$$$ The Problem Is the Assets, Not the Mark [NYT]

$$$ Where have all the Lehman Brothers bankers gone? [The Deal]

$$$ Layoffs Watch '08: Smith Barney Eq. Research, an hour ago.

$$$ Bulls, Bears, Donkeys and Elephants [NYT]

$$$ GFC [WS]

Intel beat the street's estimates:

(Dow Jones) Intel Corp.'s (INTC) third-quarter net income grew 12% on higher sales and margins as the technology bellwether's results met Wall Street's expectations and its revenue view for the fourth quarter - traditionally the busiest for electronics makers - brackets analysts' estimate.

The company said, "Current uncertainty in global economic conditions makes it particularly difficult to predict product demand and other related matters and makes it more likely that Intel's actual results could differ materially from expectations."

Shares rose 5.4% to $16.78 in after-hours trading from the close of $15.93 Tuesday.

The world's largest computer-chip maker reported net income of $2.01 billion, or 35 cents a share, up from $1.79 billion, or 30 cents a share, a year earlier.

Analysts' estimates were for per-share earnings of 34 cents on revenue of $10.26 billion, according to a poll by Thomson Reuters.

Also worth reading: Why Intel's earnings matter

Gawker did a little investigative journalism this afternoon (sifted through Facebook pics, sent and received Facebook messages) and discovered that Nouriel Roubini, AKA Dr. Doom, is not as full of gloom as we've been led to believe. To the contrary, despite his 'get in your bunkers, this thing's about to blow' calls, he is out there and loving every minute of it. Roubs apparently has many friends on a certain social networking site, "draws a cosmopolitan crowd to the frequent parties at his Tribeca loft, and is, he told Gawker, "quite a cheerful person...[who] lives life to its fullest. To paraphrase Seinfeld; anything wrong with that?" Plus, and this is the most telling, his walls are apparently "indented with plaster vulvas." Basically, this man is a fraud. Plaster vulvas scream nothing if not happy days are here my friends. The decor is downright ebullient, especially compared to Taleb's choice of paper mache assholes. Or, and this might be more likely, he's a sadomasochist getting off on this financial crisis sitch. Another bank failure and he'll be down right giddy.

Aleablog is worth visiting. Several times a day. Today they point out a study (The Future of Securitization by Günter Franke and Jan Pieter Krahnen) linking incentives, particularly bonuses, to the collapse in securitized products. There's a danger here of linking this sort of study to initiatives to reduce senior manager pay, or rattle sabers on income inequality. As if the mere quantity of compensation, rather than its structure was the guilty feature here. Of course, we have no doubt that the casual reader with the proper political bent will depart with that take-away. That is, however, naive, and those dangers aside, we think this one of the smartest works on the issue in a long while. (If somewhat belated. Not to boast, but I'll just boast that some of us were onto this issue over a year ago- forgive the shameless self-citations). But, then, we love anything with Goethe's name attached. Key passage from the abstract to note:

Our policy conclusions emphasize crisis prevention rather than crisis management, and the objective is to restore a "comprehensive incentive alignment". The toe-hold for strengthening regulation is surprisingly small. First, we emphasize the importance of equity piece retention for the long-term quality of the underlying asset pool. As a consequence, equity piece allocation needs to be publicly known, alleviating market pricing. Second, on a micro level, accountability of managers can be improved by compensation packages aiming at long term incentives, and penalizing policies with destabilizing effects on financial markets. Third, on a macro level, increased transparency relating to effective risk transfer, risk-related management compensation, and credible measurement of rating performance stabilizes the valuation of financial assets and, hence, improves the solvency of financial intermediaries. Fourth, financial intermediaries, whose risk is opaque, may be subjected to higher capital requirements.

(Much) More after the jump.

Securitization: Not Guilty [Alea]

Kierkegaard, Scientologists, Private Equity [Going Private]

Liquid Reflections [Going Private]

Bank of New York Mellon has been chosen to "administer" the vision of Bald and Co., beating out, among other applicants, State Street, Northern Trust, and JP Morgan for the job.

[via]

Related: Bloomberg Can't Stop Pronouncing Live People Dead

The Fed has released minutes of its recent discount rate meeting. In summary, the fed says most banks are to keep rates steady, lower consumer spending diminished the economy, and that tight credit is adding pressure on the economy. Now only one bank - Kansas City - wants a hike in the discount rate vs. 3 earlier in the year.

Idiot clause: The discount rate is the rate at which the federal reserve lends money to institutions. The discount rate is usually higher than the federal funds rate.

Article:

WASHINGTON (Dow Jones)--Dissent diminished last month among Federal Reserve regional banks for a discount rate hike amid growing risks to the economy.

The Fed on Tuesday released minutes of its discount rate meetings that were held in August and September before a Sept. 16 decision by the Federal Open Market Committee to keep its target for the federal funds rate at 2.00%.

The FOMC had lowered the fed funds rate from 5.25% over nine months to help the economy deal with the credit crunch and housing slump; the last rate cut prior to the September meeting was in April. The Fed at the Sept. 16 meeting also took no action on the discount rate, leaving it at 2.25%.

Last week, however, the Fed slashed the fed funds rate in a rare intermeeting cut. The FOMC voted unanimously to cut the rate target by 50 basis points to 1.5% against the backdrop of a tumbling stock market.

Tuesday's discount rate minutes showed that in early September, 11 of 12 district banks sought to maintain the existing, 2.25% discount rate. The 12th bank, Kansas City, sought an increase in the rate to 2.5% over inflation concerns.

"Some directors concluded that declining real consumer spending had recently diminished the prospects for economic growth, while others pointed to increased weakness in the labor market and lower growth prospects among international trading partners as suggesting downside risks to growth.

"Several directors also noted that tight credit conditions and the ongoing housing contraction served to intensify downside risks," the minutes said.

Earlier, in late August, two banks supported a hike in the discount rate, to 2.5% - Kansas City and Dallas.

The last release of discount rate meetings came Sept. 2. Those meetings had been held in July and early August before an Aug. 5 decision by the FOMC to keep its target for the federal funds rate at 2.00%; the Fed at that time also took no action on the discount rate, leaving it at 2.25%. Those minutes had showed there were nine of the 12 district banks seeking to maintain the existing, 2.25% discount rate. Three of the 12 banks - Kansas City, Chicago, and Dallas - called for an increase of 25 basis points, to 2.5%.

Reuters Group CDS spreads.

Source: CMA DataVision

One of our readers pointed out that China Investment Corp "has applied to participate in the U.S. Treasury's temporary guarantee program for money-market funds." The reader also pointed to commentary by George Mason University's Judith Apter Klinghoffer on the story:

If anyone sane is still minding the store at treasury, they will decline the application. It should not be the business of the American taxpayers to save private individuals from their investment mistakes. It is certainly not the business of the American taxpayers to save foreign states from their investment mistakes. Nor is impossible to exaggerate the damage such a precedent would set.

This argument is both right and wrong.

We hear on the rumor mill that UBS has downgraded GE on the dilution effects new equity issues are likely to have. GE looked like a genius for being in the finance business, both for the returns, and to boost sales by having tight control over underwriting for their more cash challenged customers. Today, that division is, of course, a huge weight around GE's neck. GE enjoyed the fruits of yesterday's rally. The stock hadn't flirted with the teens since 2003, and watching it slip below $20 recently was a bemusing, if sad, experience. No word on what Jack may have called Jeff in the later hours of those days.

Charty Goodness after the jump.

Update: Added 10 year and 5 days charts to satisfy some irate (but erroneous) commenters.

Iceland really is in a scary spot. True, the small nation has sort of been asking for it by pushing their carry trade these last many months, and inviting the scrutiny of any number of large macro players, any one of whom could, at least in the short term, whipsaw the currency around, and any three of which could cause rather serious medium-term shocks, but we are sort of collectively charmed by the urge Iceland has to swim with the big fish- even when sharks are in the water.

It's one thing for your market to be down 77% on the day. (A rather serious thing-- interesting comment on the usefulness, or lack thereof, of trading halts). It's another all together when the supermarkets are bare. And this time, it seems they really are. Rumors to this effect before seemed overblown, but our friend in Reykjavik told us by telephone last night that shortages are quite frightfully real, and that the run on the currency makes the obviously import-dependent nation a scary place to be.

Norway, in response to the bank failures in Iceland, had an interesting "mark-to-market" approach for assets in which no ready market exists. To wit:

The OMX Nordic Exchange said in a release late yesterday that it set the prices of the three nationalized banks to zero in the index after ``not being able to receive valuations from market participants.''

Take that, Rule 157. Between this and their bank re-capitalization plans, Scandinavia seems to know how to deal with a crisis without pussy-footing around, and without creating fictional marks to support flagging institutions. (It may help that in this case it is Norway setting marks on Icelandic banks, rather than Norway setting marks on Norwegian firms).

In any case, do keep Iceland in your thoughts? You do like rooting for the underdog. Right?

Icelandic Stocks Drop 77% as Trading Resumes After 3-Day Halt [Bloomberg]

Previously:

Unfounded Rumor Of The Morning: Bankrupt Bjork-ville Edition
Well, Can I Get A Slushee At Least?
Like, The Shortest Peg Ev-arh?
Who Couldn't Go For A Quick Jaunt Up North?
Icelandic Meltdown?

Bank of Canada is taking action on short-term lending:

14 Oct 2008 12:22 EDT DJ Bank Of Canada Injects C$495M Into Overnight Mkt Tue

OTTAWA (Dow Jones)--The Bank of Canada injected C$495 million (US$419.2 million) into the overnight market Tuesday to keep the overnight rate around the 2.50% target.

The Bank has injected additional liquidity into the overnight market every business day since Oct. 2.

The overnight market is one of the shortest lending markets around - as its name implies, it extends until the next business day. Rates in the overnight market are often used as a signal for official monetary policy rates.

The more this goes on, the more ridiculous anyone drawing a parallel between today and the 1930's looks. Back then, there was none of this kind of co-ordinated action to stabilize lending, markets, and ultimately international trade.

Down -7.06% ---> -32% YTD for the Ltd.

Earlier: Dear Investor

Remember what everyone's favorite boy-wonder and cash carrier said yesterday?

Taking aggressive steps to manage potential conflicts of interest is essential because firms with the relevant financial expertise may also hold assets that become eligible for sale into the TARP. We have asked firms that wish to compete for contracts to disclose their potential conflicts of interest and recommend specific steps to manage those conflicts. Firms are evaluated in part on the extent of those conflicts and their ability to design processes and procedures to manage them that are satisfactory to Treasury. Treasury then conducts its own independent examination to determine the firms' potential conflicts of interest, and to help ensure that the firms have fully disclosed any potential concerns. Treasury will only hire firms when we are confident in our and their ability to manage any conflicts.

Well, put that together with Legg Mason's October 10th 13-G filing showing that they have divested there once massive (12%+) stake in Freddie Mac and it is hard not to imagine that they are clearing conflicts so as to be in a position to accept an imminent award of the coveted (and lucrative) "best friend forever, oh, and TARP asset manager" position.

Glee!

Legg Mason 13-G Filing [EDGAR]

Interim Assistant Secretary for Financial Stability Neel Kashkari Remarks before the Institute of International Bankers [Department of the Treasury]

We removed the Citadel post after it was brought to our attention that it was a baseless rumor, and was irresponsible to repeat.

Among all the doom and gloom over earnings of banks to automakers, to soft drinks producers, technology may just save the day this quarter:

October 10 has served as the end of two bear markets (one in 1990, and one in 2002), and Monday snap gains in the Dow after big selloffs have served as turnarounds in market performance twice (once in 1933, and again in 1987). There's a reason for this: those gains happened to coincide with earnings announcements.

When companies beat earnings expectations, that's usually enough to inspire the last, most fundamental stage of the market growth curve to reappear: long-term investors.

In all the mayhem last week, it was easy to miss IBM's "surprise" announcement that it increased earnings by 22% over the previous year. That's no mean feat at any time; right now it's nothing short of spectacular. Typically, analysts began scratching their heads.

Technology companies are not recession proof per se, but their business models are built with defenses against what we consider to be traditional recession-time activity. That's because of two reasons. One is that tech titans learned from the vulnerabilities of their industrial predecessors when designing their organizations.

Most importantly however, it's because the very components of traditional businesses they disrupt are the ones vulnerable to recession. Think of it like this: in a 1980's recession, music sales were often some of the first to spiral (people can go without the extra Madonna hit when they've been laid off and they're broke). That's because of the way quick-revenue products were sold, as a $3 single (usually with one additional track produced on the cheap), earning music companies wads of cash on excessive margins. But now think about the MP3 model: the downloadable, bare-boned, stripped away single on its own for just 99 cents. That's not something people necessarily feel the need to cut back on.

Moreover, outsourcing firms and many tech products are specifically built as cost-savers: it's odd to think of companies cutting back on their cheapest resources when they're strapped for cash.

Software was a major reason for the rapid advancement of the economy out of recession in the 1990's. Of course that's not to say that all tech companies are going to outperform, but a substantial number may do.

Mauled along with everyone else in the recent selloff, companies such as Apple, Cisco, and Intel may just end up bucking the trend this earnings season, and bringing the market up with it a little bit. And that's exactly what they were designed to do.

Here, have a New Yorker cartoon for your troubles.

GS Gag Order [PDF]

Related: 1-2 Joins 'Large' In Welfare Line

Read excerpts from Tontine Partners' Jeffrey Gandell and Greenlight Capital's David Einhorn letters to investors re: "seeking to explain to investors what went wrong and what they are doing about it," over at the 'Berg. Or read the notes in their entirety here, in case you haven't had time to do so in the last eleven days.

Bald whose actual statement you can read here:
8:45: We've "felt the effects of a frozen financial system."

"Americans [are] losing confidence in our economy. This is unacceptable."

Again with the tools and the tool box: "Congress gave us new tools."

"We didn't want to do this."

"The Treasury will purchase equity stakes in a wide variety in banks and thrifts. This is objectionable to a lot of people, me included."

8:49: "We must make capital available on attractive terms." Beard will be deliver the money personally, in a French maid outfit.

"Treasury will make $250 billion available from the $700 billion in the form of preferred stock."

We knew this, but still upsetting: "No More Golden Parachutes."

Participating banks are expected to step it up.

"Our financial institutions must not hoard this money BUT DEPLOY IT." Drop it out of a helicopter, shoot it out one of those guns that shoot tee-shirts ate sporting events, whatever, just put it out there.

9 HEALTHY institutions have already signed up for this kick-ass plan.

8:50: Beard and Baird are going to talk, and the combination of our actions will make the United States the best company in the world, bar none.

"We are acting with UNPRECEDENTED speed, taking UNPRECEDENTED measures."

Beard: "We will not stand down until we achieve our goals."

We've tried to fix this over the last few years. That plan didn't pan out.

History has taught us that we are usually a few steps late to the game. As you know, I am a student of the Great Depression. Been readin' texts.

"I find it heartening that we are not seeing just a national, but a global response."

"As with all crises, the root of the problem is a lack of confidence." The voluntary program is going to win back your trust.

"I'm not suggesting this'll be easy...but we can back to a healthy, vigorous growth."

Chair Bair(d): "All of us are prepared to do whatever it takes." Cool, just do it already.

We weren't going do anything, but then our friends abroad did, and we would've looked bad if didn't.

The FDIC guaranteed a new liquidity program. which is voluntary (but please, sign up, don't make me look bad). The ability to get into this shit expires June 2009.

"We're addressing a lack of confidence."

"The FDIC is strong."