$$$ Move to the other City [TBP]

$$$ Timothy Sykes wrote his book on how he made his millions. Have you read it and what did you think of it?

Who the fuck is Timothy Sykes? [WSF]

$$$ Who needs a job? [craigslist]

$$$ GD [WS]

New York Times business columnist Joe Nocera is unambiguous about his pick.

Although Lehman has been the number one rated equity research shop (again, according to Institutional Investor), that just shows how flawed such ratings are. Everybody on Wall Street knows that Sanford Bernstein does by far the best equity research on the Street. It tends to hire former industry players like Brad Hintz, who was once Lehman Brothers’ chief financial officer, to cover the industries they were once part of. Mr. Hintz; Craig Moffett, the lead telecommunications and cable analyst; Mr. Sacconaghi, who is the technology axe; and a raft of others give Bernstein’s research a depth — an intelligence, really — that no other firm can match.

So who do you think is the best research shop? We’ll take nominations in comments and put up a poll once we have enough suitable candidates.

So it turns out that John McCain picked Tina Fey Alaska governor Sarah Palin as his running mate.

“Sarah Palin” is probably the most searched for name on the internet right now. In the minutes after news of her selection spread, popular websites like the Drudge Report went down. The reason for this is relatively simple: most of us don’t know anything about this woman who John McCain wants to be his running mate.

The one thing we do know is that she’s been a strong proponent of drilling in the Alaska National Wildlife Reserve and wants to see more off-shore drilling. In fact, she’s said that McCain, who opposed drilling in ANWR, is “wrong on that issue.” It certainly seems that Republicans are lining themselves up as the party of greater oil supplies.

After the jump, we present a CNBC segment with Palin advocating drilling in ANWR.

Anyone need a job? You’d think the matter of canning 1,500 employees yesterday would’ve meant LEH not being up for much in the way of new hires for a while but you’d think wrong. They are back in the saddle and eager to have you and yours, Thursday afternoon’s gutting having created more than enough space to stretch your shit out. The following listing was added this morning to a certain b-school’s jobs board. Act now, before they go under.

The application of a bat wing. Hearing Pauly Shore telling you to get your life together. Having the last 18 months’ losses amount to 25 percent of your profits for the last 36 years.

Merrill Losses Wipe Away Long Time Profits [FT]

No American parent has ever looked at their son or daughter and said, “You know, I hope you one day end up being Vice President”. And yet, for all the lack of glamour the vice presidency has in the public mind, speculation over who will be chosen by a presidential candidate to be a running mate is the Olympic decathlon of talking heads, political pundits, and guys posting on blogs from their basements at 2am.

But how does this process even happen? Why do people like Katherine Sebelius or Tim Pawlenty get their names mentioned as potential running mates but people like Steve Rothman or Dave Heineman get passed over like yesterday’s lunchmeat? And does any of it give us an idea of how the candidate on the top of the ticket will govern?

To get some answers, we sent asked Dan Gerstein, someone who has a lot of familiarity with a vice presidential campaign. Gerstein worked with Senator Joe Lieberman for a decade and was Lieberman’s national spokesman for the 2000 VP campaign. He was also the brains behind Lieberman’s successful re-election in the heated 2006 Senate race in Connecticut. Gerstein was written several op-ed pieces for the Wall Street Journal (including this one on Wednesday) and appears on MSNBC, Fox News, and NY1. Gerstein now supports Barack Obama for President though Lieberman was considered to be one of the top contenders as John McCain’s running mate.

PartyGaming poker slowdown prompts downgrades (Reuters)
This year’s slowdown in Las Vegas casinos was easy to see coming: Casinos aren’t really gambling houses anymore, they’re resorts, and resorts are vulnerable to economic cycles. But maybe people are, wait for it, in a less gambling mood. PartyGaming, the European online casino, says poker is soft. As in, people are playing it less. As in they’re board of it (maybe). Or maybe they’re just tired of losing. Or maybe televised poker is in decline, and fewer people imagine themselves to be the second coming of Doyle Brunson. Anyway, something to watch.

GM says automakers deserve $50 billion in federal loans: report (Reuters)
Ostensibly the money will be used for alt-energy research. Or at least fuel efficiency. That Detroit would want these Federal loans is totally predictable. In fact we’ve seen a lot of folks chattering about just this in the last few days. Judging by the political rhetoric we’ve heard from both candidates, this certainly sounds like something the next President could accept.

Microsoft to Acquire Greenfield Online Including Its European Subsidiary Ciao, a Leading European Price Comparison and Shopping Site
Interesting deal: MIcrosoft is buying Greenfield Online and then selling of Greenfield’s core business: online surveys. Instead they’re mainly buying it for Greenfield’s European comparison search business. Not clear who they’re selling the surveys business to.

Worker Assets Shrink at Fannie and Freddie (NYT)
Kind of obvious: Workers at Fannie and Freddie have seen their savings take a major hit. That’s how’ it’s been at plenty of other major financial firms since the industry went into its downdraft. But the article starts off this way: “Fannie Mae’s workers had $116 million in the employee stock ownership plan at the end of 2006. Today, it’s more like $17.5 million. Ouch.” That’s a big drop, but, um… $116 million in 2006? That a very tiny sliver of the company owned by the employees. Granted it’s not a bank like Bear Stearns or Lehman, but maybe it’d be better if employees had a little more skin in the game. Then again, more evidence that these ostensibly private corporations are more akin to gummint bureaus than anything else. And of course, high levels of employee ownership hasn’t really done wonders anywhere else lately.

Growing Cynicism Around Going Green (PC World)
More evidence dribbles in that Green is not in. This time it’s about “green” energy-efficient IT. There have also been reports of Priuses (Prii, har!) becoming available. And somewhere else we read that green branding was losing its effectiveness. Just some stuff to watch out for.

$$$ Virgin Airlines Offers “Entourage Experience” For Closeted Junior Investment [PSI]

$$$ Is The Long Arm of the Crab Extending to Overland Waste? [LoSC]

$$$ Russian Roulette [NYP]

Reuters has now chimed in on the Lehman Brothers layoff rumors, saying 1,200 folks will lose their jobs. This puts them right between the New York Times estimate of 1,500 and the Bloomberg story putting the number at 1,000.

(Also, this is weird: the Reuters story is timestamped 8:53 PM but it’s up now.)

Have you picked up your copy of “Damn It Feels Good To Be A Banker?” It’s the book by Amit Chatwani, who is better known as the proprietor of the Leveraged Sellout blog. A couple of weeks back we ran an excerpt of the book, which is written in the voice of an egomaniacal banker that will be familiar to LSO readers.

As DealBook’s Andrew Ross Sorkin pointed out, it’s like a blast from the last deal boom. There are no layoffs, no bank failures, just ballers, bottles and babes. “If you can get over the juvenile humor and some cringe-worthy moments, you can transport yourself back to pre-2007. It might make you smile at the beach this week,” Sorkin wrote.

And now Chatwani has produced a video to accompany the book. It’s an epic hip-hop battle between a consultant and an investment banker. After the jump, watch the suits and the khakis throw down.

A San-Fransisco based hedge fund manager inspired by Goldman senior exec-cum-landscape architect Mark Spilker’s arbitrary and unilateral decision last year to cut down neighbor Jim Chanos’s shrubs is going downtown. Derek Webb, who runs quant shop Web Capital Management, was found guilty of vandalism for taking it upon himself to trim the trees at a state park adjacent to his vacation home, after officials caught him, I shit you not, hacking away at branches with a chainsaw. Like Spilker, Webb claims he was merely trying to make the path more user friendly. Unlike Spilker, who mostly got off for the crime, Webb has been sentenced to five days in prison. Though we’re sure Chanos has long moved on from the incident, we personally wouldn’t mind seeing the Webb ruling setting a retroactive precedent and Spilker spending a couple days in the big house, as it would teach him a lesson about entitlement, and undoubtedly be hilarious, for all involved (especially the first year dispatched for conjugal visits).

Hedgie Gets Jail Time For Trimming Trees [FINalternatives]

Relax. Steve Jobs is not dead even though you might have read his obituary yesterday on Bloomberg. The financial news service was updating its obituary on Jobs and accidentally published it on its wires.

“It was momentarily posted on the external wire, in error, and immediately deleted (within thirty seconds),” a spokeswoman for Bloomberg told DealBreaker.

It’s not likely many were fooled into thinking the head of Apple was dead. It was full of blank spaces marked “TK” and “XXXX.” The obituary contains notes on who to contact for comments on the death of Jobs. Named are Steve Wozniak, Larry Ellison, Al Gore, Bill Gates and Eric Schmidt, among others. So now Jobs knows who he should suck up to if he wants them to say nice things about him when he’s dead.

The subheads tell you most of what you need to know. The first is appealingly morbid: “Time Is Limited.” The rest read: “Change the World” “Mac” “Reality Distortion Field” “Sugared Water” “`Toy Story’ Success” “Back to Apple” “We’re Back” “Backdated Options” “Common Bug” “Great Work.” Gotta love that sequence of back, back, backdaing, bug, RIP. (Gawker posted the whole thing here.)

Just in case this happens again, we suggest you check here for updates on the vitality of Jobs before trading.

The story also contains a canned explanation of the likely drop in Apple’s stock. After the jump, read why the stock drop “is no surprise to investors and analysts.”

For the last two weeks we’ve been hearing rumors of layoffs at Lehman. Last week people at Lehman were saying that layoffs were expected to come this week, before the Labor Day holiday. Now Bloomberg is reporting that “people familiar with the matter” estimate that Lehman will cut as many as 1,000 jobs. The good news is that Bloomberg’s sources say the Lehmanites will hold on to their jobs for a little longer, at least until Lehman announces its third-quarter financial results.

Why would Lehman hold off? We’re told that Lehman is afraid of sending out signals about the size of its losses ahead of the third-quarter financials. The idea is that if the layoffs cut deeper than expected, investors may assume that they reflect bigger than expected losses. Better to announce the news all at once.

Update: The New York Times says 1500 employees, or nearly 6 percent of its work force, will get the axe before the third-quarter results are in.

Lehman Said to Be Poised to Eliminate as Many as 1,000 Jobs [Bloomberg]

Speaking of reasons you should asked to be fired: it wasn’t included in the recent treatise on how a ban on color copies will make up for zillions in losses, but the paper at Citi’s 390 Greenwich Street “mysteriously went from went from double to single ply last week.” Not to give Vikram any ideas (yeah, he’s a reader), but can we get some guesstimates on how long it’ll be before C goes BYOTP?

Earlier: Cost Cutting At Citi All Part Of Master Plan But Not The One You Think

According to a well-caffeinated incoming analyst at Bearpont Morgan Chase, Jamie Dimon’s henchmen in HR fired at least a handful of new hires for falling asleep during training to make up for last year’s overhiring.

Dealbreaker commenter 1-2 has been fired from his job at a gilded bulge bracket, for his side gig as the proprietor of the 1-2 Knockout blog. Unsolicited advice to all: call in sick, and don’t give them a reason to fire you.

Related: Citi To Return To Profitability One Fired Blogger At A Time

Are we headed back to the old New York City of Travis Bickle the Taxicab Driver and Lolitish Jodie Foster? That might seem impossible to many of you who never experienced the old New York. But when Wall Street ran into problems in the seventies, things very quickly deteriorated for the rest of the city. After the jump, the BreakingViews crew looks at some dark possibilities.

The Wall Street Journal reports that Lehman Brothers recently apologized to clients for ripping off parts of a Sanford Bernstein research report without attribution back in March. In a note sent last week, the bank admitted that the research in a paper on the semiconductor industry “closely resembled” that of analyst Toni Sacconaghi. A Bernstein spokesman told the Journal the firm “greatly appreciated the letter,” which both informed clients of the plagiarism and begged for Bernstein’s forgiveness. So it’s all water under the bridge now but clearly this is the kind of stuff we have to look forward to. You know as well as I do that if Lehman weren’t currently in a shitstorm of its own making, it wouldn’t be apologizing to anyone. They’d be dicks about the Bernstein thing, just because they could. Now that they’ve changed their ticker to TNB (The Next Bear), and no one wants to be associated with them, they’re going on a bender, apologizing for everything, even shit that wasn’t their fault. Over the next couple weeks, watch out for:

- An official apology to Einhorny for registering the address ‘meddling bastard’ (all one word), at Yahoo dot com, adding his signature to the bottom and sending out 2 AM emails extolling the virtues of barnyard animals.

- Late night calls attempting to get back in the good graces of Joe Gregory and Erin Callan

- Mea culpa fruit baskets to the two Coreys for ruining their careers

- A public apology and year’s supply of Junior’s cheesecake to SAC for getting in the way of the HFs plan to take them down, and foiling the plot to go 2 for 2*

Lehman’s ‘Mea Culpa’ [WSJ]

*That’s Lehman talking, not me. Personally I love SAC, and Einhorny, as well.

Could the DC Circuit which held that the Sarbanes-Oxley accounting board didn’t infringe on constitutional separation of powers rules have been sending a signal to Congress to fix the law? That’s what law professor Larry Ribstein thinks might have been going on.

[T]he DC Circuit figured that by upholding SOX with a strong dissent, it might be sending a message to Congress to amend to eliminate the problem. The court thereby avoids the chaos that would have ensued under the alternative holding of declaring the PCAOB unconstitutional. Because SOX lacks a severability clause, the effect of that would be to invalidate all of SOX and throw the whole thing back to Congress.

That’s right. With out a severability clause, Sarbanes-Oxley might be completely struck down by a court finding fault with even a minor part of the law. As we explained earlier this week, the creation of the Public Company Accounting Oversight Board may be in trouble if the issue reaches the court, which could put the whole of SOX in jeopardy.

Sears Holdings Reports Second Quarter Results
It’s always fun to check in on our favorite hedge fund/retailer that posts weak earnings every three months… Not surprisingly, earnings were down pretty sharp, over 50 percent, due to the economy and just general stuff. The good news: Sears is making progress on getting its inventory down, and it expects higher EBITDA in the second half of the year. It’s actually getting boring talking about these guys. And yes, we realize it’s not a hedge fund.

China and Iraq Reach $3 Billion Oil Service Deal (NYT)
Huh. A big state-owned Chinese oil company has reached a $3 billion deal to service an oil field. It’s the Ahdab oil field for those of you keeping track at home. That’s great and all, but you have to wonder whether it was worth liberating Iraq from the clutches of an evil dictator only to see these oil deals to go other countries. You know?

Gold: The alternative retail investment (FT Alphaville)
Awesome: Apparently in vogue they’re flogging some kind of gold-tipped fur, kind of as an investment or something. Or maybe a hedge. You know, it’s one of those classic ‘signs of a top’ that will make for a perfect anecdote in a book, if gold is near it’s top. If not, it’s just an amusing story.

The monetary density of things (Evil Mad Scientist)
Speaking of gold and valuable stuff, we totally haven’t been able to get enough of this blog post we came across, which looks at the value of 1 Lb. of various items, from zinc, to peacock feathers, to Marijuana, to saffron, to anti-matter (1 Lb=$26 Quadrillion). Seriously we could just stare at it all day. One interesting note: A pound of dimes is=a pound of quarter=$20. Others we’ve shown this to are amused by the fact that a gram of cocaine is worth $50, and that a $50 bill weighs a gram.

$$$ “Paying $11 million to never hear from your father-in-law again is a great deal”— Steve Schwarzman [NG]

$$$ Fannie, Freddie and the Low-Risk-Investment Myth [Deal Journal]

$$$ Free coffee from Portfolio tomorrow at 30 Wall Street from 7-10 am.

$$$ An Interest Rate What? [Crossing Wall Street]

If you’re thinking that now might be a good time to get off Wall Street and lay low by applying to business school, you aren’t alone. Applications to business schools are booming. “It’s the second-largest year-over-year surge in applications to full-time programs since 2002, and the highest level of increase in five years,” Business Week reports.

The sharpest increase is in mid-tier business schools. Penn State’s Smeal College of Business, saw a 39% increase in applications, for instance. But even MIT’s Sloan School of Management and NYU’s Stern School of Business saw double digit increases in application volume.

Sagging Economy Boosting B-School Programs [Business Week]

“Rob Levin has touched virtually every part of this company,” CEO Dan Mudd said.

Fannie Mae CEO Dan Mudd Announces Management Restructuring to Drive Capital Management and Credit Loss Reduction Plan [Fannie Mae]

We’ve always wanted to be friends with Blackstone co-founder Pete Peterson because he’s sure to have some side-splitting tales about watching Steve Schwarzman try to masturbate and/or sleep in a water bed, two activities which, anatomically speaking, are damn near impossible for SS to do. The whole him being loaded thing was secondary, and besides, who’s to say he’s not one of those super cheap billionaires who insists on dividing up the bill according to what each person ate when out to dinner with friends? Recent news, apparently. The Observer’s Max Abelson reports that Peterson just bought his pal Leslie Gelb a little apartment on East 69th Street and there was nothing in it for PP. Wasn’t anything too flashy, just a $3,040,000 co-op, but he knew living in squalor would make Gelb and the family happy.

“It’s perfect for them,” Mr. Peterson said. “It’s not a large apartment—has kind of a small dinning room and a small living room, and I don’t know whether there are two bedrooms or three but they’re rather small. … What I really like is that they like it.”

What a Mensch! Pete Peterson Buys Pal Les Gelb a $3 M. Co-op [The Observer]

New Wachovia CEO Robert Steel vowed to turn things around at the bank and he was not kidding. He started with morale boosting pep rallies and marshmallow tower building competitions, and now he’s moved on to a not even necessary capital raise that, while probably dilutive to current shareholders, is sure to wow the crowds with Bobby’s out of the box thinking, no doubt honed during his time at Goldman Sachs.

Florida-based BankUnited Financial Corp (huge in the option ARM biz in South FL) is down 83 percent YTD. The Office of Thrift Supervision, it’s hilariously named regulator, may lower its capital rating. The humidity in Miami is unbearable this time of year. All signs point to fail. David Bishop, however, refuses to come out and say it. The Stifel Nicolaus analyst instead downgraded the firm to sell and danced around the whole thing, writing that the “viability of the bank is increasingly fraying…[and while it] may yet be successful in finding private equity capital to forestall additional regulatory sanctions, we believe there is a good enough chance that this will not come to pass.” It’s unclear whether Bishop has a longstanding history of not JUST SAYING IT: YOU WILL FAIL, or if his skittishness is a recent phenomenon having something to do with the bank down the road suing everyone’s favorite woodland creature for having the pair to do just that.

Related: BankAtlantic Sues Bové

Stifel cuts BankUnited to sell on capital concerns [Reuters]

The topic: FNM and FRE merger. And: Should Bernanke shave it off?

*PLEASE NOTE: In case you did not get it from the headline, this is a rumor. Our sources, while credible, aren’t even sure it’s true. They received it as a rumor and we pass it on to you as the same. It could be totally false, it could be totally true. Who knows? It’s all relative.

**Except for the bit about Bernanke. That debate is actually happening.

Sovereign Bank, which is based in Philadelphia, recently sent out a letter to customers disclosing that the bank owns large amounts of preferred stock issued by Fannie Mae and Freddie Mac. At least one customer in New Jersey reacted to the letter by running to the bank and withdrawing her deposits. We know this because we overheard her tell her friends this story in a barber shop this morning.

Even without sparking bank runs, the shares of many regional banks are suffering because of the risk that they will have to writedown their holdings of Fannie and Freddie preferred. Felix Salmon at Portfolio asks the obvious question: “what on earth were these regional banks doing holding the GSEs’ preferred stock in the first place?”

It turns out that banking regulations and tax rules encouraged banks to buy Freddie and Fannie preferred stock. Regulators require to banks to maintain a capital cushion against losses on loans. This capital requirement can be met by holding cash or cash equivalents and certain investments that were considered relatively risk-free. The preferred stock of Fannie and Freddie was one of the highest yielding investments banks were allowed to hold to meet capital requirements, according to a person familiar with the matter.

Tax rules also made holding the preferred stock of Fannie and Freddie attractive. The tax code allows banks to exclude 70 percent of the dividends received on preferred stock from taxable income. The Fannie and Freddie preferred historically paid a high dividend, making this even more attractive.

Tommy Kim, 27, formerly of UBS, for example, logged 37 days of snowboarding in 2008 after being fired last January. “When I got laid off, it was like, hallelujah,” he said.

After the snow melted, he came back to New York, where “I went paint-balling,” Mr. Kim said. “I went to Six Flags.” Now: “I stay up late, wake up late, go to the beach a lot. I play a lot of video games when I can’t find people to hang out with.”

Recently, Mr. Kim turned his attention to organizing his vast music collection and playing DJ gigs around town, including a Saturday party at the Brooklyn Museum and a few weddings (he was a well-known DJ during his undergrad days at Dartmouth). He’s also taking break-dancing classes. And he built himself a new computer, just for the hell of it. Looked up the instructions online, bought the parts, et voilà!

And his job search? “I’m kind of looking,” Mr. Kim said. “I decided last week maybe I should be more proactive.” It’s hard to get worked up, though, because “President Bush extended unemployment by another 13 weeks!” That’s $405 a week on top of the “generous” UBS severance.

Bumped Bankers Go Bonkers [Observer]

Good news and bad news. The good news: it’s time to start talkin’ bonuses again. It’s been a while, so this feels great. The bad news: a gaggle of Goldman Sachs employees in Equity and Equity Derivatives will not be purchasing those second homes they’ve had their eyes on this year. We’re told GS is guiding comp down by about thirty percent, which probably means the great performers will be flat and the bottom third— the least Sachy of the bunch— will get hit by forty percent or so. While our default is to get irate about this sort of stuff, relative to the non-existent bonuses that’ll likely be dolled out by the other banks, it’s really not that big a deal.

Kind of a big D however, is that Goldman Sachs IS GOING UNDER, and we’re only slightly exaggerating. According to the bearer of bad bonus news, “they are having a terrible year and the past month has seen business in many divisions— Eq and ED especially— grind to a halt. While that typically happens in August, I know for a fact that other dealers have not seen that dramatic of a drop off.”

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Lehman Brothers has narrowed the bidding on its asset management business to three private equity firms — Kohlberg Kravis Roberts, Hellman & Friedman and Bain Capital, according to the Financial Times. Blackstone and Carlyle are out of the running.

Private equity groups in running for Lehman unit [Financial Times]

Heineken first-half profit climbs 35% (MarketWatch)
Breathe… Heineken turned in a solid quarter. People are still drinking alocohol. The world’s third biggest brewer said revenue was up 17 percent, though only 7 percent on a comparable basis. Two good trends for the company: Consumers are going for higher end brews (presumably because everyone is in one of those phases where they look down on cheap beers) and the company is able to pass along costs. No doubt hops prices are expensive, given the global absence hops producers we talked about yesterday.

The Hillary Moment (WSJ)
How about we just go back to the same well as yesterday and make a joke about how Hillary must’ve done a good job, because stock markets are up, and the markets obviously fear an Obama Presidency, because he doesn’t believe in low-tax, pro-growth policies, like McCain does. Actually, it was a solid speech as long as you ignore any of the, you know, substance.

Oil rises above $117 on concerns about Gustav (AP)
You know the free fall in oil is done when you see stuff like this. Ok, maybe traders don’t really care at all about hurricane Gustav — entirely possible. But these small bumps in prices are a much different story than a few weeks ago, when not even the Russian invasion could unnerve the markets.

Macquarie: The ‘great unwind’ is coming (FT Alphaville)
Interesting how things have changed. Well, that’s obvious. Things have changed for every one of the banks and institutions we’ve been covering for the past 2.5 years. But in the early days, Australia’s Macquarie was definitely one of the interesting ones we followed — it invested daringly in big infrastructure deals around the world. You know, airports and water works and public highways. And now things aren’t going to well, with its stock down and various financial instruments getting out of whack. A good read of how things have fallen.

$$$ Get out of here [DealBook]

$$$ Sam Waksal spotted in the wilds [The Business Sheet]

$$$ Best Buy [WallStrip]

Federal Deposit Insurance Corp data released this afternoon show 117 banks and thrifts were considered to be in trouble in the second quarter, up from 90 in the prior quarter. That’s being headlined as the worst number since 2003 but it’s even worse than that. At the end of 2007, there were 76 banks on the list. In the first quarter we added 14. In the second quarter, we added twenty-seven to the total. (Actually, its worse than that since the actual failed banks are taken off the list, meaning we’ve added more than the total indicates). In short, the deterioration of banks is accelerating.

Even if you claim to have no interest in quitting your job before you eventually get fired and continuing to live the sweet Murray Hill lifestyle you’ve grown accustomed to by being made the kept boy of a rich older woman, surely you can admit that there’s some entertainment value in watching others go down that path. Which is why we suggest looking out for “Cougars: NYC,” a reality show now in development that will give us an insider look at life as the hunter and the hunted. God knows when it’ll air— presumably after the tears dry— but the producers held an open casting call last week at Libation, so you know it’s going to be good. According to pussy (cat) Dawn Ellison, who maintains a blog about banging younger men, the series aims to “shatter stereotypes that surround cougars and cubs.”

Not content to sit this one out but unsure where to turn? We suggest RSVP’ing to UBS’s September 9th Hedge Fund Client reception at L’Escale. It’s been internally dubbed a “cougar hunt” and Andrew Cuomo is said to be attending so the upper limit should be almost unfairly high. Consider it good practice.

Related: The Saddest Story Ever Told

Meat and Eat [NYP]

Invite [UBS]

Banks who bought short-term bonds sold yesterday by the government chartered mortgage giant Freddie Mac may have also boosted their own balance sheets by strengthening Freddie’s preferred stock.

A federal appeals court, in a 2-1 split decision announced Friday, held that the accounting oversight board created in 2002 as part of the Sarbanes-Oxley reforms is constitutionally permitted. The decision has been described as a victory for supporters of Sarbanes-Oxley and the Public Company Accounting Oversight Board. But it may in fact be its last gasp.

“Our bet is that federal high court can, in its wisdom, be counted on to reverse,” the editorial writers at the New York Sun write. “We give it a year before the Nine tell American businesses that they are free to produce a little more and audit a little less.”

After the jump, we explain why the Sun is probably right.

What do you think the destroyer of all worlds/marine life/investor capital is feeling right now?

Cityfile reports that Jim Chanos has closed on a triplex at 3 East 75th Street (neighbors!). Chanos paid $20.365 million two months ago for the 7,800 square foot space. In the same way that rich people often have so many rooms they don’t know what to do with them all and end up devoting one to a single activity such as the Gift Wrapping Room, Chanos’s abode will include a 20x20 reserved specifically for candle-lit Ouija board sessions (really not that frivolous when you consider that it’s an integral part of the short selling biz. There will also be a guest bed for Alfred Winslow Jones, often summoned in the O-room during idea sessions (slumber parties) with the boys (Einhorn, Ackman, Tilson).

Related: The “Wizards” Of Short Selling

Joanna Shields Buys, Jim Chanos Closes [Cityfile]

Citi announced a slew of cost cutting measures today, all aimed at reversing the bank’s declining revenues and getting rid of the sad trombone that plays on loop in the lobby. A ban on offsite meetings, mandatory use of both sides of the paper when printing, and the curtailment of color copies (which will be enforced by physically removing many of the building’s color copiers, because apparently you can’t be trusted*) are all on the list of behaviors that will no longer be tolerated. At first glance they come off as merely asinine rules that won’t amount to jack. This assessment could not be further from the truth. In fact, we expect that they will contribute to the exact intended outcome senior execs at Citi are hoping for.

Look, Count Vikula isn’t stupid. He’s aware of the crippling adversity faced by Citi, and has come to terms with the fact that profitability and success are just not in the cards. Rather than spend the next few years beating around the bush as the stock drops to ten (two? whatever), he’s decided to take the next few months to sink this thing and pack it in. While he could get Jimmy Cayne about things and get it over in a matter of weeks, Vikram is smarter than that and realizes that at the end of this folly, there’ll be more loot in it for Vickie if he can’t be held directly accountable for the bank’s failure. Which is why he and the brain trust came up with the initiatives above, along with “no more computers,” “no more for pay market data,” “no new Blackberries,” “no food,” “no fun,” in an effort to get all of Citi’s employees to quit (let’s be honest— they’re not in it for the prestige). Then VP will shrug his shoulders and make a face as if to say, “Well I did everything I could,” board the place up, and finally take over the role he tells friends and family he was born to play: Morgan Stanley CEO. (More on his plans for John Mack later.)

Citigroup Limits Meetings, Pares Color Photo Copies [Bloomberg]
In Trimming Expenses, Citi Holds Back on Color Copying [Dealbook]

*Not unlike “Non Client Travel.” To wit: “We previously asked that non-client travel be limited to trips which are truly essential. However, it seems that we are not consistently adhering to that policy. Going forward, all non-client travel will require pre-approval. As an alternative to non-client travel, I encourage you to make use of our audio and video conference capabilities.”

This morning everyone is passing around the Temasek report, in which Singapore’s sovereign wealth investment fund indicates that it still “sees value” in banking stocks in the US and Britain. Wall Street is acting like a girl who just found a crumpled note in a school desk with her name inside a heart. But before it swoons too deeply, it might want to check the other initials in the heart.

Temasek insists it’s not a sovereign wealth fund. It’s more open than many sovereign wealth funds, and more independent when it comes to investment decisions. It also claims that it is now a sovereign version of a closed end fund, unable to tap the state treasury for new funds. But it is 100% owned by the Sinapore Ministry of Finance, and suffers from many of the problems of state investment funds.

The one we’ll focus on the fact that Temasek probably has too much money to invest. It has far more assets than is necessary for hedging government portfolios against cyclical downturns. It would arguably do better to return a large portion of its wealth to the people of Singapore as a dividend, where individuals at different stages in their lives could spend and invest the dividend to suit their needs.

The over-supply of funds, together with Temasek’s compensation structure (executives have long-delayed bonus structures), encourage long-term risk taking that wouldn’t be acceptable for most investment funds. Temasek needs investment opportunities and when those are scarce, its portfolio managers need to look pretty deep into the chasms of the market. Given this structure, Temasek’s bets on US financials, such as its decision to at to its $5.9 billion investment in Merrill, is hardly a sign that US financials are likely to recover any time soon.

For more on Temasek’s financial company investments, see FT Alphaville’s take.

It’s Tuesday, which means it’s time for our weekly lesson from New York Time’s wonderboy and DealBook editor Andrew Ross Sorkin. (We used to called this column Andrew Ross Sorked Educates Dealbreaker, ARSED, but we got bored of that joke.)

The initial entries are on Lehman Brothers. First, he says the Fed won’t let Lehman die, especially since CEO Dick Fuld is a member of the board of directors of the Federal Reserve Bank of New York. (The head of Bear Stearns was not a director.) Next up: the news that buying Neuberger Berman from Lehman will cost a lot more than the sale price, since any buyer will have to pay through the nose to keep its brokers.

For his final Lehman item, Sorkin slaps down the great bullish rumor that moved markets last week. You’ll recall it began with a story in Reuters about the Korea Development Bank considering buying Lehman. By Monday afternoon the story was dead, as various people stepped forward to deny it. Quite early on we said the story seemed like a bungled translation. Sorkin agrees, and draws attention to his favorite theme: loose tips sink move markets: “Nuance can often get lost in translation, and who knows what was really supposed to be in those brackets. But the episode illustrates just how fast both good and bad information can move the markets.”

Lehman’s Woes Haunt the Last Days of Summer [New York Times]

US stock futures edge higher after volatile sessions (MarketWatch)
Who knows if this will hold by the time you read it, but evidently stock futures are pointing uppish. Allow us to put on our Larry Kudlow hats for a sec and explain why: Michelle Obama didn’t close the deal with America. The upshot: The market is now pricing in a John McCain victory and likes what it sees. Lower taxes, more freedom, faster growth. What other possible explanation could their be? That’s right. No explanation.

Florida tops 1Q mortgage fraud list (AP)
This is not surprising… Florida is already a key location of the housing bubble. What’s more, Florida tops every fraud list. Hello, Boca Raton? Clearwater? These cities are to fraud what Hungary is to Paprika. It’s an industry. Plus, doesn’t Florida have really lax mortgage/bankruptcy laws as it is?

Rio Tinto bolsters defences with record profits (FT)
Oh, this is still going on? Apparently so. BHP Billiton still wants to buy base metal miner Rio Tinto. And Rio Tinto is still trying to avoid it. The good news for Rio: It’s doing fine on its own. The company just reported record profits, up 55 percent for the first half of the year from the year-ago period. Chairman Paul Skinner said demand from China and India bore credit for the strong results.

Big squeeze hits Chinese oil giant PetroChina (AP)
But not everyone who pulls industrially useful commodities out of the earth is doing quite as good. AP offers up a preview of PetroChina’s earnings, which are expected to drop by about a third on refining losses. The report also notes that the company is no longer a $1 trillion firm… though it never really was. That was mainly a brief anomaly based on a small float in China, where shares briefly traded totally out of whack.

$$$Deals: A Transactional Patchwork
In our M&A roundup for the period ended Aug. 24, top deals involve banking, insurance, and defense, with energy and natural resources accounting for much of the rest. [CFO.com]

$$$ Carl Icahn hates, hates, hates Marty Lipton. [Icahn Report]

$$$ Tudor Jones’s quant fund beats Simons [NYP]

$$$ Analysts: Winging it. [IHT]

Geoffrey Raymond, the greatest artist of our time, will be displaying his latest masterpiece tomorrow behind Goldman Sachs (near the service entrance?) and Wednesday at the NYSE. For those of you who’ve got something to get off your chests, the rules are as follows: blue pens for Dems, red pens for Repubs, invisible ink for Ron Paul supporters.

Shares of Freddie Mac are soaring today, up more than 20 percent right now. The rise is being attributed to Freddie’s success in selling $1 billion of three-month and $1 billion six-month notes in a weekly auction, which has supposedly eased fears that the government sponsored mortgage company would have trouble financing its ongoing operations. But today’s debt sales may not be the endorsement of the financial health of Freddie Mac from bond investors that many believe it to be.

The pricing on Freddie Mac’s three-month notes was about 90 basis points more than similar-maturity U.S. Treasuries. The spread on the six-month notes was about 92 basis points. Last week the spreads were 61 basis points on the three month notes and 80 basis points on the sixth month.

The big boost of confidence in the shares, however, seems to have come from the fact that there were more bidders this time around, or at least bidders seeking more of the Freddie notes. Of course, the higher pricing is attractive to some bidders. But there may be a more technical and less transparent reason for the increased demand.

We don’t know who bought the Freddie notes today. But buyers of Freddie notes who have access to borrowing from the Federal Reserve would have found the decision to bid relatively easy. That’s because the ability to exchange the Freddie debt for Fed cash means banks can buy Freddie debt with a huge amount of leverage, dramatically increasing the return on their capital.

Here’s how it works. A bank that bought the six month notes from Freddie this morning could also bid to borrow from the Fed’s Term Facility, which held an $75 billion auction today. As collateral for the borrowing, the bank could offer the newly purchased Freddie notes, for which the Fed would give them credit for 97% of their market value. Recently, the TAF pricing topped out at 2.35 percent for 28-day borrowing. So a bank buying $100 million of Freddie paper yielding 2.858% could flip it to the Fed, borrowing $97 million at around 2.4% (assuming the pricing will be slightly higher this time around).

At the end of the day, a credit desk could buy $100 million of Freddie debt for just $3 million down. On that $3 million, the desk would receive a 17.7% annualized return, or 8.8% over six months, for paper that is thisclose to being explicitly backed by the Treasury Department. Not a bad deal at all.

So, okay. One of you, we’ll call him Reader J. as that is his name, writes to us good and worked up about a matter of dire importance. Normally we like to let you fend for yourselves (we’re trying to raise self-sufficient men here) but we get the distinct feeling J’s about to blow a gasket and in this case will make an exception in an attempt to talk him down from the ledge. For future reference, boys, please note if you haven’t already that it’s generally best to call us third or fourth when it comes to emergencies, with Vikram Pandit and RuPaul (203-890-2000) clocking in at one and two. We, like Dick Fuld, are not good in crises. We’re just not. Anyway, J. writes:

DealBreaker, At my current office (a law firm) and at my former office (a trading floor), we have occasionally discussed undershirts: crew-neck versus v-neck. I don’t know when it became acceptable to wear a dress shirt with a white t-shirt crew neck peeking out at the collar. Was it a response to the death of business formal? Is it a carryover from frat fashion? Or is it that men are no longer comfortable showing any chest hair that might otherwise be visible with an unbuttoned collar? Perhaps there are others out there who witnessed the trend’s inception first-hand. Could you post an item in the Banking Culture section regarding this? Thanks, J

According to Carney, “in some circles it’s seen as risqué and trashy not to wear an undershirt.” And I’m sure a lot of people would argue the display of chest hair could potentially paralyze an otherwise promising career. However, the case study after the jump demonstrates that for some people, and only if you are sex on a stick like the subject that follows, letting your curly q’s stick out can be the ticket to the big leagues. Bow chica wow wow.

JP Morgan Chase estimated that its holdings of Fannie Mae and Freddie Mac preferred stock lost about half of their value the third quarter now underway, according to a regulatory filing with the Securities and Exchange Commission. JP Morgan says it owns preferred shares of Fannie and Freddie with a $1.2 billion par value that has been written down by $600 million.

“The precise amount of losses that may be incurred on these securities for the third quarter is difficult to determine, given the significant volatility being experienced in the market values of these securities,” JP Morgan notes.

This move should also trigger writedowns at other financial firms, including regional banks and insurers, who hold the majority of Fannie and Freddie preferred shares.

JP Morgan 8-K [SEC]

Big important changes at Citi today! A few people have been appointed to Subcommittees of the Audit Committee and the executive committee, which never met and had few responsibilities beyond setting out leaf cookies, is being disbanded. Now, I know what you’re going to say—deck chairs on the Slocum, etc. Wrong. Insiders tell Dealbreaker that the aforementioned measures are merely Citi’s way of easing into things; by Friday, IB and prime brokerage will be gone, as well, modifications sure to have an affect on the crippling adversity currently faced by the firm (whether this will translate to profitability or simply get people to laugh, which they never do anymore, remains to be seen). And speaking of unorthodox tactics that maybe could shock everyone by being effectual, prints of the following will be hung in all men’s room, starting tomorrow.

Private equity giant Kohlberg Kravis Roberts has “expressed a high level of interest” in buying the so-called “crown jewel” of Lehman Brothers, the Neuberger & Berman money management firm, according to a report from CNBC’s Charlie Gasparino that cited “people close to the negotiations.”

For what it’s worth, we’re hearing the same thing from people familiar with the matter. Gasparino also reports that KKR rival Blackstone that so far it has almost no interest in Neuberger.

Meanwhile, Lehman has reportedly denied that an internal coup to oust Fuld is underway. Bank analyst Dick Bove, however, says that Fuld “has lost control of the game” and that Lehman may become the subject of a hostile take over. The story put forth by Reuters last week claiming that the Korea Development Bank was considering buying Lehman also took a hit today, when a top South Korean regulator poo-poohed the idea.

Shares of Lehman gapped lower today, after being boosted on Friday amid talk of the Korean buy possibility. They are currently down around 4.5 percent, trading around where they did midweek last week.

The plan to bolster Fannie Mae and Freddie Mac by talking up the Treasury’s ability to bailout their debt while talking down the possibility that the two government sponsored mortgage companies could nationalized seems to be working.

Reuters reported early this morning that the Treasury Department believes that the two companies should remain “shareholder-owned,” something that Merrill was reportedly telling clients on Friday. We reported earlier that regulators have recently become concerned that wiping out the shareholders of the companies could damage the balance sheets of regional banks and insurers, who hold vast amounts of the preferred shares of these companies.

This morning Freddie Mac easily placed $2 billion of debt with investors, which will also be taken as a sign that the companies can continue to fund their ongoing operations without a government takeover or bailout. Of course, the ease of debt sale already reflects the “bazooka bailout” that occurred when the Treasury was granted powers last month to extend credit lines to Fannie and Freddie and buy their debt and equity.

The term bazooka bailout, of course, comes from Treasury Secretary Hank Paulson’s description of his unlimited power to bailout Fannie and Freddie. “If you have a bazooka in your pocket and people know it, you probably won’t have to take it out,” Paulson told lawmakers when asking for the bailout powers.

“[Richard Cayne] Perry represents a new breed of hedge fund manager…He has completed four triathlons, yet when he’s away from the office he carries a white patent-leather murse (that’s a man-purse) designed by his wife.”

Looking For Trouble [Fortune]

The Federal Reserve has been quietly pressuring the Treasury Department not to adopt a rescue plan for Fannie Mae and Freddie Mac that would wipe out the value of their preferred shares, according to a source familiar with the matter. The Fed fears that any move that hurt the preferred could worsen the crisis in regional banks that is already under way.

At issue is $36 billion of preferred stock issued by Fannie and Freddie. Under several versions of widely discussed rescue plans for the mortgage giants, the US government would take a new preferred stake in the companies, subordinating or perhaps wholly eliminating the existing preferred. Critics of Fannie and Freddie believe such a move would be necessary to punish excessive risk taking by the companies and avoid creating additional ‘moral hazard.’

The situation is complicated, however, by the large share of preferred stock held by regional banks, many of which are viewed as possible candidates for failure in these credit crunched times. As the Financial Times reported over the weekened regional banks and US insurers hold the majority of Fannie and Freddie’soutstanding preferred stock. The Fed has begun advocating against wiping out these shares, saying the threat to stability of the banks is greater than the ‘moral hazard’ argument, a source familiar with the matter says.

“The fear is that this bailout, if done in a punitive manner, could be costly, resulting in even more bailouts,” the source said.

Last week Moody’s cut Fannie and Freddie’s preferred stock ratings from A to Baa3 on based on the uncertainty of how they would be treated in a rescue plan from the Treasury. That move could add to the need for the Treasury to take action soon, before banks are forced to report write-downs on the value of these lower-rated preferred shares. At the same time, the new pressure from the Fed to avoid wiping out the shares may stall an agreement on what form the intervention should take.

Merrill Lynch may very well be in danger of failing but recent intel shows anecdotal evidence of Thain and Co. at least pretending to give a rat’s ass about not ending up both broke and crazy (by association). The Post reports that the firm is looking for any excuse to “retool” a deal made last year with Tom Cruise’s production company, United Artists.

As of now Merrill is committed to shelling out $500 million in financing for 15 to 18 movies but “has been combing through its contract for any potential triggers to a default on a loan as a key to reopen talks” in an attempt to safeguard MER from losing millions provided Cruise continues on the batshit insane trajectory, including breaking the deal entirely. Though Jerry is supposedly the best part of Tropic Thunder, in his role as a fat, balding movie mogul, UA did not produce the film. Instead, it produced Valkyrie which is said to be prettay prettay prettay bad, and has a slew of other films on the horizon in which Scientology boy takes himself too seriously, the press for which will likely be compromised by the presence of thetans. UA parent company Metro-Goldwyn-Mayer has hired Goldman Sachs to shut down any maneuvering by Merrill.

In any event, a full-length version of the following is our recommendation if UA/TC/MER are interested in making bank:

Well that certainly didn’t take long. Just a day after Barack Obama named Senator Joseph R. Biden Jr. of Delaware as his vice presidential running mate, the Washington Post is tying members of his family to an alleged hedge fund fraud scheme. This, of course, is a story we first wrote about several months ago.

Biden’s son Hunter and brother James are accused in a lawsuit of defrauding a partner. In reply, the two say their partner, Anthony Lotito, defrauded them by misleading them about his hedge fund experience.

The fight is over Paradigm Companies, a hedge fund group Lotito says he set up for the Bidens as a way to get Hunter out of the lobbying business. Hunter’s lobbying was allegedly considered a potential political liability for Joe Biden, then running for president. Hunter denies his father played any part in the deal.

Hunter Biden was made president with an annual salary of $1.2 million, despite his inexperience in the hedge fund industry, the lawsuit said. Before that, he had been part of the Washington law firm Oldaker, Biden & Belair, which earned $1.76 million in lobbying revenue in the first half of 2006, according to Congressional Quarterly’s CQ MoneyLine. One of its biggest clients is the National Association of Shareholder and Consumer Attorneys, a District-based group representing law firms specializing in investment and corporate law.

The Metropolitan Diary is the part of the New York Times where readers write in cloyingly cute stories about daily life in New York City. If your mother had a favorite section of the Times, this would be it.

When we found ourselves with little to read on the train back to New York City yesterday, we actually found ourselves reading the page. The very first story we came across got our attention: it was about Bear Stearns. Kathy Enders worked at Bear before the merger with JP Morgan Chase. She was let go when the firms merged. Packing up her office belongings was “backbreaking and heartbreaking,” she writes. But fortunately New York City rode to her rescue, literally.

After my final bags were packed, I headed to Third Avenue, the past five years of my work life in tow. An eagle-eyed cabdriver spotted me at the 47th Street bus stop and yelled out his window, asking if I wanted to take a cab instead of waiting for a bus. I held up one of my bags imprinted with the Bear Stearns logo, and shook my head no.

The cabdriver, not skipping a beat, yelled out, “It’s on me.”

Richard Fuld, the embattled chief executive of Lehman Brothers, faces an internal coup to oust him from his position, U.K.’s The Observer newspaper reported yesterday. Fuld is decribed as decreasingly involved in the decisions of the bank and to lack credibility in the eyes of other executives.

Whether a Lehman suitor emerges or not, well-placed sources within the bank are certain that Fuld is set to hand over the reins before the end of the year. ‘He is involved less and less with day-to-day executive affairs, and his credibility is shot,’ one senior Lehman source said.

The source is not identified very well here, so it’s a bit hard to know what to make of this story. It certainly goes further than any other media report by suggesting that “well-placed sources” within Lehman are “certain” Fuld will be gone by the end of the year. How do these people have such certainty about the future?

What is certain is that Fuld has an increasingly dissatisfied group of senior executives working beneath him. Recent media stories about the failure to attract foreign capital and private equity firms balking at the price of assets have helped fuel the impression that Fuld may be bungling the firm’s future.

The Observer says that Lehman’s Chief Operating Officer Bart McDade has assumed many of Fuld’s former responsibilities.

The story for The Observer was written by James Doran, a New York based freelance writer who broke some important news about the rebellion at Morgan Stanley that ousted Phil Purcell. His stories have appeared regularly in the British press.

Lehman chief faces internal coup [The Observer]

Dollar Rises on Speculation Oil Decline to Bolster U.S. Economy (Bloomberg)
A couple things: One) It’s interesting that the dollar is rising on speculation. Surely we can’t have something as important as our currency be bouncing around on the whims and interests of speculators. What’s more, we just read the other day that oil fell due to a higher dollar. So which is it? Surely you can’t have it both ways.

Farmers’ Almanac Predicts Chilly Winter (AP)
Yep, this year winter is going to be winter. The Farmers’ Almanac says it’s going to be cold, chilly and wet, just like every other winter we’ve experienced in this country. They suck, they always do, and it’s right around the corner. You can feel it in the frenetic urgency to “summer”, to be outside, to sweat and to swim all around the city. As for the Farmers’ Almanac, what kind of track record does it really have? Actually it’s probably good if these are the kinds of predictions it makes.

Bond fundraising costs soar (FT)
Probably won’t surprise anyone, but noteworthy nonetheless: The cost of raising money on the bond market is higher than any time since the recession of the early 90s.

Google’s food perks on the chopping block (ValleyWag)
No idea if this is true, but it might say more about the economy than any yield spreads or such nonsense. Evidently Google is cutting back on its prodigious food budget, getting read of free dinners for employees. It’ll still offer free breakfast and lunch and stuff, but there may be one less reason to work late in the office on your 20 percent time. We’ll see if it’s true, but if so, we must be near the bottom.

$$$ Hedge funds on the Hudson [Dealbook]

$$$ Trump University snubbed by the U.S. News for the last time [NewsGroper]

$$$ Back To School [WallStrip]

To the “too long, didn’t read” guy: Might as well post it now, fucker.

Today marks my final day of having the privilege to be speculated upon as being a gay cowboy or a program director at WKRP. I’ve enjoyed being a protégé of Carney and Bess while stalking Carl Icahn for most of the summer and having a commenter repeatedly tell me that nobody cares about Yahoo.

So, in honor of my departure, here’s a favorite/best of/underrated/etc. list for this summer:

Favorite recurring story: Sam Israel - One word. Egret. This nutcase, whose business card I almost won on eBay, sparked the biggest debate of the summer among readers about what kind of bird was on his card. I personally believed it was a pelican.

Most underrated story: “Wizards of Short-Selling.” It came at a bad time when nobody was around, yet it was still hilarious. Especially that fake David Blaine video.

Most criticized post: “DealBreaker’s Guide To Living Just Above The Poverty Line.” This piece garnered such niceties like:

1) “Ben” Give up. You suck.

2) Ben—You missed the obvious, you douchbag!

3) Horrible article. Not in the least bit funny. I hope this is the last time this community college reject gets an article posted on Dealbreaker.

Tough crowd.

Best Office to Comment Board Romance: Bess and girl - Some of you had that tingling in your pants when you read their lovely back-and-forth prose.

Most annoying recurring comment: Mayo mayo mayo.

Favorite commenter: Anal_yst - You threatened to beat the mayo out of me and your username disturbs me, but I thought in general you had the most useful and worthy comments.

Best comment: “J.C., I hate you, and I hate your libertarian rants. I hope that one day you find yourself uninsured. I hope that at this time you find yourself in need of medical attention. I hope that we have socialized medicine at this time. Not because I believe in it, but because you would have the opportunity to write the most ridiculous rant against our welfare society. I hope that you die shortly after your diatribe is published. I hate you

Warm Regards,

The Anti-Christ”

Most Overrated Lunch Meal: Shake Shack. The milkshake was good, but the burger was bland.

Biggest regret: Not talking to the cute Fashionista girl twenty feet away in the office.

Biggest Financial D-Bag: Prescott Hahn. I’m kinda pissed I missed out on the Fashion Meets Finance event. Maybe I could have gotten a picture with this turd. At least I called his phone, but I got no answer.

Runner up: As commenters 7 and 17 pointed out, this trio of idiots: (go to 1:38 of the video).

I sign off with this nonsensical video in their honor.

The supporters of the current structure of Fannie Mae and Freddie Mac appear to be winning the debate at Treasury. “Merrill Lynch is telling its that a source within Treasury says they want to keep the GSEs in their current form, as in shareholder owned. That implies no ‘takeover’ any time soon, ” finance blogger Accrued Interest tells us.

The great reshuffling of deck chairs continues. Yesterday we reported on high level departures at Lehman. This afternoon Reuters is reporting that Antonio Cacorino, Citigroup’s co-head of global investor sales, is leaving the bank to “pursue new opportunities.” Reuters cites an internal memo they obtained (send it our way:tips@dealbreaker.com).

“Cacorino has been at Citi for 20 years, and is the latest multidecade veteran to leave the bank under Vikram Pandit, who became Citi’s chief executive late last year,” Reuters writes.

Citigroup sales co-head Cacorino to leave: memo [Reuters]

1:04PM: “He bowed out, ungracefully. Left half a Balance bar, and most of the candy. He got through the chips.”

3:43PM: “His excuse is that he felt like he was near-seizure because of all the sodium.”

Yesterday’s frantic activity at the Treasury produced no news but there is widespread speculation that an announcement about Fannie Mae and Freddie Mac will be made in the near future. What do you think?

After the jump, take the reader poll.

12:21PM: “He’s thinking about giving up.”

The hits just keep on coming out of 85 Broad and its satellite campuses these days. First, the hideous news that employees have been banned from commenting on Dealbreaker.com. Now we receive word that Facebook has been blocked. I’m sure the lot of you are going to argue that the vast majority of financial firms have long blocked access to the social networking site, but Goldman’s supposed to be above such pedestrian measures. See, Blanks and Co. used to be of the mind that as long as you’re kicking ass (by lying about level three assets), who cares what websites you visit during jack off time? It’s a slippery slope from telling your employees they can’t get on a site devoted exclusively to sex videos featuring Mark Haines to becoming a takeover target.

Earlier: Goldman Sachs Silences Employees

In an effort to prove via gastrointestinal fortitude that Oyster Boy isn’t the only man on Wall Street with a set of working testicles, today, as we speak, another financial services hack is attempting to successfully complete The Vending Machine Challenge. As you well know, the last of his kind to try and eat one of every item in his firm’s treasure chest o’ snacks failed miserably. Success, in this case, is defined as the strapping young man above eating the following items between 10 and 3. At this time, he’s consumed 4 bags of chips and a candy bar, and is said to be struggling on account of drinking too much last night and eating “a big breakfast this morning.”

Shares in Lehman Brothers are skyrocketing this morning, up 14% as we write this, on word from Reuters that the Korean Development Bank is considering an acquisition of the “beleaguered” Wall Street firm. But could this story be a mistake?

So far no one else has been able to confirm it. Bloomberg went with a much less dramatic line, writing that KDB is “considering” an investment in the company. Not buying Lehman. Just investing in it.

Even more importantly, the Reuters story itself is strange. The talk of an acquisition comes from an unnamed “spokesman” for KDB, an unusual source for such a big story. What’s more, the operative word in the story—buying—is in parentheses.

State-run Korea Development Bank said on Friday Lehman Brothers was one of its options for acquisitions, reviving expectations that the U.S. investment bank might still bring in a large investor.

“We are studying a number of options and are open to all possibilities, which could include (buying) Lehman,” a KDB spokesman said.

Since this is presumably a translation from Korean, and people don’t, you know, actually speak in parentheses, it’s possible that this story emerged from a bungled translation.

We’re not saying this story is wrong. But we are saying it is far-fetched and more than a bit strange. Beware the bullish rumor mill, lads and lasses.

Becky Quick: One of the things we’d like to get straight to, though, is what you see happening in the economy right now. We’ve been talking to you for some time about what you see as some significant problems in the economy. And, from your perspective, have things gotten any better? Have they gotten any worse?

Warren Buffett: No, they’ve rippled out some, and that’s what you’d expect. So the excesses in credit, the deleveraging that was required, the weak credits that are exposed, all that is—we’re seeing manifestations out as the ripples go out, and I think I said one time that, you know, you only find out who’s been swimming naked when the tide goes out. Well, we found out that Wall Street has been kind of a nudist beach.

Earlier: Buffett Lunch Goes For Over 2 Million, Non-Sequitur Sex Analogies On The House

One Again, Warren Buffett Goes The Fuck Out Of His Way To Awkwardly Marry Aberrant Sex Fetish With Folksy Business Wisdom

The rest of you: see if you can spot him.

Earlier: John Paulson Also Said To Be Huge Fan

Reuters reports that woodland creature Dick Bove may have been on to something yesterday when he upgraded Lehman Brothers to a buy due to a possible takeover. A spokesman from state-run Korea Development Bank confirmed today that they are “studying a number of options and are open to all possibilities, which could include (buying) Lehman.”

Bove told CNBC this morning that Fuld has taken too long to figure out what to do with the place and “if something doesn’t happen this weekend, game on.” He also noted that, unlike The Brow, John Thain has been doing a great job at Merrill Lynch. So that’s nice. Humanity and all that.

KDB says buying Lehman a possibility [Reuters]

Muckraking journalist Tim Carney’s latest column reveals how T. Boone Pickens managed to form his own town, complete with a government authorized to issue tax free bonds, and how he plans to profit from this maneuver.

Roberts County, Texas, sits atop the Ogallala Aquifer, a huge underground reservoir that stretches all the way to South Dakota. It’s in Roberts County that T. Boone Pickens set aside eight acres from his ranch for drilling deep into the aquifer.

Then he turned this parcel into a town, basically, with only two eligible voters — both of whom were his employees. (This required a change in Texas law in 2007 — a change facilitated no doubt by his $1.2 million in campaign contributions to Texas legislators in 2006).

Then there was an election in this district, in which both voters voted to make this 8-acre municipality a special fresh-water district.

Pickens’ wholly owned government entity now can issue tax-free bonds (meaning he can borrow at a serious discount) and use the power of eminent domain to pressure landowners to sell — or to take their land if they hold out. The eminent domain power is key to building the pipeline that will run this water down to the Dallas area, where Pickens hopes to sell the water. If your land lies in the path of his proposed pipeline, you got a letter explaining that T. Boone wants to buy a stretch of your land — and explaining that he can use eminent domain if you resist. If this begins to sound too cutthroat to the public, Pickens just reminds journalists and politicians that following this water pipeline will be the transmission cables for Pickens’ mammoth wind farm.

(Disclosure: Tim is my brother and I drink water.)

T. Boone Pickens wants your water [DC Examiner]

We spent a good part of our week celebrating readers who passed the CFA level II and level III exam. But we know that a lot of you didn’t pass. Over half of those taking the level II exam failed, and a few of those failures are bound to be DealBreaker readers.

Our first piece of advice is not to let it get you down. The CFA has such a high failure rate that there are serious questions about whether its a fair test of knowledge and ability rather than just a test of what you randomly happened to memorize. Our second piece of advice: embrace your failure!

The CFA institute divided all failed candidates into ten approximately equal score bands. Then they let you know how compared with all other failed candidates by rating you on a scale of 1 to 10. Those who ranked #1 scored in the bottom 10%. Those who ranked #10 scored in the top 10%. “Congratulations! You were the smartest failure!”

In comments, let us know where you rank among the failed candidates. Full disclosure: at least one of your DealBreaker editors graduated in the top half of the bottom quarter of his high school class!

GM to Open Formal Talks Tor Hummer Sale (WSJ)
That Hummer has been on the block is well known… but now things are getting serious. GM is drawing up the books, so it can talk to various parties that have reached out. While we can understand the cash-strapped company’s desire to sell so out of favor unit, it is pretty hard to think of worse timing for the sale. News of the plans were announced at the same time GM announced a fresh investment into a big, small car plant. That tells you want tyou need to know right there.

Paulson Might Weigh Whom to Hurt in Any Fannie, Freddie Rescue (Bloomberg)
That’s an interesting way to put it: Paulson needs to decide who to hurt. Cause obviously someone needs to feel pain. But who is it? The equity holders (should be). The counterparties (should be as well). Homeowners (probably should be as well). But if everyone gets hurt, it’s not much of a rescue is it? So you have to make some redistributionist priorities based on… something: “Paulson’s choices probably include buying Fannie’s and Freddie’s bonds, a special class of preferred shares or preferred shares convertible into common stock, analysts and investors said. The terms and conditions of any purchases would put the government ahead of other creditors and stockholders, while ensuring that bondholders are protected, they said. “He’s had zero clarity on this whole issue, and until the market knows where Hank’s going to be in the capitalization structure, then it gets worse not better,” said Paul McCulley, a fund manager at Pacific Investment Management Co., which has the world’s largest bond fund. “

Warner Bets on Fewer, Bigger Movies (WSJ)
The Dark Knight was a huge hit. So huge in fact that it’s obviously one of those power law, fat head, once-every-decade kind of events. What’s the lesson there? That such hits are very rare and can’t be counted upon. However, here’s what Time Warner took away from it all: “Emboldened by this summer’s success with “The Dark Knight,” Warner Bros.’ movie studio is setting a new strategy. The Time Warner Inc. unit, like some other Hollywood studios, is planning to release fewer films into the crowded marketplace. But the studio, known for making more big, expensive movies than most rivals, plans to make even more of those — some centered on properties from its DC Comics unit, such as Batman.” Dear Time Warner: May we suggest this book?

Seeking More Viewers, MSNBC Turns Left (NYT)
This election season, MSNBC has definitely turned into the left’s Fox News. It took a hard stand in favor of Obama early on in the primaries, and it’s strongest personalities (the intolerable Keith Olbermann, the awesome Rachel Maddow) come from the left. It’s amazing irrelevent CNN has come. A bunch of bland, wish-washy “it’s not about me” anchors is a real loser of a proposition this year.

Obama says he’s made his veep choice (AP)
But he’s not saying yet. That message will first go out to his follower over SMS. We’d have signed up for it, but we suspect that won’t be the last we’d get texted from the Obama campaign, so not worth it, is it? For what it’s worth, Biden is now up to $.53 on the $1 at Intrade. Eban Bayh is second. Also speaking of Obama —- remember when Instanpundit was a really fresh voice in online politics? Just kidding, us neither. But the guy who basically invented blogging has doesn’t even try anymore to be interesting.

$$$ Carney discusses the candidates [TONY]

$$$ Fiery fuck-ups at Deutsche Bank [NYT]

$$$ John McCain: not good with numbers and shit [Cajun Boy]

Citigroup just lost its lead mortgage trader to Merrill Lynch, Dan Freed of theStreet.com is reporting. Jim De Mare’s departure would be the second senior mortgage trading executive Merrill has recruited in recent weeks.

Mike Nierenberg, a Bear Stearns veteran who served briefly as head of mortgage trading and other securitized products at JPMorgan Chase, is also expected to join Merrill, according to Bloomberg and other sources. Demare and Nierenberg did not return calls to their mobile phones.

Former Caxton-Iseman Capital assistant Fatima Monahan pleaded guilty yesterday to using C-IC founder Frederick Iseman’s credit card on high-end clothing, shoes, food, household items and gift cards in 2006, and was ordered to pay $45,000 in restitution. Monahan filed a $24 million sexual harassment suit against Iseman and the firm last April, in a possible attempt to deflect attention from her own wrongdoings.

In the civil suit, Monahan claims Iseman “told her of intimate acts he had with several women, directed her to make inappropriate purchases, required her to organize his collection of explicit pictures, and to purchase and deliver to his apartment a book titled “The Mammoth Book of Erotic Fantasies.” (Not to be confused with “The Erotic Book of Mammoth Fantasies,” a favorite of Lloyd Blankfein and required reading of all new hires. And speaking of wooly mammoths, Joe Torre has a blog about his new life in L.A. The second entry, from August 17, is an observation on dogs. It closes with the line, “Okay, gotta run. I need to get Butch to the groomer’s before his hair starts getting poufy,” ‘Butch’ being a euphemism for the Torre unit).

Woman Who Sued Caxton-Iseman Pleads Guilty to Theft [Bloomberg]
Joe Torre’s Blog [MLBlogs via NYM]

Potential buyers apparently include: “A bank in Canada, Great Britain or Japan.” Bove’s reason for upgrading the stock was not tied to better performance, or rumors of Einhorny joining the board, but, he said, management’s unwillingness to sell out for a ten-spot and a bag of Cheetos.

At this juncture, the higher-ups at Lehman are probably confused as to how they should feel about all this. On the one hand, thanks for moving our anvil of a stock with the buy. That was a $$$ call. On the other, “management is unwilling to sell out at a deeply distressed value…[setting] the stage for a hostile bid to take over the whole company”? S a D, old man. Will they fly off the handle and sue RXB for defamation a la Bank Atlantic? Our fingers are certainly crossed. That shit would undoubtedly be hilarious.

We’ve heard from lots and lots of DealBreaker readers who passed the CFA level II and level III exams, and a few who didn’t pass. (This time! Buck up, kids! You’ll nail it next time!) From what we can tell, reading DealBreaker seems to be positively correlated with passing. Readers seem to have passed in far higher percentages than the overall test taking group.

But we want to know a bit more about how you did on the exams. A few of you have already let us in on your scores. “My worst score was portfolio management,” one portfolio manager told us.

The test covers various categories, which we list after the jump, and test takers are told whether they scored in the fifty percentile, between the fifty-first and seventieth percentile and above the seventieth. So in the comments section below, let us know how you scored and what your job is. Is everyone’s CFA score negatively correlated with their professional responsibilities?

7/29: Credit Suisse writes to inform clients that the rumors of suckage are, in fact, true.

8/21: One more time for the cheap seats!

[click to view]

As you know, UBS, Citi, Morgan Stanley et al all chose over the last several weeks to pay back billions in auction rate securities to avoid going to court with Attorney General Andrew Cuomo. No agreement was reached with Merrill Lynch, however, with talks having grown “contentious,” which we assumed meant Thain breaking the onesie out of mothballs and Cuomo renting a Viking costume. We also assumed that MER would eventually decide to roll over and take it, but, apparently, not so. Obviously Andy is none too happy about the lack of cooperation, telling CNBC this morning that he’s— paraphrasing here— sick of their shit. “Today is the last day,” he told Erin Burnett and Mark Haines. “If we don’t settle today, tomorrow at this time we’ll be in court.”

Cuomo added that he “doesn’t like to go to court.” Regardless of whether or not that’s true (and we’re actually inclined to believe he loves “playing lawyer”) it would be a damn shame if we were robbed of the opportunity to watch him get all up in Thain’s face whilst Stan snickers from the back of the room. We vote for no settlement. Hopefully MER’s with us.

Cuomo Threatens to Sue Merrill Over Auction-Rate Debt [CNBC]

**Spare us the “that’s not how it actually works” crap. This is our fantasy and it’ll play out however we see fit. If that includes Charlie Gasparino as court stenographer, SO BE IT.

Two top executives are leaving Lehman Brothers. Rich McKinney, who was the head of American securitzed products business for Lehman, and Ted Janulis, the head of the mortgage capital division, plan to leave the firm, sources with knowledge of the matter said.

Both men worked for divisions closely tied to some of the most precarious sectors of the credit markets. The market in structured products has severely contracted as underlying mortgages have begun to default at unprecedented rates and banks have written-down billions in losses. And we probably don’t even need to explain that mortgage capital division of Lehman is in trouble. They aren’t originating any mortgages anywhere right now.

Ted Janulis was moved to head the firm’s mortgage capital division two years, before that business fell off the cliff. Prior to that he ran the global asset management division, a business which he helped build with the acquisition of Neuberger Berman and the fixed income division of Lincoln Capital. He’s been with the firm for 23 years, and on the executive committee for 4 years. Until very recently, Lehman’s website listed him as part of the firm’s “senior management.” Now his entry has been removed. Janulis had a reputation as an excellent manager and is well liked at the firm. He is said to be considering his options, including possibly retiring.

McKinney is taking up a buyside position with another firm. He will be replaced on the structured products desk by Charlie Spero, a trader at the firm.

The departures will likely be read by short-sellers and critics as another sign that Lehman is set to announce huge write-downs and another quarter of losses when it wraps up its third quarter. The departure of Janulis may indicate that Lehman is close to a deal to sell parts of its investment management division, a business that Janulis helped build for the firm. Lehman Brothers declined to comment on the record for this story.

[Editor’s note: Yes. This is what we were mumbling about this morning. Absinthe, beer and pretzels are to blame for the delayed reporting.]

Update: Bloomberg and the New York Times chime in on the story!

As investors continue to dump shares of Fannie Mae and Freddie Mac, the debate over a possibly government bailout of the two mortgage giants is raging inside the Beltway. One camp of free market oriented Fed officials is arguing that any rescue plan must wipe-out shareholders and include severe regulatory restrictions on future activity while others, who are viewed as long-time supporters of the GSEs, are arguing that the government should act now to shore up the banks and save regulatory restrictions for a legislative debate later.

We’re told that the debate has become heated, with the two sides scrambling to build alliances and strong pressure from powerful lawmakers and lobbyists seeking to influence the outcome. The free-marketeers at Treasury fear that if they do not reign in the mortgage giants now, while they are at their weakest, Fannie and Freddie will continue to distort markets and put taxpayers at risk once the credit crisis has passed. The supporters of the current structure at Fannie and Freddie more or less agree, believing that if they are able to weather this storm they can emerge newly strengthened.

CNBC’s Jim Cramer yesterday claimed that the stocks of both companies were being pushed down by people with inside information. He called for the SEC to halt all trading in the companies, basically freezing current holders in place. “This is an outrage,” Cramer said shortly after the market closed yesterday. “It’s very clear that someone knows what’s happening.”

Cramer’s call, however, seems misconceived. The situation in Washington DC is still fluid, so it’s not clear that any could know what’s happening. There’s nothing to know beyond the range of possibilities and the widely known fact that the two companies are in trouble.

Cramer expressed outrage that someone apparently leaked to Barron’s earlier this week but leaking information to a newspaper is not insider trading. In fact, it’s closer to the opposite of insider trading, making formerly secret information available to the public. Would investors be better off if they were surprised by moves coming out of DC? Surprise regulatory moves seem unlikely to bolster investor confidence.

The Financial Times reported this morning that Lehman Brothers held talks on a sale of up a fifty percent stake with China’s CITIC Securities and the state-owned Korea Development Bank, but both investors walked away because the price was too high. CITIC is denying that it held any talks with Lehman, while an unnamed KDB official says the bank is scaling back its foreign investments.

A DealBreaker tipster gave us some vague, drunk-sounding and probably offensive insights into this story. “Got cornered by these two Asian investors at Muji Bar last night,” he writes in an email. “They tell me that they passed on Lehman - concerns about their strength - say - ‘Too Many Chinks In The Armor’ or was it Too Little Chinks…or was it Two Chinks Go Into A bar And Tell me They Are Passing On Lehman…I can’t remember - it was so late.”

We know exactly how he feels. If your friend opens an absinthe bar and asks you to help out a bit before it opens, do not under any circumstances accept payment in free absinthe. We eventually figured this out but it was too late. Last night we were told about some high level departures at Lehman but our absinthe soaked mind quickly wiped out the information. Maybe the head of structured products? It was so late.

In other news, apparently the Fed is so concerned about the possibility that Lehman will suffer the fate of Bear Stearns it has begun calling banks to make sure they are not pulling business from the troubled investment bank. When it heard rumors that Credit Suisse was pulling out of Lehman, Fed officials called to check. Credit Suisse denied the story, of course. Skeptics will point out that the Fed’s calls are likely to intimidate banks from pulling out of Lehman regardless of its financial viability and risk taking, perhaps encouraging risky behavior by Lehman and worsening the already existing moral hazard under which the bank operates.

[Editorial note: Some readers are objecting to our inclusion of the racially insensitive quote above. We decided to include it because it accurately reflects the tone of many of the remarks on this story we’ve heard. That is, there’s a lot of racially insensitive blather about foreign investments in Wall Street. Pretending that this isn’t how people are talking about this isn’t helpful and creates a false impression of the situation. People are talking like this, and we think that should be reported.]

Temasek May Lift Stake in Merrill, Betting on Rebound (Bloomberg)
Temasek, the big Singapore fund, may lift its stake in Merrill Lynch. It’s already the firm’s biggest shareholder, but chairman S. Dhanabalan said that if there’s an opportunity, the firm would like to take a look at it. Temasek might just be looking to average down. As the article notes, Merrill has fallen some 55 percent since it took its stake last December. Of course, the group wouldn’t say anything like that. Instead it’s all about betting on the upswing and further internationalizing its holdings.

Microsoft Enlists Jerry Seinfeld In Its Ad Battle Against Apple (WSJ)
Jerry Seinfeld will be the main pitchman in a new ad campaign for Microsoft, according to a report. We guess he was sort of okay in those American Express ads — we 7 years after those came out, we’re now the proud carriers of a jetBue American Express card — so that’s something. But you know what would be really cool: If Microsoft poached John Hodgman from Apple. He already plays The PC in the ads, and he totally outclasses the doofusy looking hipster. That would be a coup. More perspective from SAI.

Report Rejects Medicare Boast of Paring Fraud (NYT)
Which is worse? The fact that Medicare can’t reduce Medicare fraud or the fact that Medicare can’t even identify a reduction in Medicare fraud? Kinda thinking the latter, you too? No, but really… a national, single-payer healthcare system is going to do wonders for efficiency (sorry for that very un-Opening Bell like moment in un-clever sarcasm).

IAC completing split into 5 publicly traded parts (AP)
Today’s the day that IAC officially splits into five completely unrelated companies that for awhile were thought to have logical synergies. Besides IAC itself, the remaining four companies are LendingTree, TicketMaster, Interval (timeshare business) and HSN. Although the market initially cheered the split plan, when it was announced last year, it’s been a rough year for the company, as its shares are trading well off its highs. For 2007, its executives received no bonuses.

$$$ Andor Hedge Fund Shutting Down [WSJ]

$$$ This (er, Last) Week in “Duh”: Price Hikes Work [1-2]

$$$ Starbucks [WallStrip]

Jeffrey Epstein, the high school math teacher turned mysterious money manager turned convicted sex criminal, has been appointed to the board of a charity run by Apollo founder Leon Black, Cityfile is reporting. It’s unclear what the relationship between Black and Epstein might be, although Cityfile speculates that Epstein might be managing Black’s money.

City file also turns in this bit of titillating news:

Black’s foundation’s funds were kept in accounts at Bear Stearns and Epstein was a major Bear client, and was reported to have lost close to $60 million when Bear’s hedge funds went south.

From Gary Weiss, comes the awesomely rich news that Tom Ronk, one of former SEC chairman Harvey Pitt’s partners in RegSHO.com, was banned from the securities industry in 1999 for not paying a 50K fine.

Earlier: Harvey Pitt Loves Conflicts O’ Interest

Dow Jones reports that Merrill Lynch CEO John Thain will be sitting down with South Korea’s sovereign wealth fund and key government officials during the first week of September. Supposedly the hang out is “just a courtesy call” to see what’s a poppin’ and “not out of the ordinary,” which makes sense if you believe that MER has no plans to raise new capital. Will things go as smoothly for Thain as they did for Fuld? Stay tuned.

Related: Lehman Looked To East, Got Nothing

Merrill Lynch CEO To Meet Korea Sovereign Fund Chief [Dow Jones]

More than 300 Merrill Lynch brokers have emailed Pimco urging the fund manager to redeem its auction rate securities, Bloomberg is reporting. As regular readers of DealBreaker know, Merrill brokers have been pressing financial firms that issued auction rate securities to bail out customers who bought the now frozen securities.

The email takes a harsh tone, telling Pimco that its executives may :no longer be welcome in our offices” unless they redeem the securities. Blackrock, which is 49% owned by Merrill, has also been pressured by Merrill brokers.

Pimco, which is owned by Munich-based Allianz, SE has taken the view that it is not in its own investors interest to redeem the auction rate securities. It was the third largest mutual fund issuer of auction rate preferred securities. BlackRock, the second largest issuer, has announced redemptions of about 25% of its auction rate securities, trailing behind redemptions by Nuveen Investments, Eaton Vance and Neuberger Berman.

Merrill Brokers Press Pimco, BlackRock to Buy Auction-Rate Debt [Bloomberg]

Harvey Pitt has been named deputy attorney general of Alabama where he will be investigating “short sellers and false rumors involving Colonial BancGroup, actions designed to drive down the institution’s stock price.” CNB apparently approached Pitt about the gig knowing that rumor mongering and wicked short selling are favorite topics of the erstwhile SEC chairman and current private citizen, which he believes are “serious problems…[that have] led to a whole host of additional problems in the marketplace.” Pitt also hilariously noted that he has been contacted by other firms known by those in the know to be short-seller targets, but has thus far been rebuffed because they’re self-conscious about having their asses tapped (sayeth Pitt: “They don’t want it known that they are the targets of short sellers”).

The P-man’s compensation for the job has been disclosed but even if he’s being paid in Lehman stock the whole thing sure to pay off in spades. The plan is prettay prettay genius—make up some stuff up based on speculation and hearsay about malicious shorts being responsible for CNB’s horrific performance (the bank’s stock lost 53 percent of its value this year), and then take the case study to Cox as evidence that the SEC really needs to extend now-defunct emergency rule to all financial companies which would mean KA-CHING for Pitt’s newly formed RegSHO.com. RS is a web-based real-time electronic stock lending and location service that matches traders with available stocks that can be borrowed for short sales and offers immediate data on the short-sell market. Obviously the biz would be made exponentially more profitable if the SEC expands and extends the rule, practically forcing Pitt and Co to charge customers for both locating and pre-borrowing.

One error in Pitt’s flawless money-making scheme, however, is the matter of his partner, John Tobacco. Anecdotal evidence shows that he’s a bit of a Tim Sykes (please refer to the last comment on this thread).

Call Him Deputy Attorney General Pitt [NYT]
CEOs Launch Web Site To Protect Short Sellers: Firm Aids Compliance With SEC Naked-Sale Rules [Washington Post]

One of the great secrets of our success here at DealBreaker is our readers. We have the brightest, wittiest and best informed commenters on the web who help keep our recent comments page always fresh. And our tipsters—often people we have never met who reach out to us through email and phone calls—have helped us break stories and get the insider angle on stories where everyone else is simply re-writing the press release.

It seems not everyone knows how to get in touch with us. It couldn’t be easier! You can email us at tips@dealbreaker.com or calls us at 212-334-1871 with your office gossip, bonus rumors, misbehaving banker snap shots, true-life stories of work gone bad, deal news, trading desk follies, market movements, promotions and firings, and whatever else happens to be on your mind.

But if you are worried that the SEC might subpoena your emails, there are two more ways to send us tips. You can now contact us via instant messaging. Our AIM screenname is TheDealBreakers. But sometimes you need that extra-measure of security—or rather, to avoid those extra measures of security from the folks who might be monitoring your computer usage. So we also have a DealBreaker tips text message account. Send your text tips to 973-495-0177.

Here’s a creative way of sending tips that users recently discovered: take a photo with your phone and send it to us on the tips line or to tips@dealbreaker.com. It’s a great way to send firm memos without leaving any trace that can be found by your employer!

As always, you can rest assured that we will keep your identity confidential. Thanks!

Unfortunately, none of you correctly guess yesterday’s blind item re: which hedge fund manager pays his employees by sticking semen-soaked fifties all over their bodies. Here’s another one, once again courtesy of Radar. It may initially appear to be slightly less salacious than the last, but once the subject is correctly identified, I’m sure we’ll able to figure out his kink of choice, or assign him one.

Turns out the rumblings in Charlie Gasparino’s stomach were correct—the Lehman Brothers CEO has been fired.

Heelys(R) Responds to Skechers USA Inc.’s Proposed Acquisition
So you’ve been following this one really closely, right? Heelys, the maker of shoes with wheels, has come under a takeover attack from Skechers, which is probably like the most fitting acquire we could think of. Both brands have the same thing at play: Total lameness with the prerogative of coolness and hipness. Actually, we kind of like Heelys, and every time we see a kid riding on them, we realize that they’re probably having more fun than us “walkers”.

Clear raises fat $44.4 million round to expand airport fast pass system (Tech Confidential)
Do any of you use Clear? It’s the expedited line at the airport — you pay some annual fee; do a background check, and you get to move through security quicker. It’s just raised $44.4 million to expand its efforts. And we had no idea it was started by Steven Brill — yes, that Steve Brill. The idea isn’t ridiculous. But in a way it’s totally ridiculous. You understand the absurdity of it right? Yep. You still have to go through security at the airport, just like anyone else. The background check, then, is meaningless — it’s just a smokescreen for a service that lets payers move through security quicker. Let us know what your experiences are with it.

Foreign Policy Boosts Biden (WSJ)
So in the last day or two it seems that Joe Biden’s stock has risen pretty sharply in terms of the veepstakes. On Intrade, he’s way ahead of the field, including Evan Bayh who’s numbers have dropped sharply. We will say this for Obama: Selecting Biden would be a mature, un-cynical move. In other words, Biden can’t really deliver any states or help him make progress in certain demos. He’s very dry and the media bounce should be short lived. But if hit main priority is in selecting one of those “ready to lead” types, then a Biden logic probably makes some sense.

Stocks point higher after Hewlett-Packard report (AP)
Supposedly, if stocks do well, we’ll have HP to thank. The tech glom reported solid earnings last night. We’re guessing it was helped by a weak dollar, as the company has nice geographic exposure. Bad news: Oil is back to $115.

$$$ FL beats NY for millionaires. [WSJ]

$$$ EDGAR being replaced by IDEA [Chris Roush]

$$$ DealBreaker: Now High-Brow [NYM]

$$$ The possibilities are endless: “That would have been enough if it was just Mr. Insana, a secretary and a dog.” [DealBook]

CNBC’s Charlie Gasparino, who broke the Neuberger Berman story that everyone else is pretending they broke today, is now reporting that Lehman CEO Dick Fuld and President Bart McDade are mulling a complex transaction that would involve Lehman selling a warrants for a 25 percent stake in itself as well as 70 percent of its investment management business. The deal would include an option for Lehman to buy back the investment management business later.

The particulars are as follows: Lehman would sell 70 percent of the investment management business, while holding on to the remaining 30 percent. It would have a call option on the 70 percent. The buyer, most likely a private equity firm, would get warrants for a 20 to 25 percent stake in Lehman itself.

This is the deal that Lehman is pursuing with private equity firms, apparently. It would allow Lehman to raise a large chunk of capital without permanently giving up the upside in its investment management business. Our own sources suggest that Lehman executives believe that after the current credit crisis passes, they will be able to rebuild the bank.

Gasparino suggests that Lehman may not have the leverage with buyers to force them to take this deal. With time running out and write-downs looming, Lehman could be forced to permanently part with its prized asset management assets.

The free fall of Fannie and Freddie shares slowed a bit today but the pricing on the credit default swaps continued to blow-out today. The spread on insuring Fannie Mae’s debt widened about 40 points today, to around 355 basis points, according to a bond trader we trust. Freddie saw similar widening. That’s around the same size as yesterday’s CDS moves, which are widely believed to have contributed to yesterday’s sell-off.

Portfolio has a big article on the business of The Jonas Brothers, the boy band that is apparently a big deal with the kids these days.* Sophia Bonay handily broke down the object of tween/teen lust that hopes to attain “Miley Cyrus-like success,” a goal now very much within reach, what with the fresh round of funding from venture capitalist firm NAMBLA.

For those of you who truly only care about the JBs from a business perspective (right), there’s a lot of interesting information. $12 million: 2007 earnings, with $9 million from the group’s tour and $3 million from music and merchandise sales. 140: Total number of stops on their hilariously named “Look Me In The Eyes” tour, which began in January 2008 and runs through 2009. 29: number of guitars the brothers own. $9,000: StubHub price of a pair of orchestra-section tickets for the August 16 sold-out show in Holmdel, New Jersey. 3: Number of consecutive Jonas Brothers singles that garnered more than 100,000 downloads— a record— on iTunes. $2.8 million: price of the home in Dallas that the brothers purchased in June 2008. 946,362: MySpace friends (as of August 13, 2008). 743,915: MySpace friends assumed to be sexual predators (as of August 13, 2008).

There’s one extremely important number, some might say the most important number of all, that Portfolio shamefully failed to include. That number is $300,000: Steve Cohen’s winning bid at the Robin Hood Foundation benefit in May for a private concert with The Brothers, the kicker being that the person bidding against him to be serenaded by the boy band du jour was Jim Cramer. And yes, we know Cohen has some young kids who one could make the argument he was bidding on the concert for but let’s also keep in mind that 50 percent of the reason people have kids is so that they can have fronts for businesses or predilections or loves that dare not speak their name they don’t want you to know about, such as the one a hedge fund manager has for three singing brothers who could the next Von Trapp family were they not evangelical Christians.

The Jonas Brothers By-The-Numbers [Portfolio]

*We hate it when people use that saying but in this case the ignorance about a piece of pop culture that seems to be a product of me: old, you: young it is meant to express is entirely apt. We know virtually nothing about the group, a fact that makes us feel like a fossil at the age of almost 24.

Inflation spirals out of control. Fannie and Freddie are failing. Global construction bets are on the verge of blowing up.

There. You’ve got your big, market-moving hard news out of the way. Now let’s settle into some real summer silliness. Everyone’s favorite penny stock trader and budding internet entrepreneur Tim Sykes is about to leave for an extravagant vacation in Japan. He plans to spend $11,000 in seven days by dining on pricey sushi and staying in Ritzy hotels. Then he’s going to climb Mount Fuji, just to say he did it.

We’re pretty sure this entire trip has been planned just to anger his critics. So don’t take the bait. Instead, in comments below, describe the best vacation you ever took and how much it cost you. Go on, show your baller cred.

How To Spend Trading/Blogging Profits: My 7-Day $11,000 Trip To Japan [TimothySykes.com]

This month’s Radar has a story on the business of fucking people for money. Apparently it’s still de rigeur among old(ish) rich guys, especially those employed by banks and hedge funds which: makes sense. The writer interviews a trio of girls about what it’s like to make an assload* of money for relatively little work, and overall it seems to be a pretty easy gig, save for the superhuman task of having to keep a straight face when your colleagues let their freak flags fly. Which brings us to the blind item of the day! Who is the man being described below?

*See what I did there?

The cost on insuring Lehman’s debt has climbed from 130 basis points in late April to 387.5 basis points today. The credit default swaps, which are contracts insuring Lehman’s senior debt, appear to show high levels of skepticism about the firm’s financial health, according to some traders.

Yesterday the cost of insuring $10 million of Lehman senior paper for five years was running around $327,500. Today it has climbed up to $387,500. This fifty basis point shift far outstrips the movements in the credit default swaps at other Wall Street firms, which almost universally widened today.

“It’s the uncertainty about the size of their write-downs. There’s a lot more to come, it’s affecting the entire fixed-income market, and Lehman is at the top of everyone’s list,” said Mirko Mikelic, portfolio manager for Fifth Third Asset Management in Grand Rapids, Michigan.

The news that Lehman is shopping Neuberger Berman to private equity funds is not helping the firm. Despite the possibility that it could put more money in Lehman’s coffers, the sale seems to have encouraged worries that Lehman’s financial health is seriously impaired. Many in the debt markets now believe that financial firms may be forced to write-down another trillion of asset values, which would bring the total number up to $1.5 trillion.

Lehman’s stock is trading down around 10% today also. Some market watchers urge caution about trying to assign reasons to pricing movements. (The official DealBreaker policy is never to assign post-hoc rationales to financial instrument pricing but we break that rule a lot.)

“Of course this crazy desire for narrative and causation is exactly the problem,” Felix Salmon at Portfolio told us this afternoon. “There isn’t always a reason.”

Over on Market Movers, Felix explains how this drive to produce a market narrative can be misleading.

Charlie Gasparino reports that Lehman Brothers’s probable sale of the family jewels is the first in a series of escalating dares the conclusion of which will be Dick Fuld looking for a new job.

Some of you assume that we get off on reporting the many, many, many layoffs you and yours are going through, as well as the fallouts that result from your lack of income. This could not be further from the truth. We are right there with you (though no severance packages for us), and to be honest, this shit is getting depressing. Nothing would make us happier than if you all kept your jobs and we came to an understanding that all proprietary information would be forwarded our way. That doesn’t really look like it’s going to happen, though, which is why we’ll be taking another approach. From here on out, whenever it’s appropriate or the mood strikes us, we’ll be laying out some sweet employment opportunities before you. Dream jobs, if you will. This serves multiple functions: it gets you out of bed, it alleviates our depression over having to write day in and out about you not having any reason to get up in the morning, and it hopefully, depending on your business acumen, will provide for amusing anecdotes regarding fuck-ups at your new gig.

Today’s comes from the Street though it does not require you to work the street. On the corner of Exchange Place and William, a flyer reads: “Commercial Investment Company seeks C.F.O,” and claims that not only will you be making six figures, but no experience is necessary, and the only requirement is a minimum credit score of 720 or higher. INTERESTING. As we are always working for you, we decided to get some intel and placed a call to the number listed (646-267-2423). Here’s what we found out: this is a so newly formed “real estate investment company” that it does not yet have a name. As C.F.O., you would be responsible for applying for lines of credit that can be used for “down payments and closing costs on buildings.” This will likely take 60-90 days, at which time, you can resign with no obligation to the firm and $100,000 in your pocket.

Okay, yes, it’s sounds slightly shady but honestly, we think you should do it. Maybe, even though all signs point to a scam, it’s not a scam? And it’s not something that would be all that taxing, or take up a lot of your time, and you could probably work two jobs simultaneously. It doesn’t really ask anything of you (just your good credit). Basically it seems like being a sperm donor, which our most recent reader poll tells us 78% of you are. Anyway, that’s our spiel. It’s not like we stand to gain anything from this (YOUR HAPPINESS IS REASON ENOUGH). As of noon, only one tab had been ripped off but we assume the competition is stiff. ACT NOW.

The results from June’s Chartered Financial Analyst exam are in. The pass rates are right about where expected. Forty six percent of those who took the exam passed Level II and 53% passed Level III. About a month ago we found out that Level I had a pass rate of 35%.

The CFA exam has a notoriously high failure rate. Investment bankers at top banks fail, in part because it is difficult to set aside the 250 hours of study time the CFA recommends.

This weekend there was all kinds of chatter on analysts forums when a technical error appeared to have let people get an early glimpse of their results. Test takers logging in to their candidate page on the CFA Institute website found links urging them to “Register for the Level III exam” or links to the the Level II exam.

It seems that the CFA Institute may have uploaded the data over the weekend, without realizing it would flow through like that to candidate’s personal pages even the results were not available. The links were quickly taken down but not before some test takers got a preview of their results.

Congratulations to all the DealBreaker readers who passed the test!

[Part III, Part II, Part I]

The Financial Times, The New York Times and The Wall Street Journal are all reporting this morning on Lehman’s plans to sell Neuberger Berman, its asset management business. A bunch of private equity firms have received detailed financial information about Neuberger. The Journal names Carlyle Group, Hellman & Friedman LLC and General Atlantic LLC, while the NY Times adds Kohlberg, Kravis & Roberts, J. C. Flowers, the Blackstone Group, and Apollo Management.

As fun as it is to watch the papers play catch up on this story, coming weeks late and dismissing earlier reporting as “speculation,” let’s dwell on the fact DealBreaker readers have known about this story for weeks, thanks to our deep investigative reporting repeating Charlie Gasparino’s CNBC reports.)

The real news here is what this tells us about Lehman’s financial health and internal politics. Selling Neuberger Berman seems like a desperation move. It’s executives are said to be threatening to leave due to Lehman’s share price. Mass departures would likely result in client defections as well. In short, if Lehman doesn’t sell now it could find there’s nothing left to sell a year from now.

What’s more, the attempt to sell Neuberger Berman is being read as a leading indicator of huge losses at Lehman. With just two weeks left in the third-quarter, Lehman may be scrambling to raise money by selling assets to make up for credit market write-downs. The attempt to sell CMBS isn’t going very well, so a Neuberger Berman sale is the last, best option.

Here’s the question that’s probably unfair to ask: if they sell Neuberger, what will Lehman do if it has fourth quarter write-downs?

Russian Troops Seize Georgian Port (WSJ)
Well sure, Russia is on its way out of Georgia. But you know how you sometimes grab a piece of mind from the candy bowl next to the door at the Chinese Restaurant? Yeah, it’s like that. Except its a port not a mint. And apparently it’s an “economically vital” port, even though we haven’t heard of it (suspicious). The port of Poti? Ring a bell? Another twist: apparently the port is being occupied by Russian “peacekeeping” forces.

Obama appears ready to announce running mate (IHT)
Check your inbound texts. You did sign up for the alert, right? You know, the Obama text alert where he’s going to announce his running mate. Assuming The Politico doesn’t break it first, you can have it before anyone else? But who will it be? Evan Bayh? Jim Webb? John Kerry? Hillary!?! Over at Intrade the top choice is Bayh, who’s trading at .20 on the dollar. Next is Tim Kaine at .13.

Olympic Star Is Sidelined. Will His Ads Be, as Well? (NYT)
When it comes to each event, we’re kind of on the ABC (Anyone But China) bandwagon, mainly because we’re obsessed with the medal count — not that we have anything against the Chinese or the Chinese athletes. Which is why we were sort of sad to see that Chinese hurdlist who had to pull out of his event due to injury. Apparently he’s the 2nd biggest athlete in the country after Yao Ming. And of course, he’s got endorsements out the wazoo. Anyway, interesting NYT article on what happens to all of those now that his games ended as a dud.

Lehman examines Neuberger Berman sell-off (FT)
Multiple reports this mornings that Lehman is talking to various prospective buyers about selling Neuberger Berman, the company’s “lucrative” (always lucrative) asset management business. One analyst pegged the value of the unit at $10 billion, which is not bad, considering the company paid $2.3 billion for it in 2003 (but what about those taxes?). The report notes that unlike Merrill, which had the Bloomberg stake, Lehman doesn’t have any non-core assets at his disposal that are natural sale opportunities.

$$$ Deals: Steel and Germs, but No Guns
In our M&A roundup for the period ended Aug. 17, Russia’s Novolipietsk Steel makes the biggest buy, with a drug deal and a drug-store deal right behind it. [CFO.com]

$$$ 2 Ex-Brokers Said in Plea Talks Over Squawk-Box Charges [DealBook]

$$$ Olympic-Style Street Harassment Outside Credit Suisse [Gothamist]

So what’s going on between the Treasury Department and the GSEs? This morning Barron’s said that a government bailout of Fannie Mae and Freddie Mac was becoming more likely, in part because the mortgage giants were unlikely to be able to raise enough money in the open markets. The Treasury kinda-sorta put down the idea, saying it had “no plans” to use the authority lawmakers gave it to rescue Fannie and Freddie.

“As the secretary said many times before, we have no plans to use the authority that we’ve been given, so I’m not going to comment on any speculation,” Treasury resident hottie spokeswoman Jennifer Zuccarelli told a news briefing on Monday.

Those with memories that stretch back beyond the current crisis will recall that five days before Paulson was named Treasury Secretary, President George Bush responded to questions about the rumor resignation of John Snow, Paulson’s predecessor, by saying he knew of “no plans” for Snow to step down.

Of course, the Treasury’s denials are almost entirely besides the point. No one is asserting that the Treasury has current plans—like a schedule—to inject new capital or loans into Fannie and Freddie. Rather, Barron’s was analyzing the likelihood that the government will need to do so to keep them afloat. We suspect that the Fed was sending a subtle message that it didn’t necessary disagree with Barron’s by issuing this half denial.

Interestingly, speculation began to increase today that the Treasury may ultimately try to split apart Fannie. The idea would be to build a “Good Bank” of a securitizing Fannie that could continue as an independent entity borrowing at market costs without an implicit guarantee, and a “Bad Bank” loaded up with Fannie’s awful portfolio and ill-advised loan guarantees.

[Part II, Part I]

That’s the claim of a Merrill Lynch banker who has written to Here Is The City, a financial news and gossip site based in Britain.

“I wonder what the implications really are, and am concerned that the freeze itself is just a marker which firm executives are putting down to signal that there are much tougher times ahead,” the banker writes.

The banker emphasizes that he has not “got it in for my firm” but speculates that the hiring phrase will last much longer than the anticipated 20 weeks. “[I]t will remain difficult to obtain additional headcount throughout 2009,” he writes.

The entire letter, including the requisite Stan O’Neal bashing, is on Here Is The City. (Thanks to Hilary Lewis at the Business Sheet, who brought this story to our attention.)

Morgan Stanley and Goldman Sachs are linking their lending to hedge funds to the market’s assessment of the credit worthiness of the investment banks. Morgan Stanley will reportedly evaluate the amount of leverage it will supply to hedge funds based on the price of its own credit insurance pricing. Goldman is said to be linking its willingness to provide loans to hedge funds based on its bond prices.

The report of both changes ran in the Financial Times. The changes would limit the ability of hedge funds to borrow from either firm if borrowing by Morgan and Goldman became too expensive, indicating a lack of market confidence in the financial health of the firms.

In one sense, this seems a practical response to volatility in the credit markets, reducing exposure to hedge fund leverage as credit markets for financial companies become unsettled. It does, however, create a self-serving dynamic for the investment banks. If hedge funds taking the view that the companies have become unstable push up CDS or bond yields on the firms, they may find themselves unable to borrow from the firms. In other words, it gives the hedge funds an incentive not to bet against Goldman and Morgan.

The FT says the plans to link hedge fund leverage to the broader credit markets has been in the works for sometime. “These arrangements for determining the size of lending commitments to hedge fund clients were being put in place before the collapse of Bear Stearns,” Henny Sender writes. “But implementation has gathered pace as investment banks seek ways to guard against the sudden loss of confidence - and resulting withdrawal of market funding - that crippled Bear.”

MS and Goldman change approach to lending [Financial Times]

A year ago Monday, investigators theorize, a worker carelessly chucked a lit cigarette, igniting the blaze that claimed the lives of Firefighters Joseph Graffagnino Jr. and Robert Beddia.

When inspectors and FDNY investigators walked back though the building nine days later, they made a shocking find in a sixth-floor room.

‘Many cigarette butts were found along with a Weber black small BBQ,’ one wrote.”

Safety warnings were ignored before Deutsche Bank fire [NYDN]

[Part I]

Today marks the fifth anniversary of FootNoted.org. Since 2003, Michelle Leder has read SEC filings so the rest of us don’t have to. The site uncovers things that companies try to bury in their routine SEC filings. While some of her posts focus on wonky and serious things like creative accounting, fraud and excess compensation, many of our favorite posts have been just plain funny. Reading corporate filings is a tedious task, and Michelle has been at it for years now. (Although this video uncovers the key to her productivity in child labor!)

Happy birthday Footnoted.Org. Here’s to the next five years! Thanks Michelle for all your hard work.

We talk a lot of trash about (to? at?) Merrill Lynch here, most of it warranted. That’s not going to change any time soon (barring Thain agreeing to the terms of the bribe* I recently laid before him, in which case we’ll be pumping that stock like gangbusters). BUT! In an effort to show you that we are capable of more than simply throwing stones, we’ve come up with what appears to an untapped revenue stream that, if put to work, will put the bank back on the road to profitability. The plan is slightly self-serving, but that’s of little consequence and besides—all the great ones are. To the Merrill executives reading (and we know you are), if the aforementioned money-making scenario sounds like something you’d be interested in, pay close attention. Short-sellers who stand to gain if Merrill falls (categorically impossible if they do exactly as I say), I’m willing to talk, provided we can come to some sort of agreement such as the one Thain’s yet to submit t0. Everyone else—if you like what you see here, get in touch and, for a price, I’ll whip something up for you, too. First, let’s deal with MER.

One half of the brain trust here at DealBreaker was stuck in traffic this weekend that resulted in six and a half hours of travel time from Cape Cod to New York. This prison sentence was made exponentially more torturous by two things. The first: an obscene number of mosquito bites on the backs of our legs, the itchiness of which could not be dampened in the slightest by digging our nails into our skin like a common meth addict. The second: having to stare at this for at least half the drive:

*Not interested in some outlandish lump sum but merely an understanding that whenever I want/need to I can stop by the office and hit him up for the cash contents of his wallet.

Despite this morning’s Wall Street Journal story about analysts predicting losses at Lehman Brothers, Dick Fuld’s fraternity isn’t faring that badly on the market this morning. There was a huge downdraft at opening but it’s recovered since then so that it’s now trading down just 2.5%, only slightly below where most of its Wall Street rivals are trading. (Actually, it seems the Fuldistas are beating Merrill Lynch this morning.) But there may be trouble on the horizon. We’re hearing this morning that talks are not going well in Lehman’s attempt to sell off $40 billion of commercial real estate assets.

Last week, Henny Sender of the Financial times reported that there was a wide price gap between what potential buyers such as Blackstone and BlackRock are willing to pay and what Lehman thinks they are worth. This morning a source familiar with the back-and-forth, although not party to the actual talks, told us that the negotiations have all but come to a halt.

(Cautionary note: even our source admits that these things are very fluid, so don’t assume that just because someone said ‘pencils down’ recently that the negotiations are dead and buried. Like zombies and herpes, deals often rise again. What’s more, you ought to be suspicious of the motivations of anonymous sources. Our source is actually friendly to Lehman, and so this may be an attempt to pressure the would-be buyers in some way. We haven’t yet asked Lehman about the state of the talks, and suspect we wouldn’t be told anything anyway.)

A sticking point may be Lehman’s inability to provide the kind of financing for the asset purchase that Merrill provided when it sold real estate linked assets to Lone Star. Merrill reportedly provided 75% of the capital in a deal that will only pay off if the values of the assets don’t fall much further, a risky bet in today’s markets. Lehman, with an even more precarious financial situation than Merrill, probably can’t afford a similar move.

The speculation is that Lehman may simply try to spin off the assets into a separate entity, in a Good Bank-Bad Bank scenario. But that move is also being criticized. “A spin-off could meanwhile mean taking an upfront hit to capitalise the newly formed entity, without raising funds for the core business,” Lex writes in their cutie-pie British way.

Peter Cohan gives voice to the thoughts on the minds of many bearish speculators. “With $8 billion in writedowns and losses and $13 billion in capital raised, the race for survival goes on between capital raising and real-estate write-downs,” he writes. “I am not confident that Lehman can win that race.”

Bad news all around here—parents who would otherwise choose to not spend time with their spawn are being forced to do so because they can no longer afford to child rear via proxy. New York reports that the previously thriving nanny business has all but dried up due to widespread layoffs and shrinking bonuses. “It’s been a week and no one’s called,” says Christopher Sager, a Soho-based child technician sans child. According to SitterCity.com’s Genevive Thiers, the listing service’s job seekers have grown from 1,300 to 2,500 in the last six months. The number of Craigslist postings by those in the human animal husbandry business pushing their services has skyrocketed as well. Saturating the field are advertisements by former professionals from all walks of life whose backgrounds/interests aren’t actually in raising your offspring but are just that desperate for work. Included in the mix are a transient crackwhore who’s actually pretty great with kids* and a deposed Lehman Brothers CEO.**

Wall Street Woes Hit The Nursery [NYM]

*You know who, don’t make me say it.
**Don’t want to start a panic, but got some insider info on this one.

As the end of the third-quarter approaches, the speculation has begun about the level of losses at various Wall Street firms. Lehman Brothers, of course, is at the center of the talk. This morning a report in the Wall Street Journal suggests that Lehman may face a fiscal third-quarter loss of $1.8 billion. That would take Lehman’s losses since March up to $4.5 billion, or more than it made in profits for all of 2007.

Losses of this size could force Lehman to follow Merrill Lynch’s lead by selling off a huge amount of its assets at once, most likely at a steep discount. The ongoing losses coupled with reassurances about the strength of the balance sheet has badly damaged Lehman’s credibility. Further capital raising will be difficult for Lehman in an atmosphere of distrust and shareholders already angered over dilution from earlier rounds of capital raising.

Lehman has been benefiting from widespread support from institutional investors. Twenty four of Lehman’s 30 largest shareholdersncreased their holdings in the second quarter, according to Securities and Exchange Commissions filings last week. Large investors who increased their stakes included Axa, Norges Bank Investment Management, State Street, Credit Suisse, Bank of New York Mellon, Janus Capital Management , George Soros, T Rowe Price Group and Wellington Management. PIMCO, Blackrock and SAC Capital have all publicly rallied support for Lehman. Given the decline in Lehman’s stock price, nearly all of these firms have lost money by betting on Lehman.

But not everyone is jumping on the save Lehman bandwagon. Fidelity Investments, the largest mutual fund company, reduced its stake by 17%.

Lehman Faces Another Loss, Adding Salt To Its Wounds [Wall Street Journal]

Brokers who sold auction rate securities to customers have begun a “counteroffensive” in response to investigations by New York State Attorney General Andrew Cuomo, according to CNBC. The brokers, stung by recent allegations that they misled customers about the liquidity of the securities and the possibility that charges will be filed against individual brokers, have begun pointing to the role of underwriters, according to a CNBC report.

The Regional Bond Dealers Association, a brokerage trade association, has written a letter to Cuomo’s office. They hope to shift his focus onto firms who underwrote the securities, rather than the brokers who sold them on. Brokers are also pointing to the role of issuers, who many believe knowingly benefited from deception about risks in the market and who have been slow to redeem the securities.

The letter from the RBDA alleges that fraud occurred among the underwriters, the banks who brought the auction rate securities to market on behalf of the issuers. The brokers claim they were entitled to rely on the reassurances about liquidity from underwriters and acted in good faith.

Musharraf Is Resigning (WSJ)
This has been expected. Pakistani President Peverz Musharraf is resigning. The resignation comes as impeachment charges were set to begin, but, alas, Musharraf wanted to do what was right for the country, even though he felt he would’ve beaten the charges (no idea on that). More from NDTV and the Economic Times of India, which notes that Pakistani shares spiked 4.5 percent on the news. Does anyone know how much that is in dollars?

Media coverage of the economy lags, study finds (AP)
Amusing: A report from The Project for Excellence in Journalism maintains that the news media is behind the curve when it comes to reporting on the economy. Much of it has to do with over-reliance on government data, which is, itself, often behind the times. Perhaps you’d expect otherwise, but we’ll cut the newsmedia some slack. Most journalists don’t really have the wherewithall, the time, or intelligence to be ahead of the curve economically. Sure you have some standouts, like whoever it was at the FT that warned about subprime a year early. Or those of us here at Dealbreaker that said options backdating was a load of hot air. But really, such cases will always be few and far between. If you want to have a cutting edge understanding of the economy, it’s highly unlikely that the news media will ever be your best avenue — nor should it be.

Home Depot May Say Annual Profit Will Fall More Than Forecast (Bloomberg)
A preview of Home Depot’s earnings report on tap for tomorrow: The basic gist: Despite the recent rally in Home Depot shares (they’ve bounced 28 percent, not bad), the housing slump is still the housing slump and results may still be pretty weak. Then again, as Cramer says, the market is telling us that in 9 months housing will be back, so no need to worry about today.

A Surprise Winner at the Olympic Games in Beijing: NBC (NYT)
Prediction: This next week is going to suck for NBC. Sure the first week was really great, with stellar ratings, as everyone tuned in to watch Michael Phelps get a gold night in and night out. This week, what’s to watch for? All the marquee track and field events are on tape delay. And besides, it looks like the US is going to suck wind in ‘em. Out of the two 100m dashes, we got one bronze medal.

$$$ UBS says Goldman and JP Morgan will take a hit in the third quarter [Bloomberg]

$$$ Inmates will be cleaning foreclosed properties in California [Home Front]

$$$ Moments of hotness at Fox Biz [Wall Street Fighter]

$$$ Wachovia buying back $9 billion of auction rate securities [Charlotte Biz Journal]

$$$ KKR bosses made $1.3 billion last year. [Business Sheet]

$$$ Is Greenspan still in denial? [Minyanville]

$$$ The FDIC is suddenly very busy: 8 banks have failed this year, twice as many as all of last year [New York Times]

$$$ Trump offers to help Ed McMahon avert foreclosure [Reuters]

$$$ Who the hell are the Jonas Brothers? [Portfolio]

$$$ Former Indymac employees team up with Republicans to get Schumer [LA Times]

$$$ And that’ll do it for us this week. Enjoy your weekend. If you’re in New York City, watch out for that tornado!

Over the next few months, the media will be talking about presidential polls taken nationwide. Most of the polls you hear about are done nationwide and assume we Americans for our president the way the French vote for theirs (and may the Lord bless and keep Nicholas Sarkozy): that is, by popular vote.

Some of the smarter ones amongst you are toying around InTrade.com to predict the upcoming election. Well, that’s nice and all, but how ‘bout those of us for whom statistics matter? We’re looking at FiveThirtyEight.com which breaks out poll numbers state-by-state and evaluates the pollsters themselves based on their prediction accuracy.

You know all those T. Boone Pickens ads that run on CNBC these days. He’s got a plan. He’s going to save us from “foreign oil” with the power of wind. This is one problem we can’t drill our way out of. Yep. Those ones.

We’re meant to be amazed the famous oil man T. Boone Pickens” is pushing so hard for greater U.S. reliance on wind power. He even goes out of his way to say, “I’ve been an oil man” for 8,000 years or whatever. What he doesn’t mention is that he owns the largest wind farm in the world.

Tim Carney* looks at Boone’s wind in the Washington Examiner.

The “Pickens Plan,” the legendary oilman’s public relations and lobbying blitz billed as a way to reduce our dependence on foreign oil, has its virtues and its flaws, but it should be presented in an honest light — a billionaire heavily invested in currently unprofitable (without subsidies) wind power wants the government to further subsidize, mandate or otherwise help wind power be more profitable.

* Disclosure: Tim Carney is my brother.

Merrill Lynch faces an “imminent” lawsuit from New York State Attorney General Andrew Cuomo. The attorney general said that his office has “not been able to reach satisfactory terms” with Merrill, which earlier this week offered to buy back some auction rate securities from retail investors.

We’re told that the sticking points are Merrill’s plans to delay the purchases until next year, Merrill’s resistance to reimbursing customers who sold the auction rate securities at a discount and whether or not Merrill should expand the deal to include pension funds.

Perhaps most troubling for Merrill is that Cuomo may sue particular individuals involved in the market for auction rate securities. The other day he said he was not just following the money, but following “the people.” Within Merrill Lynch there is a lot of trepidation that the Attorney General could bring lawsuits, and perhaps even criminal charges, against brokers who sold auction rate securities and bankers involved in underwriting.

Keri Strug, the little elf who used to be a gymnast and once worked for the Treasury Department, was just on CNBC talking about how awesome Bank of America is. We had the volume turned down so we’re not sure what she said. But we’re told she forgot to mention the most explosive BofA story of the day.

No, there’s not a run on the bank. We’re not going to start talking about Level 3 assets on its balance sheet. What we’re referring to is that Bank of America apparently handed one of its customers a truly exploding asset.

On Friday, [cab company owner Laila] Cheikh went into the Bank of America in the 14-thousand block of Warwick Boulevard. She was getting cash to pay her drivers, but when she put the money in her car something went wrong.

“It started going [hiss] everywhere and it started smelling.”

Red dye sprayed everywhere.

“In the car and in my eyes and on my nose and I was coughing like crazy. My throat is still a little irritant,” says Laila.

The customer had to go to the hospital to have the dye removed from her eyes.

Dye pack explodes on Bank of America customer [WAVY]

Update: After the jump, and important discussion about people of smaller stature.

We were reminded this morning by Bess Levin, who is sunning herself on a beach somewhere while we toil away in the mill of rumors, that it’s one of the last Friday’s of the summer. You know what that means, right?

It’s time to up your game for trading floor eating challenges. Earlier this summer, local hero Oyster Boy threw down the food eating challenge gauntlet by massacring 244 oysters in one hour. So far all of Wall Street has failed to match this monumental feat of gastrointestinal fortitude.

We at DealBreaker have chronicled these sad attempts: the inability to consume 36 mini vending machine snacks over the course of the day, 4 Eggless McMuffins in 60 minutes and so on and so forth.

Underway right now on trading floors across the New York financial scene are some rather uncreative challenges. At one small caps equity desk a guy is attempting to consume 60 McNuggets. (Side note: they still make McNuggets?) Over at a bond trading desk at a bank almost untouched by subprime sludge two junior traders are racing to the middle of a five foot long sub. (Side note: they still make junior bond traders?)

Surely some of you are practicing the fine art of eating challenges with a little more panache. Write to us at tips@dealbreaker.com, text us at 646-526-3327 (our usual tips text line isn’t working today, so that’s our back up) or call us at 212-334-1871. Don’t waste one of your last chances to make a difference on Wall Street.

We’re no fans of protectionism — least of all, regulation coming out of the People’s Republic of Canada. However, with Stephen Harper at the helm, things have gotten better for our mildly dull, if not downright slow, neighbors to the north. Case in point: The National Post reports today that the Canadian Radio-television and Telecommunications Commission (CRTC) has just approved a new porn channel, on the condition that it show 50% Canadian content.

We’re just going to admit that we think it’s adorable that Jessica Walter turned to making cupcakes when she lost her job as a vice president in credit strategy at Bear Stearns. She liked cupcakes and kids so much she went and founded a company, called Cupcake Kids!, to provide birthday parties and cooking classes for children, according to Bloomberg.

Bloomberg also reports on Jeff Salmon, who decided to “swap” investing in asset-backed securities at Bank of New York for keeping the books at a barber shop. (Ha! Hillarious. “Swap.” Get it? Did you see what Bloomberg did there?)

Last night we talked to two women at different banks who both asked about becoming a professional blogger, a sure sign that market panic is peaking.

Wall Street’s Jobless Try Cupcakes, Cheap Haircuts, Maybe Omaha [Bloomberg]

OMG! You guys! Have you heard that Merrill Lynch totally has a hiring freeze in place? The company isn’t hiring anyone these days—not even to replace folks who leave or to fill slots it had previously budgeted for. The only exception is retail brokers, who mainly work on commissions anyway.

The story “broke” late yesterday, when the New York Times reporter Louise Story somehow “obtained” an internal memo from Greg Fleming, Merrill’s president, and Tom Sanzone, the chief administrative officer. According to a story published in Reuters a half hour later, Merrill Lynch spokeswoman Jessica Oppenheim has even confirmed the memo!

Of course, Bess Levin reported all this 31 hours earlier here, even including a photo of the memo on a Merrill Lynch computer. But we congratulate our colleagues in the financial media on catching up so quickly.

The first study of the impact of the SEC’s July 15 emergency order restricting short selling in nineteen financial stocks shows that the order probably had a detrimental effect on markets. While the order was in effect, the bid-offer spreads in the protected stocks widened and the stocks became more correlated with broader market movements.

The study comes from Arturo Bris, a professor at Lausanne’s IMD business school. He finds that volatility in the 19 stocks decreased while bid-offer spreads increased, while both measures remain stable for non-protected stocks. This suggests that the SEC order was genuinely interfering with market pricing. What’s more, overall market efficiency was harmed by the market. In an efficient market, stocks move less with broader indexes and more on information about individual firms. While the order was in effect, the prices of the 19 firms became more correlated with the broader markets.

Perhaps more interestingly, the study also questions the widespread impression that the 19 financial stocks were being victimized by naked short-selling. The average ratio of short sales to overall trading in the 19 stocks was only one tick higher than for other financial companies, for instance. Prior to the order, the largest volume of shorting activity hit firms that were issuing convertible bonds. This implies that most of the short sales in these stocks were not done by rumor-mongering speculators but by convertible bond arbitrage funds.

The cynical will hardly be gob-smacked by the report. Of course the emergency order made the markets less efficient and interfered with pricing, they’ll say. Isn’t that what it was intended to do?

(via Seeking Alpha)

Sterling loses more ground against the dollar (AP)
The dollar is un-stop-a-bull! Another day, another gain against a major world currency. Not that this is only a good thing. Like, wasn’t the cheap dollar going to help make the US a low-cost manufacturing nation again? Oh, and doesn’t it inflate the earnings of basically every multinational US company? Yes, it does. In fact, interesting report yesterday from an analyst looking at major hardware companies and how much of an earnings hit they stand to take if the dollar keeps firming.

Stocks head for higher open as oil falls (AP)
Oil’s falling again, sure, but back below $114? Haven’t we played this song before? It’s time to really move on. Do we hear $110? $105?

Two Large Solar Plants Planned in California (NYT)
Some mammoth solar plants are being built in California that will produce some 10x electricity as the largest one in operation today. Sounds pretty impressive. We just hope they’re not predicated on $115 oil. Cause, you know. The plant, which will span 12.5 square miles (let that sink in for a second), will produce as much electricity as a big coal plant. Did we mention it will be 12.5 square miles?

Merrill Books Losses Through U.K., Can Offset Taxes (Bloomberg)
Good news for Merrill: Apparently the way the company booked its losses in the UK will allow it to avoid taxes — in the UK — for years to come.

World Economy Shows New Strain (WSJ)
Newsflash! Basically every major economic region is flirting with a recession. Japan, Europe, US, etc. Sure, global GDP is still expected to grow this year, but the more you look at the component parts, it all looks fairly sickly. And not in a sickly sweet way, but just in a sickly sick way. Hopefully it’s not true, and that this doesn’t have anything to do with declining oil prices. Also, check out the carnage of silver, wheat and copper.

$$$ Whoops, there goes our profit. [Market Watch]

$$$ War and Peace and Stocks [Market Beat]

$$$ How To Lose Your Job…Gracefully. [CityFile]

$$$ Star in Tim Sykes’s music video… [TS]

$$$ Bear Market [WallStrip]

Yields on agency mortgage securities compared to U.S. Treasuries approached a five-month high today. Spreads rose to 215 basis points in intraday trading today, the highest level since early Mach 10, just prior to the crisis that leveled Bear Stearns, according to data compiled MKM Partners analyst Mike Darda. Over the past drbrtsl several weeks, the spread has been edging toward the 22-year high of 238 basis points set in March.

The so-called “agency mortgage bonds” amount to a $4.5 billion market guaranteed by federal agency Ginnie Mae or government-backed Fannie Mae and Freddie Mac. The rise of the spreads is widely viewed as a sign of stress in the financial system. More specifically, many believe that despite government moves to shore up Fannie and Freddie, the odds of the guaranteed bonds defaulting has increased.