$$$ How Inefficient Are Seals? [LoSC]

$$$ Insider trading is a great idea [1-2]

$$$ Rupert, Make Me 'WSJ' Chief [WSJ]

Steve Schwarzman, the head of private equity giant Blackstone, has found himself in hot water after he made some remarks at his firm’s boondoggle at Florida’s Boca Raton Resort & Club. In an early morning session, Schwarzman was noodling over Blackstone’s failed attempt to buy the mortgage company PHH, a deal that collapsed when Blackstone discovered no one was willing to lend it money for the acquisition, Peter Lattman explains on DealJournal. To illustrate just how radioactive the mortgage industry has become to financial players, Schwarzman decided to exercise his well known penchant for world history.

“Trying to buy a mortgage bank in the midst of the subprime crisis was the equivalent of being a noodle salesman in Nagasaki when the atomic bomb went off. Not a lot of noodles left, or even a person, and that’s what happened to us on this deal,” Schwarzman said.

Some are now speculating that this remark could have some serious fallout with Blackstone’s business efforts in Japan. If it does mushroom into a major issue, it could cast a cloud over Blackstone's many important Japanese connections. Apparently, some of those Japanese types don’t find noodle salesmen appropriate material for homey, jokey anecdotes.

Steve Schwarzman’s Take on the Subprime Mess [DealJournal]

Things, making money-wise, have not been going so well at Tom Hudson's Pirate Capital for a while now, but we assumed that the addition of Michael Bolton's daughters, Isa and Holly Bolotin, to payroll as girlfriends and fund managers would straighten things out. When Isa left to join Silver Point Capital in December, we were slightly nervous but held it together, confident that Holly's masterful stewardship of assets would be enough. Then Hudson got a new lady who soon became his fiance and somewhere along the line the last remaining Bolton offspring got pushed out and now all hell has broken loose:

From: [redacted]

To: tips at dealbreaker dot com

Subject: Pirates abandon ship??


Your favorite Pirates seem to be moving out of Norwalk. Put up a sign in the lobby cafe of their building selling their chairs for $500.00 and seem to be moving other desks out of the office today..

Obviously all the homeowners who read DealBreaker bought their pads in cash, but for the one or two of you with mortgages, listen up: make those payments. And we don't say this because we care about you losing your house or because we're worried about more securitized mortgage products defaulting, but because if you don't the government's going to come poking around and when they do they're going to find the grow house you set up and you will go to prison. Period. End of sentence. (On the plus side, you'll no longer have to go into the office every day with the gripping fear you're about to get laid off, but you'll also be robbing yourself of the chance to be one of the lucky recipients of a visit from The Cheeseteak Fairy, who does not make house calls.)

Foreclosed Home Becomes Marijuana Farm [USNews]

To hear the heads of Wall Street’s largest financial institutions speak, the worst of times are behind us. But a new wave of pressure seems mounting as corporate borrowers get squeezed by tightening credit and a slowing economy. High yield bond defaults are up and going higher as companies find lenders unwilling to refinance risky loans (non-investment grade lending is down 70% this year). And now companies have begun drawing down on their revolving lines of credit, sucking even more capital away from Wall Street, the New York Times is reporting.

Those of you not involved in corporate finance might not appreciate how much banks hate when borrowers draw down on revolving lines of credit. Typically a corporate borrower will have a revolver built into its larger credit facility. But unlike bond issuances and syndicated term loans, banks cannot easily hand the credit risk and capital requirements onto other investors. In short, when borrowers draw down revolvers that money comes out of Wall Street’s coffers.

Banks are already under tremendous balance sheet pressure following the $300 billion write-downs and credit losses over the past year, and the threat of corporations drawing down their revolvers could exacerbate the situation. The New York Times, in a somewhat panicky tone, notes that in a worst case scenario of massive revolver draws, banks could be forced to sell assets or raise money to cover the loans.

The banks are downplaying the risk, of course. “Even in the most volatile markets, including last summer, we have seen very few companies draw down their revolvers,” Chad Leat, chairman of the alternative asset group at Citigroup, tells the Times. “Occasions when it did happen have been unique.”

We find this completely reassuring. Banks, especially Citigroup, have proven so effective at anticipating crises in the past year that we wouldn’t even dream of doubting Chad.

Banks Fear Increased Demand for Corporate Emergency Loans [New York Times]

We don’t usually bother with trying to win polls or prizes. It’s just not out thing. We’d rather spend our energies bringing you fake Citigroup ads or reporting on the latest ways Ace Greenberg has found to insult Jimmy Cayne.

But this morning a loyal reader directed our attention to the Globe & Mail’s poll asking “Who are your five favourite finance or investment bloggers?” (They’re Canadian, so they haven’t yet learned to spell “favorite” correctly.) A host of our own favorite blogs are listed there, as well as quite a few we’ve never heard of. But it was a bit embarrassing to discover that we’re currently ranked below Canadian Capitalist, which describes itself as a “Canadian personal finance” zzzzzzzzzz.

Sorry.

We fell asleep. Where were we? Oh, right. We’ve decided we want to win the poll. So click here and vote for DealBreaker, please. Thanks.

Andrew Ross Sorkin reports that the bukkake party is officially over. A year after Fortress Investment Group's HISTORIC!!!! IPO, which lifted off at the high end price of $18.50 and proceeded to rocket out of the gates with a debut on the market at $35, the hedge fund/private equity firm has fallen to $13.64 (if you're not too saddened by the notion of Fortress no longer the splooge-fest it once was, take a few seconds to try and spot DealBook's math error*). FIG's quarterly profit dropped 74 percent, with revenue declining 54 percent to $177 million (specifically, the firm's pe funds, publicly traded investment vehicles, liquid hedge funds and hybrid hedge funds plummetd 64 percent, 33 percent, 50 percent and 93.5 percent, respectively). In more uplifting news, Fortress is rumored to be considering listing on the Tokyo stock exchange, where FIG CEO Wesley Edens has heard the business community is much more likely to have large numbers line up to buy shares on one's face.

Fortress Falls on Yet Another Drop in Profits [DealBook]

*the answer [GP]

Something strange is going on. First, we find out that Goldman Sachs's Global Alpha (which, for the last year, has been playing a parlor game with its colleagues under the Goldman Sachs Asset Management umbrella that involves seeing which fund can lose the most amount of money), was up 5.4 percent in April and 9 percent year to date. Crazy, but can probably be chalked up to the good vibes the ValueStockTips guy's been sending GS's way. Now we get the against god's plan news that a Bear fund is up. Reuters reports that BSC's Emerging Markets Macro Fund posted gains of 8.9 percent for April. A Bear fund. A fund run by Bear. A fund that Bear runs. Gained and didn't lose. Almost nine percent.

Of course, EMMF lost 11 percent in March, and 15.2 for the first quarter, so it's still technically down 7.6 percent for the year but still. This is nuts.

Bear Stearns' $1.2 billion macro hedge fund sees bounce [Reuters]

The Times, of "I'm not trying to start shit" journalism, wrote about the McKibbin lofts in East Williamsburg yesterday, warehouses at 248 and 255 McKibbin Street, inhabited by around 300 people each. For $375 a month/person (if you chose to share "a four-by-six cubby") or $530 to 800 a month (for a "cubby" of your very own), "artistically"-inclined twenty somethings get to rest their heads in spaces that one resident generously described as looking "more like doghouses than rooms", and another described as one big "public bathroom," where there's zero privacy and music blaring at all hours of the night. Other amenities include bedbugs, having your shit stolen, and being judged for watching TV, which is too commercial and inhibits the creative flow. Though most people love it at first (how could they not?), some say that after a while, the being woken up by the band practicing at 3 am, and the being mugged, and the having a 40 thrown at your head start to get old. But! It could be so much worse. According to poet Eirehan Failte:

“Even when it’s really loud, it’s still better than some terrible stock-trading roommate listening to Fox in the next room.”

Are you people going to take that? The insinuation that YOU WATCH FOX?

Young Artists Find a Private Space, Only Without the Privacy [NYT]

GLG Partners, the London-based hedge fund that's seen what it would rather you not characterize as an 'exodus' of personnel over the last month, said it "hopes" to retain a modicum of assets from the emerging markets funds run by Greg Coffey, who resigned in April, and then withdrew his resignation, and then reinstated it. At the start of the year the value of Coffey's funds was at about $7.2 billion, before dropping to $6.3 due to investment losses. Noam Gottesman, the co-chief executive of GLG who has been known to say out loud that his former employees cease to exist once they abandon him, commented, surprisingly lucidly and suspiciously calmly that the firm has received $1.7 billion in redemption requests so far, and that the worst case scenario will leave them with about $2 billion. "Obviously," we're sure he wanted to say but didn't, choosing instead to give off an impression of sanity, "it's not going to come to that, once investors get wind of this."

It's been pretty well-documented that Goldman Sachs isn't so good with the hedge funds. Global Equity Partners, Global Equity Opportunities, GSIP-- none of them can get it together. Leading the way has been Global Alpha, GS's flagship fund-- i.e. the central showcase for the unbridled abnormal genius that is Goldman Sachs Asset Management-- which impressively lost more money in 2007 than almost any other hedge fund. Which is why it warms our hearts to receive word that GA is up 5.4 percent for April, and a whopping (compared to negative 40) 9 percent year to date. We're so psyched about the turnaround that we're not even going to suggest that this is an early sentinel of destruction. All we're going to do is this:

By far, our favorite part of yesterday's New York Times story on the battle of nitwits at Bear Stearns was the news that chairman Jimmy Cayne was recently required to pay a commission of $77,000 for selling his stake in the bank. The maximum fee charged to Bear Stearns employees is usually $2,500.

Who charged Cayne that fee? Alan "Ace" Greenberg, the fabled trader who ran Bear Stearns before Cayne took over. Greenberg told the Times that Cayne was ineligible for the $2,500 fee cap because, after being forced out of the chief executive's job in the wake of subprime losses, Cayne was no longer an employee.

"I don't understand why he comes in," Greenberg says. "He is not employed here anymore."

Consumer borrowing unexpectedly surges in March (AP)
Some interesting info on the consumer front, as Americans dipped aggressively into their credit card borrowing lines in March -- at a faster rate than expected. It's a double-edged sword though. On the one hand, sure, it's a little troubling that shoppers had to put so much on high-rate plastic. But spending is spending. Better they keep shopping and run into a wall of debt than neither.

Papa John's surpasses $1 billion in online pizza sales (AP)
Why anyone would pay hard money for online pizza is beyond us. But you know kids these days: with their Facebook and its juvenile practice of gifting nonsensical items. Still, so much money in it. And Papa John's of all companies. Again, quite surprising, but if the model works, that's great.

Wave of Lawsuits Over Losses Could Hit a Wall (NYT)
This story probably hasn't gotten enough press: what will the lawsuit situation look like when this credit collapse is all over. We're still sorting out dotcom related law suits (or if we're not still dealing with them, that's a recent change), and those losses were sort of peanuts to some of the hits investors are taking here. Granted it's different -- there weren't many retail investors in risky SIVs, etc. But still, where there's a loss there's a suit.

Best Buy to Invest in U.K. Retailer (WSJ)
Best Buy and Europe's (quaintly named) Carphone Warehouse have announced a JV, whereby Carphone Warehouse will fold its stores in with Best Buys in exchange for a cash payment. The two chains will operate as one company on the continent, although the smaller footprint shops will still be branded Carphone Warehouse, while large, big-box Best Buys will still be Best Buys. We're always a little skeptical of these retail situations with multiple names and store footprints, but maybe they won't integrate them too deeply. And maybe it's time to change the name away from Carphone Warehouse. Just a thought.

Toyota's Net Income Falls 28% (WSJ)
They continue to get tripped up: A combination of a strong Yen and a rough market in the US pushed Toyota's net income down by 28 percent. Sales were up, however, a modest 3.8 percent, so the problems can't totally be pinned to seemingly top-line factors. For the coming year, Toyota says its profits will come in below expected. Toyota shares currently trade around $104, down from a high of around $140 last year.