[Part II, Part I]

I've got some upsetting news to share: a bunch of white collar criminals in-training have suffered a serious setback, their dreams of one day ripping off other people for sport and possibly--if cards were played correctly-- serving time, shattered to pieces.

Craig Robinson has gone from trading bonds for Morgan Stanley to coaching basketball at Oregon State, widely considered to be one of the toughest jobs in college basketball. The job was offered to at least three other top coaches before Robinson finally agreed to leave his spot as head coach at Brown.

Robinson graduated from Princeton, where he was a basketball star, and got an MBA in finance from the business school at the University of Chicago. After a stint at playing professional basketball in Europe, Robinson was a bond trader at Continental Bank, Morgan Stanley Dean Whitter and Loop Capital Markets, a minority owned investment banking firm.

Turning around Oregon State's team will be a challenge for Robinson, perhaps harder than a bond trader trying to dig his way out of a portfolio heavily invested in adjustable-rate mortgages. Robinson, however, comes from a family with grand ambitions. His brother-in-law is Barack Obama.

The Unlikely Candidate [SI.com]

Bear Stearns Neared Collapse Twice in Frenzied Last Days (WSJ)
Well we're a little sad this is coming to an end... in all seriousness, knowing the third installment would be up when we opened our computer today helped us wake up to to the Opening Bell -- always a difficult chore. This one is all about those last couple of days, which was of course covered in the famous "A guard lay out a buffet spread" article from March. No mention of whether they ordered Chinese food th time (why re-open old wounds?) but a good timeline of how JPM's bid came down, and the reaction (none too pleased) at Bear Stearns. Anyway, a lot more good stuff in there, though obviously you'll check it out.

Sears Holdings Reports First Quarter Results and Increased Share Repurchase Authorization
Even before you crack into an earnings report, it's usually a little ominous when the headline trumpets an upcoming share repurchase -- which is usually just designed to soften the blow of bad news. Though we're not sure why it has that effect. When the market is selling, do you want your company spending its own money on its own stock? Anyway, the company that Cramer once compared to Berkshire Hathaway ('you have to buy just one share!') reported a net loss from the quarter, a decline in revenue amid a "difficult economic environment and intense competition for consumer business." We've no doubt that that's true. The comps were particularly terrible: "For the quarter, Sears Domestic's comparable store sales declined 9.8% while Kmart's comparable store sales declined 7.1%."

Spam spam spam: Sales of Spam rise as consumers look to trim food costs (Star Tribune)
Courtesy of Barry... Now you've got to take Spam seriously. Not the email kind but the food kind. The spiced ham that comes in a can. It is, as an economist would suspect, an inferior substitute good, the demand for which rises when the established good gets too expensive. But of course the Spam also rises: "The price of Spam is up too, with the average 12 oz. can costing about $2.62. That's an increase of 17 cents, or nearly 7 percent, from the same time last year." For what it's worth, here's the chart for Hormel.

High Oil Prices Eroding Asian Manufacturing Advantage (Research Recap)
The actual cost of shipping stuff across the world doesn't get brought up too much, probably because in recent history it's just not that big of a chunk of an item's cost. But with these high oil prices we've heard so much about, that may be changing. At least a report from CIBC predicts as such.

From the files of the "maybe we never should've gotten into this in the first place" department: the RMBS group at the S&P has supposedly informed the would-be incoming Associate MBA class that their services are no longer required. Additionally, a "bunch" of research assistants, "some" MDs and one director have been downgraded from "career watch negative" to "dismissed."

I really don't know why we are spending any time worrying about these "victims" of the sub-prime crisis. Also, I really don't want to be bailing out borrowers stupid enough to be under contract on new real-estate with financial plans that call for them to have 80% occupancy 2 months after closing, a 7% down payment and 7.5% interest rates.

So now their take-home falls 15%, their down payment requirement doubles and they have to pay 9.5% and I'm suppose to feel bad?

You will have to excuse me for not wanting to give taxpayer support for a borrower who wants to own a 160,000 square foot building to keep up with the Jones' on a mere $41 million budget.

Housing Crisis Hits Its Own [Washington Post]

We wonder if there is a direct relationship between the performance of investment banks and the public image of investment bankers. A few years ago, New York's major publishing houses were fighting each other in a desperate bidding war for the rights to publish Dana Vachon's Mergers & Acquisitions: A Love Story. (And, before the last financial crisis of this magnitude, Scott Fitzgerald's The Great Gatsby was narrated by a young man who came to New York to work in investment banking.) But now all the sad young literary men have turned against investment banking, regarding it as perhaps the lowest occupation available to educated people. Lower, even, than television writers.

Here's a guy who actually wrote a novel called All The Sad Young Literary Men lamenting that many of his college friends never became anything that counts. Instead, they became investment bankers.

Even worse than the temporary psychological distortion is, as [Dean of Columbia Journalism School Nick] Lemann argued in "The Big Test," the permanent sense of entitlement the admissions game provides. Winners can plausibly claim they participated in a brutal competition (even if many potential competitors were never told about it). So we owe no one anything. Many of the people I went to school with became doctors, public advocates, television writers who bring laughter to the American people. But most of them became, like my friend who believed that getting into Harvard was the hardest thing in life, investment bankers. We meritocrats have not, generally speaking, used our fantastic test-taking abilities to build a more equitable world. In fact, buoyed by a sense of the fairness of the process, we may have done the reverse.

This terrible video just about proves that business school makes comedy impossible.

$$$ Britney's Career Placed on 'Celebrity Watch' at S&P: "She May Be Less Popular than We Thought" [Jeff Matthews]

$$$ Comp [WSC]

$$$ Harvard Guides the Way (Again) [MuffMarkets]

$$$ Analogic Corporation (ALOG)

In our continuing (and continually failing) effort to provide the finest in financial musings for our readers, we at DealBreaker are pleased to announce that Equity Private, author of the much-loved Going Private blog has joined DealBreaker as a Guest Editor at least until May 1st. Ms. Private will be filling in for John Carney, who is fortunate enough to be departing for a month to enjoy a well deserved, and somewhat overdue vacation, April 4th.

For those of you who have been hiding under a rock for the last two years, Equity Private is a pseudonymous Vice President at the equally pseudonymous "Sub Rosa," a New York based, middle market, private equity firm focused on leveraged buyouts.

Ms. Private either holds a MA/MBA or a JD/MBA (though she refuses to tell anyone which) from a top tier university. We don't know which university, of course, but given her rather overt animosity for one in particular, we're pretty sure it isn't Stanford. Either way she has too many degrees, and not enough beachfront property in Sardinia (500' really doesn't cut it anymore).

I took a break from writing about JPMorgan and Bear Stearns all day to have a little chat with the newest edition to the stable.

Bess Levin: So, Equity, you'll be with us from now until Carney returns at the end of April (at which point I'll be taking a month off to just chill by the way). Are you intimidated at the prospect of having to fill Carney's (proverbially) big shoes.

*Messing...

"I do not believe that politics in the long run is about individuals. It is about ideas, the public good and doing what is best for the State of New York."

Eliot Spitzer, the gangly governor of the Empire State whom federal wire-taps allegedly caught arranging a tryst with a prostitute on the eve of Valentine's Day, took the opportunity afforded him today by the sudden attention of the national media to deliver that short lecture on civics. Other men--even that subspecies known as politicians--might have been humbled by the circumstances, and perhaps even resigned from public office. But Spitzer is not like other men, he reminded us today.

There's a certain poetic quality to this final act of Spitzer's. His extraordinary popularity with members of the press (now presumably extinguished) was rooted in his willingness to leak, sotto voce, allegations of misconduct in the personal lives of the subjects of his investigations. The press loved the juicy headlines. His motivation was apparently to embarrass and intimidate the subjects of his investigations so that they would be forced to comply.

We admit to enjoying the spectacle of watching a man so given to the high moralistic tone brought low by such a misdeed. As one commenter on the New York Times wrote, he's gone from Eliot Ness to Eliot Mess. But this is not just schadenfreude. There's a matter of serious public concern beneath the cheers and smirks of those who won't be sorry to see Spitzer fall from the bully pulpit. What the federal wiretap has uncovered is not just a sex scandal but a dark crack running through the character of New York's governor. It's as if we were Basil Hallward looking for the first time at the picture of Dorian Gray.

That a man so versed in the blackmail style of prosecution would so readily open himself up to that dark art is, at the very least, extraordinary. One would think that a man who deployed his aides to whisper about a corporate executive allegedly "banging" his assistant, would be wise enough to the ways of the world to avoid putting himself in a position where he could be blackmailed. That he lacked such wisdom--or ignored it--shows a reckless disregard for the responsibilities of the high office to which the people of New York elected him.

That reckless disregard is coupled in Spitzer's character with a steadfast self-regard. Even in his brief apology, he focused mostly on how he had violated his own standards of conduct rather than those of the public's mores and statutes. It is as if, in the kingdom of Spitzer, there is no crime worse than violating the standards of Spitzer.

Where did this sense of self-regard come from? Spitzer is the scion of a family made wealthy by real estate investments. He went to Horace Mann High School, graduated from Princeton and Harvard Law School. Like Barack Obama, he was an editor of the Harvard Law Review. Many others have emerged from similarly privileged backgrounds without experiencing the ego inflation that fueled Spitzer's reckless self-regard. Even now, the origins of this deformation of characters remain illegible to the public.

If Spitzer were open to the standards set by those residing beyond the bounds of his own mind, he might take a page from one of the earliest targets of his crusade against Wall Street. In 2002, Spitzer went after Merrill Lynch's investment banking and research practices. After he described Merrill's conduct as "a shocking betrayal of trust by one of Wall Street's most trusted names," Merrill Lynch stock sank, and the company lost $5 billion in market value in a few days. Reading the writing on the wall, Merrill recognized that the good of its shareholders lay in a quick settlement rather than a protracted defense.

The writing is all over the wall, Mr. Governor. If you really want to do what is best for New York State, it might be time to start reading it.

Off the top of our heads, we can't name one woman in a prominent position at a quant shop. Maybe this is why.

Math 55 is advertised in the Harvard catalog as "prob­ably the most difficult undergraduate math class in the country." It is leg­endary among high school math prodigies, who hear terrifying stories about it in their computer camps and at the Math Olympiads. Some go to Harvard just to have the opportunity to enroll in it. Its formal title is "Honors Advanced Calculus and Linear Algebra," but it is also known as "math boot camp" and "a cult." The two-semester fresh­man course meets for three hours a week, but, as the catalog says, homework for the class takes between 24 and 60 hours a week.

Math 55 does not look like America. Each year as many as 50 students sign up, but at least half drop out within a few weeks. As one former student told The Crimson newspaper in 2006, "We had 51 students the first day, 31 students the second day, 24 for the next four days, 23 for two more weeks, and then 21 for the rest of the first semester." Said another student, "I guess you can say it's an episode of 'Survivor' with people voting themselves off." The final class roster, according to The Crimson: "45 percent Jewish, 18 percent Asian, 100 percent male."

It's official: Wall Street loves Barack Obama. In 2007, even before he became widely-recognized as the front-runner for the Democratic nomination, Obama pulled in a total of $1.7 million from employees at 12 major Wall Street firms, according to a survey by the McClatchy news agency. Those numbers included $288,835 from Goldman Sachs, $242,395 from UBS and $226,805 from Lehman Brothers. He's reportedly doing even better now that he has pulled ahead of Hilary Clinton in most polls. Money from hedge funds and private equity funds is pouring into his campaign coffers.

Well it's a good thing that Wall Street loves giving money to Obama because if he gets elected, employees at Wall Street firms will be sending much larger checks his way thanks to tax increases. Obama has promises to end the Bush tax cuts. "That is a 3% bump across the board to the bad old days when associates faced a marginal federal tax rate of 36%," Ted Frank wrote on our sibling blog AboveTheLaw when he analyzed the tax effects of Obamanomics on law firm associates.

We decided to take Frank's analysis and apply it to Wall Street. Specifically, we decided to look at the effect of Obamanomics on an associate at an investment bank in his first year out of business school. Let's say that a first-year post-MBA associate is paid about market rates for a Wall Street firm, taking home $105,000 in salary and $175,000 in bonus. Like Frank, we'll assume he's generous, and gives $10,000 a year to charity.

The biggest tax effect comes from Obama's plans to end the social-security tax cap. Current law caps social security taxes at $102,000. Obama plans to abolish this, meaning the full salary and bonus will be subject to social security taxes. That adds several thousands of dollars to the associate's tax bill.

As Frank notes, that's not the only place associates will feel the higher tax bill. They'll likely feel it in smaller bonuses as well. Social-security taxes are not only on employees. The government also charges 6.2% to employers that employees never see on their W-2s. But, of course, their employers noticed this hit and it shows up in compensation costs on balance sheets that shareholders will see too. Even if we assume that employers are willing to swallow half of the extra cost of uncapped social security taxes, the bonus for the associate will decline by around $5000.

The overall effect of Obama's tax hikes is breathtaking. The first year associate's marginal tax rate goes up from an already ridiculous 42.5% to 51.4%--not including the new 6.2% marginal tax on the employer. Add in the effects on the bonus, and the associate is losing nearly $20,000/year in take-home pay.

Frank has helpfully added a third column to his chart: how big a pay cut would you have to take to receive the same take-home income? The answer is that Obama's tax increases have a bigger effect on your income than a Wall Street firm cutting New York salaries by $34,000.

See the effect charted after the jump.

College isn't worth it and you should stay out of corporate America, Michelle Obama, the Princeton graduate who went to Harvard Law School before joining the white shoe Chicago law firm Sidley & Austin, told an audience of working mothers at a daycare center in Zanesville, Ohio.

After speaking of the burdens of student loans from her upper-crust education, the wife of Democratic presidential hopeful Barak Obama told the women at the day-care center that she'd prefer they not follow in her upwardly mobile footsteps. Better if they stay in their place, back in "the community."

"We left corporate America, which is a lot of what we're asking young people to do," Byron York reports Michelle told the women. "Don't go into corporate America. You know, become teachers. Work for the community. Be social workers. Be a nurse. Those are the careers that we need, and we're encouraging our young people to do that. But if you make that choice, as we did, to move out of the money-making industry into the helping industry, then your salaries respond." Faced with that reality, she adds, "many of our bright stars are going into corporate law or hedge-fund management."

York points out that spending too much on college and getting too involved with bank-account enriching and presumably soul-sucking corporate America is not too much of a problem for the people of Zanesville. "According to the U.S. Census, Muskingum County, where Zanesville is located, had a median household income of $37,192 in 2004, below both the Ohio and national averages. Just 12.2 percent of adults in the county have a bachelor's degree or higher, also well below the state and national averages. About 20 percent don't have a high school degree," York writes.

Well, at least she wasn't telling grade school kids in the Bronx that they were studying too hard.

Michelle Obama: "Don't Go Into Corporate America" [The Corner]

Yesterday a cameraman for the Free Press caught two members of the audience napping during an FCC hearing on net neutrality at Harvard Law School. Now we don't blame them for snoozing through a meeting about net neutrality--our eyes glaze over just thinking about it--but it does raise the question: why would you go to an FCC hearing if you are bored by that type of thing?

Portfolio's Sam Gustin has answered the question: they were there because cable giant Comcast paid them to be there. Comcast had planned to pack the meeting with its local employees, and had paid some people off the street to show-up early and hold places in the line for the employees.

"Some of those placeholders, however, did more than wait in line: they filled many of the seats at the meeting, according to eyewitnesses," Gustin reports. "As a result, scores of Comcast critics and other members of the public were denied entry because the room filled up well before the beginning of the hearing."

Money can't buy you love, but it can buy you napping bodies to keep your critics at bay.

Comcast Astroturfs the Old-Fashioned Way [Portfolio.com]

Everything about this is so wrong we almost feel guilty just linking to it. Almost.

On Monday we noted a Financial Times article reporting that business school graduates who head for private-equity firms earn much more than those who land jobs in big, publicly traded investment banks. This stuck as absolutely correct but we wondered if the story had overstated the gap between PE and investment banking pay.

According to the Financial Times, recently minted MBA's "stand to earn more than $400,000 in salary and bonus in 2007-08, plus up to $5 million over several years depending on the fund's performance."
"By contrast, first-year associates with MBA degrees at big, publicly traded investment banks can expect to make $70,000 to $80,000 in base salary plus bonuses of $60,000 to $80,000, according to Eric Moskowitz of the Options Group," the article continued.

That would make for a total pay package of $160,000 at the upper levels, which seemed mighty low to us. In fact, as more than one of our commenters pointed out, that's what first year analysts, who are mostly freshly minted college grads without higher degrees, earn at investment banks. First year associates--largely business school grads--earn much more.

We contacted the Erik Moskowitz at the Options Group to find out why the numbers seemed so off. He tells us that our impression was correct. Those numbers were too low for associates. According to Moskowitz, first year associates earn a base salary for $100,000 to $120,000k this year and can expect a bonus of $125,000 to $175,000 in 2007. That leaves a total compensation package of nearly $300,000 for the top earners. That's not quite what their mates at PE shops are bringing home but it's much closer than the original piece indicated.

Hey, remember Merle Hazard? The guy who sings the best ever country song about mortgage-backed securities, derivatives and leveraged buyouts? Well, the other day the New York Times profiled him, revealing his secret identity as a mild mannered money manager.

"Mr. Hazard, to be technical, has another identity, as Jon Shayne, a 46-year-old money manager who studied philosophy at Harvard and then got a law degree from Vanderbilt and whose company manages more than $120 million from Nashville," Peter Applebome writes.

And, for those of you keeping score at home, he thinks things are going to get worse before they get better. On the bright side, he is available for annual shareholder meetings.

Funny Songs Are Inspired by Sad Times for the Rich [New York Times]

This morning we noted that forty percent of the MBA class of 2007 from Harvard Business School headed to Wall Street to take "market sensitive" jobs. This is dire news for stocks, according to Ray Soifer. When that number climbs above 30%, the market is sending a long-term sell-signal, Soifer argues. We first hit 30% in 2005 (only 24% of the class of 2004 took such jobs), and last year's number was 37%.

Of course, skeptics of Soifer's metric might point out that the S&P 500 is up something like 25% since the sell indicator came out. But he cautions that his indicator has a lot of disadvantages: it only comes out once a year, and is intended as a long-term indicator and not a predictor of the immediate funture.

"Yet, for long-term investors who can think in terms of decades rather than months or quarters, it's worth keeping an eye on," Soifer notes. "Besides, it's fun!"

(Note: Our most loyal readers might wonder why we initially reported the number had jumped from 37% to 44% but we've now revised this year's number down to 40%. Our reason is rather simple. Soifer counts only "market sensitive" jobs in his metric, not the overall number of HBS MBAs headed to finance. Our initial report of 44% counted all finance jobs, while the 37% counted market-sensitive jobs (the over-all number in 2006 was 42%). This created the impression that the climb was even more extreme than it actually was. But, we should note, that the gap between the "market sensitive" jobs and the overall finance jobs is closing.)

The post-graduate plans of business school graduates are sometimes taken to be contrary indicators. In fact, as we pointed out a little over a year ago, a system for measuring market sell signals based on the plans of Harvard Business School grads had been designed by Ray Soifer, a retired executive from Brown Brothers Harriman. By his metric, when 10% or less of a graduating class take Wall Street jobs, it's a long-term buy signal. When 30% or more take market sensitive Wall Street jobs, it's a big flashing sell signal.

When we noted first this story, 37% of the class of 2006 had gone to market sensitive Wall Street positions. This year's number was even higher--40%. Meanwhile, following the trend of recent years, the average number of months of work experience of HBS grads slipped from 52 to 50.

And the big money is still where it was last year: private equity and other buyout firms. According to a recent Financial Times article, graduates who go to private-equity firms "stand to earn more than $400,000 in salary and bonus in 2007-08, plus up to $5 million over several years depending on the fund's performance."

"By contrast, first-year associates with MBA degrees at big, publicly traded investment banks can expect to make $70,000 to $80,000 in base salary plus bonuses of $60,000 to $80,000, according to Eric Moskowitz of the Options Group," Francesco Guerrera and Ben White of the Financial Times write.

(Updated Note: Those numbers seem a bit low to us. In fact, they seem to jive with what we've heard Moskowitz say about first-year Wall Street analyst pay. We've contacted the Options Group to ask about that number. Certainly, the information from top tier graduates schools--prime recruiting ground for investment banks--indicates higher numbers.)

Those numbers struck us as low, even given the current damage to bonuses most expect from the credit crunch. Indeed, the information provided by Harvard Business School itself discloses much higher base salaries

Interestingly, however, we can report that the percentage of HBS grads headed to buyout land is down a tick from last year. Thirteen percent of the class of 2006 went to buyout firms. Only 12% of the class of 2007 followed that road. We have no idea whether that means that private equity is already over or headed for a comeback.

Private equity gains ground in talent war [Financial Times]