P 500-stock index climbed 13.26, or 0.88%, to 1519.59. Volume on the New York Stock Exchange was slightly lower than yesterday, with 1.31 billion shares trading hands. Rising stocks outnumbered decliners on the NYSE by a margin of 2 to 1.

The Amex Broker-Dealer Index tracked the movements of the broader indexes but slightly exaggerated both its upside and downside volatility. Early in the day the Index shot up more than 1.25%, declined with the broader markets, then began rallying around 2 PM. At the close it was up 1.28%.

Merrill Lynch reports its earnings tomorrow and spent much of the day in negative territory. It rallied along with brokerage brethren late in the day, however, and was up about 1% for the day. The rally was remarkable given the widespread rumors that Merrill losses from Merrill’s fixed income positions, particularly in CDOs, may twice as high as the already staggering $5.5 billion Merrill has already said it will take in third-quarter right downs. The bank was also contending with a Sanford Bernstein analyst’s note projecting that a pull-back in its fixed income business may cost the bank $1 billion in lost earnings next year.

It was a hot and heavy day for tech. RIMM shot up after breaking news of a deal that had the word China in it. Apple gained after last night earnings announcement. Amazon climbed all day, gaining 10% by the market close. Shortly afterwards, it reported that everyone who can read bought a Harry Potter book.

The Entity—the Super Siv that Citigroup, JP Morgan and Bank of America are putting together to rescue the lesser citizens of SIV-world—found some new friends today. A senior Fed official was quoted as saying that the widespread impression that the Fed was unimpressed with the Entity was mistaken, and that the feeling inside the Fed was that the Entity could help beleaguered financial markets. Meanwhile news reports said that Allianz SE's Dresdner Bank is considering playing a role in the Entity.

Treasuries saw a mixed market today. Two-year Treasury notes were up 2/32 higher in price pushing the yield down to 3.84 percent yield from 3.86 percent late on Monday. Ten-year notes, were more or less flat, putting the yield at 4.41 percent yield, which is 1 basis point lower than late yesterday.

You can't have cookies for breakfast but you can have FT Alphaville.

Morgan Stanley recently--today-- informed its employees that it is no longer acceptable to “use firm computers to comment on blogs.” The first Morgan Stanley employee ballsy enough to post a comment on this post (we'll check the IP address to confirm it’s not some punk JPM banker) wins something pre-tay, pre-tay, pre-tay good (okay fine--it's drinks with Keith Hahn, on Carney, who owes him. Because he spotted him for lunch one time a few months back. Why, what were you thinking?).

Yes-- Liz Claman just interviewed Lamb Chop, a fictional sheep who is a sock puppet created by comedian and ventriloquist Shari Lewis. Video TK, but in the meantime, here's a question: how long before Neil Cavuto sits down with Jeffrey Epstein's tranny? Full disclosure: we're starting to love this network. Expect CNBC Senior VP Jonathan Wald's fatwa on "sock puppets or anything like sock puppets" to be lifted when the ratings are in.

Following an 80 percent drop in third quarter investment banking profits, Wachovia Bank has asked about 200 workers from its corporate and investment banking units in Charlotte, North Carolina and New York to stop coming in to the office. Apparently the severance package for first year analysts is 85K. Will 93-percent-decline-in-profits-from-investment banking-and-sure-to-be-letting-at-least-one-million-employees-go Bank of America do better? We'll let you know (or you'll let us know. Either way, information will be transmitted.)

Wachovia starts investment bank job cuts [Reuters]

MarketWatch’s David Weidner has finally narrowed down the choices and now you must choose between the two: liar or genocidal maniac?

Human-rights groups said they were disappointed Darfur didn't figure into Buffett's decision. Don't believe a word of it…If it were all about the profit, Buffett, by his own admission, left money on the table. "I still sold it way too soon," he said. This doesn't sound like investing the Warren Buffett way. Berkshire owned more than 11% of PetroChina when it bought its stake in 2006. So, with the stock rising, he sells all of it in a matter of months after an investor protest at the Berkshire annual meeting? Unlikely. Warren Buffett was uncomfortable with this investment. And if he wasn't? Then he's as deluded as the sick people who are profiting from the suffering in Africa.

Not to influence your choice, but we’ve received no fewer than five emails to tips at dealbreaker dot com more or less implying that the Oracle has the heads (like, the skulls) of several Amnesty International officials in his basement meat locker. But he’s also looked Food and Drug Administration officials in the face and flat out lied about the fat content in one of Dairy Queen's large Oreo Blizzards (he says zero grams, they counter that it's more like 25). So this is a tough call.

Oracle and PetroChina [MarketWatch]

The "worst year ever" for layoffs in finance just got a little bit worse. This morning JP Morgan cut a number of bankers in its loan structuring group, according to a source at the bank. The cuts are said to have hit “expensive people” hardest: three out of four vice-presidents are said to be gone and at least two associates were let go. The most junior employees, the analysts, have “not yet” been let go.

Although the number of jobs lost is not high in absolute terms, they amount to between ten and twenty percent of the large loan structuring group, the source says. This would put the number at the high end of JP Morgan’s claim that it planned to cut "less than 10 percent" of its fixed-income division .

There have also been cuts in the commercial mortgage backed securities conduit origination group and the underwriting group, the source reports. As with many of the recent cuts on Wall Street, these have hit in operations closely connected to the weakest areas of the debt market.

JP Morgan could not immediately be reached for comment on the layoffs.

The last time Becky Quick boarded the private plane of one of the legends of American wealth, rumors and speculation—or, well, completely made-up stories—flew across the interwebs that the CNBC anchor had married Boone Pickens in China. “Finally, wedding bells for Becky Quick?” CNBC reporter Jane Wells asked, tongue firmly planted in cheek.

This morning Quick climbed on board Warren Buffett’s plane, bound once more for the Middle Kingdom. And the rumors are flying right along with her. What has sparked the latest round of making stuff up about the globe trotting Squawk Boxer was a question from Squawk on the Street anchor Erin Burnett about Quick calling into the show rather than enjoying a glass of champagne on the private plane.

“Actually, it’s not champagne we’re drinking this morning. It was orange juice,” Quick said.

Which is what got the tongues wagging with speculation that Quick could be pregnant. “It looks as though the Quick clan was expecting another member,” one viewer wrote us. “When she passed on Berkshire's complimentary Mums champagne, it's as good as fact.”

Because everyone knows that the only reason a girl would turn down champagne in the morning is that she’s pregnant.

Click on the picture above for our version of the upcoming totally imaginary Portfolio cover featuring Quick, done Harper's Bazaar meets Vanity Fair style. (Warning: despite all the important bits being covered and the fact that very similar pictures have run on the covers of magazines sold in grocery stores, the picture may be NSFW.)

Earlier: Did Wedding Bells Ring For Becky Quick In China?

An insane Alan Greenspan told an audience of investment bankers, private-equity companies, and Weekend at Bernie’s fans gathered in Chicago for the Midwest ACG Capital Connection conference that he, “didn’t know enough to comment on an agreement among Citigroup, Bank of America, and JP Morgan Chase to increase liquidity in the market for asset-backed commercial paper.” We’re assuming that when one litigious young banker asked, during the Q&A section of the program, “Then why did you say last week, and I quote: ‘[The $75 billion Master Liquidity Enhancement Conduit] could conceivably make [conditions affecting investor psychology] somewhat adverse because if you believe some form of artificial non-market force is propping up the market you don’t believe the market price has exhausted itself” and more or less flat out say that the super-fund will have dire repercussions,” Greenspan answered the question with the question, “Let me ask you this, litigious young banker probably from Goldman Sachs – that Bernanke fellow, he kind of sucks, no?” and then quickly changed the subject by warning, “there will be a crash in Canada, I just don’t know when.”

On another note, if anyone can supply the glasses necessary for a “Slutty Alan Greenspan” Halloween costume, it would be much appreciated. Otherwise, one of us is going to have to go as a “Slutty Maria Bartiromo.” Or, you know, just a “Maria Bartiromo.” (We kid the Bartiromo, of course.)

Earlier: The First Rule of Being Alan Greenspan Is That You Have To Piss All Over Anything That Doesn’t Have To Do With Alan Greenspan

Greenspan Says `State of Fear' in Credit Markets [Bloomberg]

There’s a quick piece in today’s Wall Street Journal about how Bear Stearns got to be “Wall Street’s best known bond house.” It’s all the fault of Salomon Brothers apparently. A decade or so after the firm was founded, Salim Lewis came over from Salomon and transformed Bear Stearns from an stock trading shop into “an institutional bond player.”

A common—perhaps trite—observation about Bear is that it has a “contrarian streak.” The Journal doesn’t go into details about how Bear has preserved this contrarian streak through the decades but a recent conversation with a banker who had left Bear for a larger, more diversified financial institution shed some light. (At his request we’re leaving off the name of his new employer.)

“Bear was a very entrepreneurial place,” he told us over drinks on the terrace of a tavern overlooking the Hudson river. “If you had an idea—and people thought it was a good idea—you might find yourself very quickly in front of the biggest names at Bear Stearns. More than once I found myself in front of Jimmy Cayne. At [the new place], I’ve never even come close to speaking to the top guys.”

According to our source, Bear’s entrepreneurial culture is part of what has kept it contrarian. The entrepreneurialism of it’s employees creates a entrepreneurialism on the part of the firm as a whole, allowing it to move against the grain and avoid some of the herd mentality that afflicts many Wall Street institutions.

But might the very qualities that have marked Bear as a different kind of Wall Street firm be those that have put the firm in a precarious position as the credit crunch spreads. In classical tragedy the protagonist typically gets laid low by pushing his virtues to far. Some now think Bear may be suffering a similar fate.

“Cioffi may have had a bit too much entrepreneurialism,” the source said. And at a time when most banks claim 50 cents of every dollar from global markets, Bear Stearns may now regret not following that particular herd into international diversification.

Bear Stearns Is Big in Bonds But Didn't Start Out That Way [Wall Street Journal]

Several death threats have even been sent to Timothy’s EliteTrader account and Trader Monthly magazine has come out in support of these disgruntled traders. In fact, Trader Monthly’s president told us that Tim is “a burnt out trader with no practical skill.” When Hedge Funnies asked why he should be put to death for this fact he told us that Sykes “was very, very disrespectful to his mother on national TV and even referred to his own religious views with negative connotations! Is this someone who deserves to be attending Trader Monthly parties? No. In fact, we believe that he shouldn’t even be breathing.”

Tim Sykes makes a startling announcement [Hedge Funnies]

Of course the Jeffrey Epstein case now involves allegations of sexual assault on a transsexual. This story has been begging for it since day one. Who is said she-male? Well, you already know her/him. That’s right, last week’s j’accusor Maximilia Cordero, who claims that she was the victim of some unwanted touching from Jeffery Epstein that she only went along with on numerous occasions because she “just wanted to be a model” was apparently “born Maximillian Cordero in 1983.”

The Post claims that Max has been dressing up as a girl since 12, and has had “cosmetic work” done to look more like a woman (which would explain the DSLs you all got so excited about when her picture first ran, but don’t worry, it doesn’t necessarily mean you’re gay) and has been taking hormone treatments for almost a decade. On one of Max’s MySpace pages, she’s checked the male gender box, and also describes herself as “a spoiled bitch and really mean.” And, no thanks to Epstein, who promised he could get her into the Victoria’s Secret catalogue if she was “nice,” Max has been doing steady modeling work, along with part time attendance at F.I.T.

Cordero’s lawyer, William Unroch of William Unroch’s Blog fame denies that his client is a man, saying, “She’s a female, and she’s always been a female,” though one might note that last week Unroch was referred to as Cordero’s boyfriend and this week, “roommate and ex-boyfriend.” Sounds like someone had a problem with his gf being a bf. In what appeared to be an attempt to bring a little humor to the situation, Unroch added, “I may also be female. I’m checking with my doctors,” though conceivably he could’ve been dead serious.

Epstein’s lawyer, Gerald Lefcourt, in an effort to top the latest revelations, kidded/predicted, “It wouldn’t surprise me if the next claim was from the Loch Ness monster,” and also made sure to add, “[Epstein]’s never been accused of [trysting with underage boys].” But since the flood gates have been opened, and Epstein’s proven to be a bad judge of “guy or girl?” in the past (no fault of his own, since the one constant in this case is that his victims were mostly ornamental masturbatory material with the occasional blow job), odds are we're about to hear from at least handful of young boys who were thrown into the mix, whether or not Epstein knew they were boys at the time. The real question is: who will come forward next—another then-underage male or one of the best-known mysteries of cryptozoology? (Our money's on Nessie. That ho's been outing rich pervs for YEARS.)

Gender-Bend Shocker [NYP]

If you're wondering how to very quickly make enemies this morning, spend sometime calling around California looking for estimates of the financial cost of the wildfires now blazing through seven counties. In 2003, when the last major firestorm struck, 3,300 structures were reportedly destroyed for a total of more than $2 billion in damages. So far we haven't been able to track down any reliable estimates of the damage done or expected to be done by the current fires.

Our questions were innocent enough. We wanted to know who the largest insurers in the affected areas are, for instance. And who are their re-insurers? What's the potential impact on the housing market in southern California? The construction industry? That sort of thing.

Based on the response we got, the largest insurers are firms we've never heard of. One was called Fuh-Que. Another went by the name of Bass-Ter. We suspect the phone companies are experiencing difficulties since many of our calls inquiring about possible trading strategies related to the fires ended when the lines seemingly went dead.

Some of the most informative news we've had on the fire has come from Herb Greenberg, who was forced yesterday to evacuate his home. It's not only informative, though. It's been moving, bringing an instant picture of the profound shock and sadness that comes from watching your home and neighborhood burn. All joking and financial considerations aside, we wish safe passage through the firestorm to Herb, his family and everyone who have felt the trouble of these fires in their lives.

Herb Greenberg's Market Blog [MarketWatch.com]

Nike to Buy Soccer-Shirt Maker Umbro for $580 Million (Bloomberg)
Back when we were youngsters, kids couldn't get enough of Umbro's checkered soccer shorts. Seriously, they were the cool thing in school. We had a couple pair ourselves. Now we're strictly Nike though. But here's a felicitous union. Nike is buying Umbro for $580 million. These days, the company mainly sell soccer jerseys, as we haven't seen the checkered shorts in a long time. Actually, we looked online for the shorts a few months ago and couldn't find much. Hopefully Nike will ramp up the volume of them again.

Oil Trades Near $86 as Turkey Says Diplomacy May Avert Strike (Bloomberg)
Turns out, the price of oil is all about the Kurds -- who knew? We thought there were all kinds of geopolitical factors, plus strait up geological factors, like pike oil. Nope. Evidently oil sank (boo! hiss!) on word that Turkey is holding out hope for a peaceful solution to "the Kurdish question". Anyone want to modify their oil-$100 predictions?

Rangel's Corporate-Tax Bill May Frame Future Debate (WSJ)
What the hell, Charlie Rangel would like to lower the corporate tax rate to 30 percent? Are we still asleep. Actually, it's not that radical. Yes, the liberal NYC Rep. would lower corporate taxes from 35 percent to 30 percent, but he'd make it up with higher expenses elsewhere. In particular, he's looking to change the tax code to penalize overseas manufacturers. All in all, sounds like a terrible idea. It's one thing when there's a level tax rate across all businesses (of course there isn't, because there are tons of loopholes), but it's another thing when taxes are used to dictate economic policy objectives. So yeah, the corporate tax rate should be lower, but this sounds like a non starter.

The personal isn't political (always) (Megan McArdle)
A good discussion of why it's silly to equate a laissez-faire policy stance with personal selfishness. And of course there's the converse, when people thing that the politically egalitarian are somehow more generous-minded.

$$$ Deals: An Uptick, but Far from a Trend
In our M&A Roundup for the week ended Oct. 21, three billion-dollar deals help the total climb, but still short of $10 billion.

$$$ Layoff League Tables [DealBook]

$$$ Get to Know Your Foxy Business Anchors [Daily Intel]

$$$ Charity for Boobs [Banker's Ball]

Sponsored by the Financial Times.

“Beating expectations.”

“Defying expectations.”

That's not just Apple's earnings people are talking about. Those are two of the phrases that people are using to talk about today’s stock market performance. The early morning reports from markets around the world, indications from the futures markets and opening bell market movements all pointed toward another day of downward facing dog on the markets. And, instead, we ended up with the tree-pose. (At least, that’s how DealBreaker’s yoga guru Bess Levin described it in our after-market meeting.)

The Nasdaq was the clear leader. It dipped deep and early but staged a comeback after the first half-hour of trading. By 10 am, it had staged a rally above Friday’s close. After a brief pull-back into negative territory, it then went on to stay afloat for the rest of the day. Around 1 pm, it hit a high of around 2754, stayed just below that level for most of the day. It closed for a gain of gained 28.77, or 1.1%, to 2753.93.

The Dow lagged most of the day, only breaking into positive territory after noon. The index’s movements closely tracked the Nasdaq for the rest of the day, albeit with only slightly less than half of the upside. By the end of the day it gained 44.95, or 0.3%, to close at 13566.97. Eighteen of the 30 Down components were higher at the end of the day than they were when it started. The S&P 500 tracked the Dow almost step for step, ending the day with a gain of 5.70, or 0.4%, for a close at 1506.33.

At the end of the day, 1,786 stocks were showing green arrows on the New York Stock Exchange and 1,459 were showing red. Volume was high near the open and the close but lower through midday. The overall effect was that volume remained at the slightly elevated levels we’ve seen for the last couple of sessions (excluding Friday), with 1.4 billion share trading hands.

Bond yields tracked the movement of the equities indexes. Early in the day, Treasuries shot up, sending the yield on two-year notes to their lowest levels since, well, two years ago. Treasuries mostly ended lower, with a small gain for the 30-year bond.

A healthy breakfast starts with FT Alphaville.

NYU was shamed into removing the name of fake hedge fund manager and convicted felon Hakan Yalincak from one of its lecture halls last week, after at least one professor called the school “stupid” and said that is decision to keep the name up “symbolize[d] the failing priorities and integrity of the university.”

The school had previously claimed that the name remained months after Yalincak was sent to prison for 3 and half years because it could not figure out a way to take the letters down without “noticeable marring,” and, for some reason, the $200,000 it was allowed to keep from Hakan (which he had stolen from investors in his faux fund) didn’t cover the “thousands” spokesman John Beckman estimates it would cost to replace the damaged wood paneling. Indeed, a walk up to 19 West 4th Street confirms that a discolored shadow spelling out “Yalincak Family Foundation” next to “Lecture Hall” (which is the room’s interim name) is completely visible from outside the building, on the other side of the street, and even more so from inside, up close.

For NYU’s part, its commitment to having fake principles is being reinforced by a security guard at the front desk who, when asked about a window that was also once graced by the Yalincak name, claimed that no such piece of glass ever existed. (Security guard: Never. DB: Ever? Security Guard: Never. DB: Ever? Security Guard: Never.)

Beckman told the Washington Square News that he and other school officials, “Wished we had made this decision earlier, [but ultimately decided] it was more important to remove a name that did not deserve to be there than to ensure the wall be unmarred.” RE: hideous eyesore, exception-not-the-rule-awesome NYU student Josh Kahn offered, “Let the sun bleach it a little.”

Earlier: You Can Get Away With Anything When You're A (Fake) Hedge Fund Manager
A year later, lecture hall still named for felon

NYU Yanks Hedge Fund Fraudster’s Name From Hall [FINalternatives]

As it turns out, everything is going to be alright. We take it all back.

The Gloomsayers Should Look Up [New York Times]

Gretchen Morgenson is one of the most aggressive advocates of shareholder voting rights proposals. Criticism of the proposals to increase shareholder proxy access only seems to strengthen her resolve. One source of this strength appears to be her spectacular immunity to argument and evidence.

One would think that advocates of a massive, centralized, bureaucracy driven overhaul of the proxy access rules would want to build their arguments on a foundation of improving the shareholder value. After all, investors don’t buy shares of public companies in order to exercise metaphysical governance rights or realize some Platonic form of ownership. They buy shares to invest, to make money. That’s why we call them investors.

And, in fact, many advocates of the new proxy access reforms do claim that there proposals would somehow enrich shareholders. (We think they’re lying, mistaken or misled, but no reason to go into that now.) But not Gret-Gret. She frankly acknowledges that corporate governance is producing amazing returns for shareholders.

“Given that this year’s stock market performance has been so stellar, most investors are probably pretty content. It is not as if shareholders have their torches in hand and are ready to storm the nation’s boardrooms,” she writes.

It's hard for us lowly editors of DealBreaker to think like a New York Times columnist. But we're pretty sure Gret-Gret thinks that this strengthens the case for increased proxy access. Because most shareholders are content, the changes “would probably not result in a mass ouster of directors,” she writes. This may be the first time in history generalized contentment has been cited as bolstering the case revolutionary change.

Of course, except in the Business section of the New York Times, most people paying attention to this issue understand that the case against the proxy access proposal doesn’t rest of a nonsense fear of the overthrow of the directors of the means of production. It rests, instead, on a respect for federalism, insights into public ignorance, the ability of dissatisfied shareholders to sell their shares and a rational fear of special interest exploitation. But to read Gret-Gret, you’d think these objections have never been raised.

But if it’s not mismanagement that’s driving Gret-Gret, what is? It seems to be a desire to achieve some sort of cosmic justice. Or, as she puts it, to ‘do the right thing.”

“Ownership usually brings certain rights, after all,” she writes. And Gret-Gret—and, of course, the employee dominated pension funds—know exactly what those ‘certain rights’ should be.

As long as we’re sticking the knife in, might as well give it a twist. Larry Ribstein points out that whatever the New York Times editors might think of shareholder democracy, the owners of the New York Times have a very, very different view.

The Owners Who Can’t Hire or Fire [New York Times]
The NYT and shareholder rights [Ideoblog]

Is there a better to herald in Black Monday than with a Tim Sykes cover story? ‘Young Money’ says ‘No.’ The magazine’s October/November issue, which hits newsstands next week but is available online today, carries an almost-1,000 word feature on America’s most famous Bar-Mitzvah boy. It is spectacular, and almost makes you think that were there to be a crash this week like the one back in 1987, the market could be rallied up to a 52 week-high by Tim Sykes alone, in matter of three days (Sykes has confirmed to DealBreaker that he is indeed capable of such a feat, though he referred to it as “just a typical day at the office”). The piece has it all, including a lede, which is this: “Timothy Sykes is no gardener, but he's an expert on hedges ¬- hedge fund investments that is.” Plus predictions (see if you can guess which one we made up but Tim has probably said before): "[The term] ‘hedge fund’ will soon be a buzz word,” "In five to ten years everyone will know what a hedge fund is,” "In ten to fifteen years, I'll be able to stop blowing myself because Stevie Cohen will be doing it for me." A definition: “In [Sykes’s] words [a hedge fund is]: a legal structure that allows you to invest in anything.” Rounding up: “In five year's time, Sykes saw profits of approximately $2 million.” Hilarity: “Sykes said he likes to think of himself as a bit of a ‘financial cowboy,’ opening up the stock market frontier for anyone who wants to explore it.” (Sykes also told DB in a follow-up IM that: CilantroFP: i feel like i'm the nxt joel Osteen CilantroFP: spreading the gospel everywhere.) Delusions of grandeur: "Everyone on Wall Street knows me now." And spin: "Losing makes me wiser.”

Wall Street’s Bad Boy [Young Money]

Worried about what it would look like having its “expert” guests moonlight on the network that just last week had Jerry Springer and Jermaine Dupri on to talk about money, CNBC executive editor Nick Dunn sent this directive to a Wall Street “strategist” and frequent commentator with whom the “serious” business channel had assumed it was in bed with exclusively, after his appearance Fox Business:

"Saw you on the new network. Please don't make that a regular thing," Dunn said in the e-mail. "We value you highly here at CNBC and we don't want that watered down by appearances on other networks."

Dunn also told the Post that he and CNBC “care deeply about the quality of our guests. [Our anchors, not so much].”

On a related note, heads are going to roll at Fox when Roger Ailes, head of the Fox Financial Network, who told the Times Saturday that “We don’t use jargon, and we don’t use analysts,” finds out that some subversive twat of a producer put a commentator with a thought in his head on News for the Stupid.

Special Guest [NYP]
Ready or Not, Here Comes the Fox Business Network [NYT]

We’ve been members of nearly every major social networking site that’s come around. One thing we’ve discovered is that social networking is a lot like dating. When you first come across a new networking site it can be very, very exciting but once the bloom is off the flower, so to speak, interest tends to wane. The stats for the big social networking sites seem to bear this out: after the initial rush of interest and time spent exploring, usage seems to die off.

So what’s wrong with social networking? Well, as The Long Tail author and Wired magazine editor Chris Anderson has explained, part of the problem is that social networking should not be a destination on the web but a feature of good websites. Flickr and YouTube, for instance, have from their beginnings used social networking in this way—turning users of other services into a social network. Especially in its early months, YouTube felt very much like a social networking community.

This leads us to something we’re been toying with for nearly a year here at DealBreaker. Our commenters and emailers are already something of a community, with many regular participants in our comments section adopting regular and instantly recognizable handles or pseudonyms such as Bulging Bracket, Random Banker, Anal_lyst, BSD and Zbignew. We’d like to take this further, allowing permanent profiles for commenters, where readers can track discussions, get in touch with each other and keep conversations going even after certain discussions have moved off the main page. Our creation of the “Recent Comments” page was the beginning of this effort but it is a mere seed for what we hope will eventually grow into a much more interesting social network, user-generated part of our pages.

[More on social networking DealBreaker-style after the jump.]

As we noted in Opening Bell this morning, another big buyout has gone the way of all mortal things. Today’s entry into the deal graveyard is the $8 billion Kohlberg Kravis Roberts and Goldman Sachs buyout of Harman International. According to most news stories on the deal, Goldman and KKR are forking over $400 million in exchange for convertible notes, Harman’s using the money for a stock buy-back, and everyone’s amicable, honky-dory, smiles and handshakes about the new deal.

But when we squint at the fine text, we’re not sure that Harman should be smiling so widely. According to the acquisition agreement, the company was due to collect a $225 million break-up fee if KKR and Goldman walked. So what’s seems to be happening is that they are selling $400 million of notes to the balking buyers for $175 million. Let’s call that a 57% discount. So Harman will now owe $400 million of principal to KKR and Goldman in exchange for just $175 million beyond what they were arguably already due according to the agreement.

But Goldman and KKR are getting more than just the notes. They are getting an option to buy the stock. Typically, a convertible note is linked to a share price that places the option currently out of the money. But if we follow through on the idea that Goldman and KKR are buying the notes at a discount, we can see that these are actually currently in the money. The $104 a share translates into 3.8 million shares for $400 million of notes. Those shares are now trading at $85, which means that the buyers have entitled themselves to $326 million of shares for just $175 million dollars.

To put it even differently, after the discount, the deal prices the shares at $59. We’re not sure that’s exactly the “vote of confidence” in Harmon that its executives are touting. Harman may now have an additional $175 million for a buyback but this seems a steep price to pay for that money.

Of course, if you figure that break-up fees are not sunk costs for dead deals because the buyers aren’t ever going to pay them anyway—a growing trend from private equity buyers, to be sure—then we guess it does sound like great deal for Harman. It’s probably just our short-sighted stinginess that makes us think in terms of additional, incremental dollars in the deal rather than the complete $400 million package.

KKR and GS Capital Partners to Invest in Harman International [Press release via Market Watch]

Though China Citic Bank Corp, the banking unit of China Citic Group, said as recently as Thursday that it hadn’t spoken with Bear Stearns about buying a stake in the awesomely declining Madison Avenue stock, nor did it plan to “in the next three months,” China’s Citic Securities Co., another unit of Citic Group*, agreed to pay $1 billion for about 6 percent of BSC (with the right to buy an additional 3.9% in the public market), and to also give Bear a 2% stake in the Beijing-based firm for $1 billion, with the option to buy an addition 5% of the company over the next five years. Sneaky! And also, pretty good news for both firms. For Citic (Securities), whose shares have more than tripled so far this year, the deal offers a larger presence in the global market, even if that entryway comes at the price of being associated with Bear Stearns. For Bear Stearns, whose shares are down 28% on the year, the deal means that there’s at least one company out there still willing to work with Bear Stearns. The odd couple is also said to be planning a venture that will combine their operations outside of China. The deal apparently came together in the last few months, though its roots can, completely unsurprisingly, be traced back to 1992, when Citic Group President Chang Zhenming first met Jimmy Cayne, while “playing cards.” (Both men, along with Citic Securities Chair Wang Dongming, are said to share each other’s philosophy of placing hobbies before actual work).

On a related note, Warren Buffett maintains that he "wouldn't touch Bear Stearns with an 80-ft pole," and that the only way you'd ever see something "so sickening" actually come to pass would be if it were the conclusion to a series of escalating dares. But he could very well be lying so...on your toes.

Bear Stearns, China's Citic to Invest in Each Other [Bloomberg]
Bear Stearns, Citic Reach Deal [WSJ]
Bear Stearns and Chinese Bank to Form Joint Venture [NYT]
Bear, Citic Strike Deal [CNN Money]
Bear Stearns and Citic enter a finger trap [Market Watch]
Citic Says It Doesn't Now Plan To Seek Stake in Bear Stearns [WSJ]
China Citic Bank: No Plan To Buy Bear Stearns Stake In 3 Months [CNN Money]
Buffett and Citic Deny Bear Stearns Talks [DealBook]

*Start at the beginning and take a shot every time I say “China” or “Citic.”

While everyone else was talking about the anniversary of “Black Monday” last week, we kept reminding anyone who would listen that it was not insignificant that the blackness of that day in 1987 fell on a Monday. The calendar may have read October 19th on Friday but today is a much better proxy for the day that the bottom fell out of the equities markets twenty-years ago. Black Monday, we think, is more like Easter Sunday—we should always commemorate the anniversary on a certain day of the week rather than have the calendar tell us that it’s Black Monday on a Friday.

And Friday was eerily close to the Friday before the original Black Monday. On that day twenty-years ago, the Dow Jones Industrial Average dropped 4.6%. This past Friday we saw the Dow down 4.1% when the market closed. The Nasdaq saw it’s worst decline since the great Glitch of February. The S&P was down 5.2% in 1987, and 3.9% this past Friday.

Anxiety is everywhere, and not least in the Chicago Board Options Exchange’s implied volatility index. The Vix has climbed back to levels it hasn’t seen since the last week of July, just when the credit and equities markets decided to take a header. And this morning? We’re all over the place this morning. A sharp decline at the open, followed by a bit of a rally led by the Nasdaq. But that was short lived and now we’re back down in slightly negative territory. Which does, we hate to point out, bear a scary resemblance to both that day in 87 and a typical Thursday happy hour for DealBreaker.

It’s completely superstitious to think that market conditions will repeat on anniversaries. What are the odds, right? This two week run-up in the Vix is probably not really telling us anything at all. Market psychology, ten and twenty month trend lines, Fibonacci numbers and, for all we know, the Da Vinci Code all say the equities market will stabilize. Merrill Lynch reports on Thursday, and it only has suffered $5.5 billion in losses from the subprime mortgage market and credit crunch, providing you believe the very people who told us in July that their exposure to subprime was “limited.”

We can’t even talk about this stuff without getting sarcastic. Oh, hey, another market uptick. Maybe everything will be alright after all.

The notion that troubles on Wall Street are starting to filter out to the broader New York City economy got a boost this morning when a real estate group released its latest rental market report showing that all average apartment rents decreased in October. The downturn in rents was most sharply felt in doorman one and two bedroom units, according to The Real Estate Group which released the report.

This marks the first time this year that average rents in Manhattan decreased. But tell your studio-dwelling friends not to get too excited—rents for studios remain stable.

Also, you may have some added negotiating room when it comes to those always painful broker fees, as landlords are reportedly giving brokers who close deals things like all-expense paid trips, overseas airlines tickets, free I-Pods and digital cameras. Why not ask your broker if you can have the I-Pod?

Actually, the report raises some questions about how that deal led by Tishman Speyer to buy Peter Cooper Village/Stuyvesant Town might be working out. Recall that Tishman partnered with the Blackrock Group and the California State Teachers' Retirement System to buy up the housing complexes for $5.4 billion just one year ago. At the time it was the most expensive real estate transaction in American history. Now the Real Estate Group reports that some of the most lavish deals for brokers—those free trips and airline tickets—are coming from Peter Cooper and Stuy Town.

Market Report [Tregny.com; pdf]

The news on Friday that a court had issued an order allowing Cheyne Finance, the London based SIV, shiv it’s creditors by ceasing payment on its commercial paper is, somehow, good news. At least, it’s good news for Goldman’s prime brokerage business, according to the Telegraph.

How’s that work? If it’s too early in the day for you to read about the sordid tales of Wall Street conflicts of interest, you may want to skip this item. Here’s how it starts: last month Goldman set up a private equity arm to invest in hedge funds, a move that is widely seen as a way of giving a boost to its already fabulously successful prime brokerage business. If the hedge fund investments earn great returns, they’ll make money. And if they don’t, the fund managers may be grateful enough for the new fund injections that they’ll give Goldman their prime brokerage business. And if that doesn’t work—if the fund managers don’t make Goldman the broker for their funds—well, Goldman can always threaten to send in a couple of redemption notices. They’ll get the message pretty quick.

It’s a standard Goldman move, the kind of thing that makes you slap your forehead in wonder that you hadn’t thought of such an obvious strategy yourself. If only you had a more devious mind.

Now hedge funds that had invested in Cheyne’s commercial paper are panicking at the SIV’s insolvency. And who is riding to their rescue? Well, that very same Goldman Sachs, of course.

Deloitte, which is administering Cheyne, has been holding talks with banks interested in rescuing the fund with new money. According to the Times, Deloitte is expected to narrow these rescue talks down to a single bidder within days. Goldman is widely thought to be the lead bidder, although the Royal Bank of Scotland is also said to be a contender. There’s also talk of a strong third bidder but we have no idea who that might be and the Telegraph isn’t naming them either.

This brings about the mind-boggling possibility that Goldman has invested in hedge funds that have invested in commercial paper issued by an entity which may soon be owned by Goldman Sachs. And you thought that KKR borrowing money from Citigroup to buy Citigroup loans to KKR was spinning things right round like a record baby, right round.

Goldman takes lead in race for Cheyne [Telegraph]

Update, 9:47 AM: It looks like even Goldman couldn’t get around to spinning things that fast. The latest word is that RBS is now in exclusive talks to buy the assets of Cheyne. “If the deal goes ahead, it will mark the first known sale of an SIV's entire book of assets, and would be an encouraging sign for other troubled SIVs that are trying to refinance or restructure their portfolios,” Market Watch notes.

RBS in exclusive talks on Cheyne SIV assets: sources [MarketWatch]

We write quite a bit around here about job cuts—mostly real although sometimes simply rumored or feared—on Wall Street. But one thing that can get lost in the news about the little cuts—a fixed income trading desk here, a mortgage unit there—is the total amount of blood-letting. How many jobs have New York based financial firms cut this year, anyway?

We got our answer this morning from a real estate news story buried deep inside the New York Times this morning. Well, maybe it wasn’t buried that deep. It was on the front page of the Metro Section but, to be frank, we don’t really read the Metro section very often.

We found ourselves dirtying our fingers this morning with Metro because we were wondering whether this talk of a cab strike would interfere with our plans to attend a party thrown by our friends in the sports ticket futures business. But what got our attention was a long story on how the slow down on Wall Street might impact New York’s economy. And there it was in black and white and smudgy grey.

“All told, financial services firms based in New York have announced job cuts of 42,404 this year,” Times reporter Patrick McGeehan writes, citing the job-placement consultants Challenger, Gray & Christmas. “More than half came in one reorganization at Citigroup, whose employees are scattered around the world, but most of the others have been in and around New York.”

We did some math in the margins of our copy of the paper on the ride into the DealBreaker bunker. Let’s say there are around 190,000 employed by Wall Street firms. (That's a rough estimate, to be sure. Broader measures of "financial firms" counts as many as three times that number.) Eliminate about 21,000 cuts for Citigroup and we’re left with 21,000 more. Half of those is 10,500. Add back another 5,000 cuts for Citigroup in New York, and we’re up to 15,500. That leaves us with about 8% of Wall Street’s workforce having been cut. Okay, we realize that we're kind of doing SIV-style math here--guessing about guesses, and then putting a firm number on it--but this should give you some idea of how deep the cuts have gone somewhere.

Not to be too negative—although we’re wearing a black shirt and taking our coffee black on this Monday morning—but this is just the beginning.

With Wall Street Slowing, Uncertainty Descends [New York Times]

KKR and GS Capital Partners to Invest in Harman International
Now this is pretty funny. KKR and GS Capital Partners have pulled out of their planned acquisition of Harman International, the maker of car audio systems. But why focus on the bad? As you can see from the headline, the press release is all positive. Rather than getting into some nasty litigation food fight, KKR and GS Capital plan to invest $400 million in some Harman convertible notes, which Harman will use on a share buyback. What a great way to spin it. Technically, KKR and GS aren't paying a straight up break up fee, since they're getting something in return. And Harman still feels loved and investment-worthy.

Japan's Brewers Taste Other Sectors (WSJ)
Interesting article about beer brewers in Japan and their attempts to diversify away from liquified fermented grains. Unlike in the US, there there's a lot of consolidation, Japanese brewers are into all other kinds of businesses. Kirin is even pondering the purchase of a stake in Kyowa Hakko Kogyo Co, a Japanese pharmaceutical player that makes cancer and allergy drugs. The move would complement Kirin's own existing pharma operations. Sapporo, meanwhile, has a pretty sizable real-estate arm. As for the beer, none of the big companies (Kirin, Sapporo, Asahi) are growing much in that respect, which pretty much forces the issue in terms of finding some new stuff.

Cabbies Plan 2nd Strike to Protest New Devices (NYT)
You know, cause it made such a big difference last time... the cabs are going on strike again to protest the new GPS/Credit Card requirements. As everyone knows, the issue is not really cost, but the increased difficulty of fudging tax numbers when everyone pays by credit card. Meanwhile, they promise that this time more cab drivers are going to participate, so they're really gonna bring the pain.

NYSE Euronext, CDC to launch worldwide CO2 trading market (AFX)
Sorry, but every time we read about some C02 trading initiative we find it to be pretty confusing. Like, there's no binding C02 reductions in place anywhere, is there? And given that, then there's technically no need to trade emissions credits, right? Seriously, someone correct us, because we'd love to know how this all works. At the moment, we just don't get it.

$$$ Fox Business Network: It's Gold! [Daily Intel]

$$$ Sandy Weill’s Vindication [Deal Journal]

$$$ The fund manager, the stripper and the missing millions [Globe And Mail]

$$$ The financials for Dow Jones in the latest takeover proxy statement provide a three-year projection that shows EPS rising to $2.25 a share by 2009 on revenues of $2.33 billion. [Footnoted.org]

$$$ Nick Grouf [WallStrip]

Sponsored by the Financial Times.

There's always a bull market somewhere. We know that's true because the guy on the television says it almost every night. But you would have been hard pressed to prove that point in today's US equities markets.

The major indexes all went down, down, down into a burning ring of fire. The Dow Jones Industrial Average declined 366.94 to 13522.02. Every stock on the index was down. The S&P 500 dropped 39.45 to 1500.63. The Nasdaq Composite Index lost 74.15 to 2725.16. On the New York Stock Exchange Friday, volume kicked up to the highest levels in weeks, with 1.75 billion shares trading hands. 524 stocks traded on the NYSE rose while 2,789 fell.

It's hard to overstate today's losses. The Dow has now retreated to its lowest levels since the Fed cut rates one month and a day ago. Citigroup, Bank of American and JP Morgan Chase, the banks behind the Entity all declined rapidly. The Broker-Dealer index was down 3.7%. Not quite the worst day ever but close enough for horseshoes and hand-grenades. That Super Siv, by the way, is not having an easy time attracting investors. Even the Europeans are shying away.

FT Alphaville is a great start for the day.

On Friday Oct 16, 1987, the Dow dropped -4.6 pct.

February 05, 2007, 06:46:59 PM Went to a lousy strip club with my friend Howard the other night. I am a super lousy customer since I never spend a dime on table dances. When I think the damn strippers are making $1000 a night there is no way in hell I am going to give them 5 cents of my hard earned money.

Now Howard on the other hand is a different story. The old bastard is 83, loves women in their 20s, and is good for a few hundred a night at these clubs. Unlike most of the younger patrons Howard is actually seriously trying to pick the girls up.

Our society is really funny. 40 years ago if a black guy dated a white woman half the population would go berserk. Now we are told it is the greatest thing since sliced bread on shows like Las Vegas or whatever. Lesbian couples are the glory of the day. So what's left.

Well folks the only real taboo left is old white guys dating young women. The rich old white corporate pigs who run the world and date all the young white girls they want have decided the only way it is ok for every other old white guy to date a young woman is if there is some sad story behind it, i.e. the guy is dying, the woman a psycho, etc. Because of this poor old bastards like Howard have to spend hundreds a night at strip clubs.

Now perhaps one day in the not too distant future the old white corporate pigs who run the world will declare it is a great thing for average old white guys in there 80s to date beautiful 20 year old white girls. When this happy day comes the rest of us poor old white guys will have something to look forward to as we get older. Frankly I much rather look forward to that then looking forward to joining AARP.

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William Unroch's Blog: My thoughts about everything and then some [AttorneysNYC]

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