DealBroken

The Federal Reserve left the fed funds rate unchanged at five and a quarter percent, noting that inflation rather than slower growth is still the primary concern. Bear Stearns agreed to pay up to $1.6 billion to bail out one of its troubled subprime mortgage loaded hedge funds. The SEC was said to have begun an inquiry into the funds’ troubles. The head of the Bear Stearns group with responsibility for the funds was replaced. UBS was formally charged by Massachusetts regulator with ‘hedge fund’ hotel charges. Blackstone’s share price slipped below Friday’s IPO price. Carl Icahn revealed that tried to short Blackstone’s stock.
The annual charity auction for lunch with Warren Buffett began. Rupert Murdoch reached a preliminary agreement with the board of Dow Jones & Company. Michael Moore was banned from the floor of the New York Stock Exchange. Robert Zoellick was named head of the World Bank. A court sentenced the founder of HealthSouth, Richard Scrushy, to almost seven years in prison. A phony departure email allegedly from a JP Morgan analyst made the rounds through Wall Street’s email inboxes.
A new phone from computer and music player maker Apple went on sale.

DealBroken: Last Week’s News Today

A pair of troubled hedge funds managed by Bear Stearns sent shivers of fear through Wall Street and the hedge fund community, and Bear was forced to bailout the funds. The Hollywood guy who ran Yahoo was forced out, leaving the company in the hands of one of its founders. The Supreme Court struck down a pair of lawsuits that threatened to impose tremendous liability on investment banks.
Morgan Stanley posted strong earnings. Bankers and others from corporate New York ran wild in Central park. The New York Public Library honored Stephen Schwarzman with a star-studded party. The board of Dow Jones took over the negotiations for a possible sale of the company to News Corp. This seems to have put an end to the plot by Pearson and General Electric to stifle competition from a combination of News Corp and General Electric to stifle competition from a combination of Dow Jones and News Corp, which has indicated it might launch a competitor to GE’s CNBC and beef up the foreign bureaus of the Wall Street Journal.
The immigration bill came back to life on Capitol Hill, and the Senate approved increased fuel-efficiency standards. A bill to tax partnership gains as income rather than capital gains was introduced in the House of Representatives. The Blackstone Group’s Pete Peterson went to a party for his daughter on the evening that the company he co-founded priced it’s IPO at $31 a share. The stock closed up 13% the next day after a higher opening.

Lehman Brothers continued its record as a contrary indicator on Wall Street, posting record profits in the same week that Goldman Sachs and Bear Stearns disappointed investors. Subprime worries worried. The Securities and Exchange Commission repealed rules restricting short-selling while a stock’s price is dropping. Yields’ on five-year Treasuries soared. The type of inflation that few on Wall Street watch rose precipitously, while the kind that is watched slowed. Stocks rallied on the news. The New York Stock Exchange and the National Association of Securities Dealers issued rules on a new technology involving some sort of ‘electronic communication.’
JP Morgan announced that it would return to lower Manhattan, building a tower on the site of the crumbling remains of the Deutsche Bank building. Jesse Jackson demanded that his friends on Wall Street get a sweeter taste of the Blackstone IPO. Capitol Hill lawmakers followed suit, introducing legislation to penalize private equity companies and hedge funds that go public.
The Bancroft family rejected a plan crafted by their own lawyers to protect the editorial independence of the Wall Street Journal. Rumors began to circulate that the owners of the Financial Times might bid for Dow Jones, perhaps in connection with General Electronic. The Chicago Mercantile Exchange increased its bid for the Chicago Board of Trade. TheStreet.com was forced to cancel the first week of its ‘Beat The Street’ online stock-picking contests after it learned that some contestants were using mysterious trading strategies that it said “could not be duplicated in the real world.”

The Big One?
DealBroken: A Week In Review

[Editor’s Note: We’re going to be rolling out a new set of features in the next couple of weeks. The first one, DealBroken: A Week In Review, will look back on Monday morning at the top stories from last week. It’s a way of playing catch-up if you spent last week at the beach or, more likely, locked in a conference rooms while a deal was put together.]
The Five Percent Solution. Stock market indexes hit record highs in the beginning of the week and then found themselves subject to a sharp sell-off Tuesday through Thursday. Friday saw a rally, as each of the last twelve Fridays. Most credited higher interest rates, inflation fears and a troubled housing market for the sell-off. The ten year bond yield bond rate reach 5.25%, the highest since 2005. Youngsters found the rate shocking, and noted that in the last four years the stock indexes remained flat whenever the 20 year yield went above 4.75%. Those who have been around for a bit scoffed at the idea that five and a quarter is “high” for a ten year rate. (Really old timers noted that this might be the end of a 22 year decline in interest rates. No-one seemed to have a memory long enough to recall what might come at the end of a long-term credit expansion. Both Murray Rothbard and Milton Friedman were unavailable for comment).
Hope of a Fed rate cut this year rescuing the stock markets became an endangered animal. Goldman Sachs canceled it’s forecast for a rate cut. Pimco’s BIll Gross said 10 year rates might be headed as high as 6.25%. In the fever swamps of Cramerica, however, the hope continues to survive.
Family Values. Bancroft family members met for the first time with Rupert Murdoch to discuss a possible sale of Dow Jones & Company. Both sides described the meeting as “constructive” although the only thing that seems to have been built during the meeting was an agreement to describe the meeting as “constructive.” Two other wealthy men indicated they might be interest in making an offer for the company.
Alien Nation.The senate voted against a bill to reform immigration laws, unleashing howls of protest from the bill’s supporters. Despite widespread media coverage of the bill, only half the public say they are paying attention to the debate while half of those those who are paying attention still say they don’t know enough to to say whether they support the bill. (Those who think they do know enough oppose the bill 38% to 11%.) What could be confusing the public or causing it to ignore the debate? Aren’t the issues perfectly clear?
Arizona governor Janet Napolitano blamed the manipulative tactics of opponents. “Opponents of the Senate immigration bill–those who really want to do nothing–merely yelled ‘amnesty’ in place of reasoned opposition. They were–and are–just plain wrong,” she wrote in the Washington Post. Unfortunately, supporters of the bill were also calling it amnesty, confusing matters even more. “There will be amnesty for most of the undocumented aliens in our midst, even though we have to dress it up and lie about its name,” Thomas Donlan wrote in Barron’s. If the supporters cannot keep their lies straight, no wonder the public is confused. Seventy percent of the public says it wants to reduce immigration but no one is even bold enough to even pretend the immigration bill would do that. Better, apparently, to do nothing than bow to the will of the people.

Bits and Pieces.
Kobi Alexander’s long awaited extradition trial began. Amaranth told a court that hedge funds are risky investments. Bear Stearns was accused of manipulating the credit default swap market by doing evil things like bailing out troubled home loan mortgage holders. The IRS shut down a tax dodge after IBM admitted using it. Kirk Kerkorian turned 90. Prudential shut down its equity business. Blackstone abandoned plans to adopt fair-value accounting.