All morning we have been totally fixated the minutiae of the Wall Street Meltdown. And all morning the business media has been desperately scrambling to answer our Big Pressing Questions. Did Hank Paulson do the right thing by letting Lehman fail? Paul Krugman sure hopes so! Why did Bank Of America buy Merrill yesterday instead of waiting for its stock to get pounded and getting in at a cheaper price? All morning long the CNBC people have been scratching their heads, wondering if it took some sort of "nudge" from the Fed! Okay, so here is our big problem: what do we care? There are a lot of things we'd like to understand about what the hell is going on a few blocks south of us right now, but "whether Bank of America is doing the right thing for its shareholders" is not one of them. For instance, what the hell happened? And whom should we vilify? For starters:1. Who allowed banks to borrow 40 and 50 times their cash? No seriously, who ? A couple months ago in an online chat a reader asked Washington Post staff writer Zach Goldfarb to what extent is the subprime problem multiplied by derivatives? As the emailer pointed out, "various financial investors have leveraged" their holdings in iffy mortgages by as much as 50 times their underlying value. Replied Goldfarb: "Simple answer: To a huge extent." Well then! And according to this crazy concept I read about in Krugman's column last week, it seems that in times like these, actually trying to pay off your debt while every other financial institution is doing the same thing can result in a fall in the underlying price of everything that actually leaves everyone deeper in debt, because suddenly its collateral has lost value. This totally happened in Japan! And their economy didn't grow again for another like 15 years. But did banks in Japan even tolerate leverage ratios of 40? And if so, what made us think that was a good idea? 2. To whom do they owe all this money they owe? Lehman's biggest creditor is Citigroup, which was apparently just as risk-happy as Lehman was, and generally, the answer I get to this question seems to be alternately "each other" and "the Chinese" and also occasionally "taxpayers." But I haven't seen a great breakdown. Presumably, creditors are the guys who will see to it this doesn't happen again, but are they positioned to fix stuff like the sorry state of salaries at ratings agencies and the SEC? Yeah, probably not, but we'd be interested to hear! 3. Is it true that banks were allowed to underwrite their own insurance? I'm no expert on the matter — and wow, if that isn't an understatement — but a few months back the Journal ran a story on how Merrill Lynch continued to keep peddling those bundles of mortgage-backed securities called collateralized debt obligations (CDOs) after AIG and other so-called "monolines" — not that it kept them out of trouble! — stopped underwriting a type of "insurance" on the securities known as credit-default swaps. They just did it in-house! They even came up with a dorky pet name for the practice based on the nickname of the (totally inexperienced) guy they put in charge of doing it, Ronnie. "Some employees took to saying that if they couldn't find a specialized bond insurer, known as a "monoline," to take Merrill's risk on the deal, they could resort to a Ronoline," the story explained. (Ronnie is now working for Morgan Stanley in Asia.) But here's my question: to what extent was the "risk management" problem here a function of the fact that issuers were writing their own "insurance"? 4. And hey, did terrible short-selling vulture predators make all this happen? How much money could Goldman make off Lehman's demise? Two months ago Jim Cramer wrote that short-sellers, those crafty capitalists who bet the price of a stock will fall, could "wipe [Lehman Brothers] off the face of the earth" if they wanted. The Wall Street Journal reported Lehman CEO Dick Fuld even called Goldman Sachs chairman Lloyd Blankfein to complain that he'd heard Goldman traders spreading scurrilous rumors about Lehman's imminent demise. So did they? 5. What exactly are the regulations that could avert all this stuff? Returning to Cramer, who wrote of his lonely crusade to reinstate some sort of short-selling rule called a plus tick in July, what exactly are the other major regulations that could avert this sort of disaster in the future? Could the SEC maybe administer an annual aptitude test whereby pothead CEOs like Bear's Jimmy Cayne would be forced to define basic concepts like "credit default swaps" and maybe guesstimate the potential losses to a firm if, say, it sold them to insure a $2 billion portfolio of subprime mortgages that had been leveraged 40 times in the case of a housing crisis that precipitated a 13% rate of default? Or maybe we could just cap the potential net worth of everyone in America at $75 million and then no one would try to make it all so overcomplicated in the first place? 6. Why hasn't the credit crisis yet showed up in the rest of the economy? Seriously, we've joked about this before but how long can trashy European tourists fund our consumption sector now that we've blown our stimulus check load buying 3.3% growth last quarter? The financial sector isn't the economy, but it is a huge chunk of it. When can we expect to see this meltdown reflected in our GDP numbers…and if it doesn't, does that say more about the relevance of Wall Street to the economic reality of the everyday citizen, or the relevance of GDP numbers? A Financial Drama With No Final Act In Sight [NYT] Lehman and the End of the Era of Leverage [Asia Times] Crisis On Wall Street [WSJ] Is This The Death Knell For Derivatives? [Guardian] Credit Default Swaps: Derivative Disaster Du Jour [Global Research] Wall Street's Perfect Storm [Business Week] Dealers Plan Swaps Cleanup [WSJ] Financial Russian Roulette [NYT] The Paradox of Deleveraging [Pimco]

So the United States is entering financial turmoil, what with all of our banks collapsing and the world's largest insurance company needing a bailout from the State of New York and the stock market tumbling and thousands of fancy jobs on the line. Honestly, though, let's get to the heart of the matter: will this news secretly (or openly!) thrill political partisans? It seems, on its face, that news of Wall Street turmoil helps Senator Barack Obama. And why not? The initial careful ventures into political exploitation of this maybe-catastrophe are already underway. How will it play out? How To Attack Josh Marshall tosses out a readymade almost-true attack line: "The man most responsible for the financial services and banking deregulation that made today possible, fmr. Sen. Phil Gramm, is the man John McCain wants to put in charge of the whole economy." Ok. The "man most responsible" part is defensible, if exaggerated. Gramm deregulated the hell out of the banking sector as a senator. And he lobbied for lax oversight of predatory lending as vice chairman of UBS's i-banking arm. The "man McCain wants to put in charge of the whole economy" bit seems a little less true. We don't know who the hell McCain would let run things. McCain does love Gramm, and Gramm taught McCain everything he needs to know about the economy. McCain's limited grasp of economics basically consists of Gramm's strict anti-regulation philosophies with a bit of pandering to the middle class tossed in. But Gramm is McCain's former campaign co-chair. All signs point to a bigger role played by the less unpopular Carly Fiorina handling the economy in a McCain presidency, even if Gramm's ideas rule the day. Still. That's the kind of fact-checking that gets us nowhere! It's a fine line to use: McCain doesn't get the economy, and the guy he has around to explain it to him is personally responsible for this mess. Some variation on that line will probably be repeated by the Obama campaign over the next week. (Obama has already siezed on a mostly innocuous McCain remark—way to adapt, guys!) Watch Your Own Ties But here are some of the potential pitfalls for Obama. This bit of trivia has already made it to Politico:

Some people believe that Nostradamus predicted the Wall Street crash of 1929. But a modern age requires modern prophets. On a Google Finance message board last July, one lone nut predicted a market crash. "The negative news that will move the market downward should occur September 15," he wrote. That would be today. This oracle may be raving, but he did predict the future correctly. "This organization below," he went on, "runs the show..." The Group's Name: Legatus Its Mission: " To study, live and spread the Faith in our business, professional and personal lives." What is it?: Legatus—Latin for "ambassador" (and the term for a general in the Roman army)—is a worldwide networking group "designed exclusively for top-ranking Catholic business leaders." Its main stated duty is to bring such leaders together for closed monthly networking meetings. The group calls itself "the conduit connecting two powerful realities, the challenge of top-tier business leadership and a religious tradition second to none." History: The group was founded in 1987 by Tom Monaghan, the devout Catholic who founded Domino's Pizza. It now boasts "thousands" of members throughout America and in Europe. It's somewhat reminiscent of Opus Dei, the shadowy Catholic group that starred in The Da Vinci Code. The Google Nostradamus went by the name of reinhardt (though his account has now been banned). He ID'd himself as the author of this conspiracy site as well. Here are some salient portions of his very extensive posts on the connection between Legatus and our current financial blowup:

The morning news is terrifying even before the ominous opening of U.S. markets today, and was also scary hours ago before overseas markets opened and U.S. stock futures fell sharply. The bankruptcy at Lehman Brothers, the takeover of Merrill Lynch and the plea by insurance giant AIG for $40 billion in federal aid made for scary front pages (pictured, click for larger image) and heated chatter on CNBC. And no one wasted any time telling everyone how bad things really are. The "American financial system was shaken to its core," the Wall Street Journal said, warning of a "crisis on Wall Street." Other media outlets were scarcely more comforting:

Is it awful or wonderful that Slate launched its business website The Big Money the same day three large Wall Street institutions were in various stages of freefall? Characteristically, Slate takes the contrarian view: It's wonderful! Tons of news to cover! They'll "tap into people's... anxiety about the economy!" The joys of financial fearmongering aside, the implosion of financial services does tend to call into question how many more ads the site can sell to the likes of American Express. Also, two words: Portfolio magazine. Editor James Ledbetter (recently of CNNMoney.com) still isn't daunted:

Go figure: There were two Lehman Brothers-related weddings announced in Sunday's Times. The "for poorer" section of the vows must have rung brutally even before the company officially headed for bankruptcy, since the company was clearly in trouble before the weddings took place Saturday.

Sharp-eyed readers of this morning's Wall Street Journal may notice that editor and Briton Robert Thomson has imported to the financial paper not just the starchy crispness of his old Financial Times but a dash of London's Fleet Street, as well. Read to the end of the front-pager on Lehman Brothers shopping itself and you'll find, as Daily Intelligencer did, that the Journal has truly redefined what it means by "Heard On The Street." In addition to being the title of the paper's bread-and-butter finance column, the phrase now literally describes how Journal reporters collect information. From the article:

Good, the do-gooder magazine founded by a rich young trust funder in order to raise money for charity, is, of course, a business failure. Because who wants to read that kind of magazine, really? Last time we pointed this out, angry commenters said we should give props to Good founder Ben Goldhirsh for putting his inheritance towards a worthy cause. We do! But that doesn't mean we would pay a nickel for his magazine. Clever riposte: Good is now going the Radiohead route by letting you pay whatever you want for a subscription. Ugh, is there some kind of moral imperative now? All the subscription money goes to a charity, which you can choose. You're definitely a bad person for not subscribing now. But! You can't in fact only pay a nickel; the lowest price offered is $1! Outrageous. But pay $20, and your subscription comes with a year's free admission to Good parties. I've been to one of those and let me tell you my friend, their desserts were mad off the hook. So pay $20, go to the next party with a spare bag, and you have gourmet cookies for a month. Everybody wins. Except the magazine, which will continue its inevitable slide towards bankruptcy (sorry). [via FBNY]

Mexican billionaire Carlos Slim's $127 million investment in the New York Times Company made headlines this morning, but left unremarked upon, including by the Times itself, are the murkier aspects of how Slim made his fortune. Yes, Slim acquired control of telephone monopoly Telmex in 1990 when it privatized in part by smartly partnering with Southwestern Bell and France Telecom. It's also true he has strongly denied there was anything untoward about the $1.7 billion purchase price, even though the company just 14 years later was valued at $37 billion. But Slim's financial support for the ruling PRI party, including a $25 million donation at a notorious 1993 fundraising dinner, was at the very least leveraged in an unseemly manner elsewhere. Slim went on to use his "influence over the government" to fight off the entry of competing phone companies into the impoverished Mexican market — that according to the Times itself in 2006. And what of the billionaire as a "decent philanthropist"?

No really, I checked with Jezebel editor Anna Holmes, seriously no one cares this year. I even checked with the anonymous comments left on New York Times fashion critic Cathy Horyn's blog; this is like the most irrelevant-feeling Fashion Week since the terrorists got involved. Why? Well I thought of five good reasons! This guy (pictured) is your first clue…Marc Jacobs is the only designer anyone cares about and, even though his collection was sort of cool this year, his collection has always been sort of a loss-leader funded by his insane diva behavior and that behavior mostly stopped this year. Last September Marc Jacobs started his 9 p.m. show two and a half hours late and everyone had a hissy fit about it, which in turn caused Marc Jacobs to have a hissy fit over how he was an "artist" and people should not be thinking about quotidian details such as whether their dogs had been fed. Then he dyed his hair blue, went insane and maybe also to rehab. Anyway, that is as good as it gets, in fashion. (That should tell you something.) But he is sane this year. It's all about the clothes, and no one really cares about clothes! Everyone who isn't Russian is poor. Times Thursday Styles regular Stephanie Rosenbloom has a story about the nation's thrift stores. This is hugely significant for two reasons: 1. It is actually a story, and last year around this time Stephanie Rosenbloom was writing about horseback riding in the Hampton's, but it turns out she has been hiding out in the Business section lately, getting down to proverbial business. 2. The story is that the demand for other people's cast-off ill-advised purchases has exceeded the nation's supply of ill-advised purchases. Cindy McCain is the new Victoria Beckham. Example: last week Us Weekly decreed Michelle Obama to have hands-down better style than Cindy McCain. This week the selfsame magazine has a whole feature on Cindy's supposed "makeover" and how pretty she suddenly supposedly looks! And that is not even to mention the matter of Sarah Palin's disappearing-reappearing beehive, and Michelle Obama's Thakoon dress and the cool shirt pictured above, which we found on Philebrity. Political fashion icons are the new celebrity fashion icons, and that is bad for the industry because unlike worthless celebrities who are allowed to change outfits as fast as they can spill tequila and Sparks on the ones they were wearing, politicians, at least when they are not wearing $300,000 dresses, have to pretend they understand the realities of working-class Americans busy raiding thrift stores/insurgent safe houses. The must-have item this year is the jumpsuit. Perhaps you heard about the school in Texas that recently decreed that all kids who chose to violate dress code requirements by rolling up their skirts or whatever would risk being forced to don prison jumpsuits for the remainder of the school day. Now, there is always going to be that one group of totally cool high schoolers who make the prison jumpsuits into some sort of "subversive" fashion statement, but bottom line is that high schoolers would not be incurring dress code violations if they did not want to show off their skinny high schooler legs etc. etc. and those high schoolers grow into the adults who consume fashion. So this gives me pause:

In nature, introducing an invasive species into an ecosystem has a domino effect. A new insect predator eats all the bugs, which are food for all the birds, which flock elsewhere, forcing the predators of the birds to migrate themselves, etc, etc. Also the beating of a butterfly's wing can cause a hurricane halfway across the world, I hear. So too goes the media industry! That's why you can thank the internet for driving all the rarefied magazines you love straight to the edge of a big big cliff. Why else would there already be an Us Weekly spinoff? The magazine industry is far more insulated from the economic pressures of blogs and news aggregators than newspapers are. But! High-end papers like the NYT and the WSJ, watching the internet eat away at their business model, are desperate to make up some of their revenue loss. So they start fancy weekend magazines—T and WSJ., respectively—to cater to luxury advertisers and bring in money to subsidize their real news operations, which are increasingly unprofitable. Both T and WSJ. have thus far done a good job of drawing in upscale advertisers. But guess who that hurts? Every other magazine that would like to draw in upscale advertisers. Which means all your favorites! So while newspapers are sprawling enough to extend their brands in a different direction, standalone magazines are not always so privileged. (Unless they have no fear of ridicule, like Us). In this way the internet screws newspapers, and newspapers screw magazines. And magazines screw... ?

Hey, can you even blame all the stupid people saying stupid things about today's Freddie Mac Fannie Mae bailout? This whole thing has been stupid ever since someone decided to call it the Federal National Mortgage Association. Who names something "Federal National?" Anyway, the good news is, no one understood any of this shit back in 1968 when they "privatized" it, and no one — us especially! — seems to really understand it now. We keep LOL-ing at stupid things people say about the biggest-ever government bailout only to reflect a while longer and start to the secret genius of all of it! Let us count the ways:1. "[Freddie Mac and Fannie Mae have] gotten too big and too expensive to the taxpayers." Thanks for sharing, Elle Woods Palin! But ha ha ha, Freddie Mac and Fannie Mae are supposed to be private companies that have nothing to do with the taxpayers who are only now going to find out how "big" and "expensive" their woeful mismanagement is! Of course, in seizing upon this "gaffe" as Democrats did today they kinda missed the whole supposed reason the bailout was "necessary" to begin with, which is to say, that the government exists to protect the plutocracy but also that taxpayers have essentially "implicitly" guaranteed Fannie Mae and Freddie Mac bonds throughout their entire 80-year existences. When the Federal government first announced plans to "privatize" Fannie Mae to help balance the budget in January 1968, an economics reporter at the New York Times named Edwin Dale wrote that the whole thing was a budget "gimmick." By September 1968, Lyndon Johnson aides had appropriated the "gimmick" term themselves, in an Edwin Dale story that employed more smug quotation marks than a Tao Lin prospectus:

The total number of magazine ad pages fell more than 7% in the first half of this year. So the magazine industry says to itself, "You know what we need to sell more magazine ads? An ad campaign." Makes sense, right? And so does the message of this new campaign: "Magazine ads: they make people want to buy things." They're not beating around the bush here, people. Naturally, a big part of this new campaign is online. Hypocrisy in action? Not really!: The new ad campaign (including the pictured spot, which shows, apparently, my apartment), is nothing but images of people who bought a lot of shit after they read about it in an imaginary mag. But all the spots are designed to drive traffic to a website where there are a lot more stats on magazine advertising's effectiveness. Is this ironic, considering online ads are one major reason for the decline in magazine ads? Actually no, since part of the appeal of magazine ads is their ability to drive traffic to websites. It's right there, on the website! Also, magazines are far less threatened by the migration of advertisers to websites than newspapers are, because magazine ads are more appealing as a physical thing. Newspapers are the canaries in the ad coal mine. So magazines have nothing to worry about until newspaper advertising starts drying up, which... oh, right. The Times explains this mysterious business like so:

So the rumor—which is still, we should note, just a rumor—is that listings-and-more magazine Time Out New York is in financial trouble. Tipsters say the money trouble is a result of bad investment decisions by management. But TONY has even bigger problems: its entire business model is built on quicksand.
TONY is light on content and heavy on listings. That's probably not going to change significantly. So consider what they're up against:

Last year, Time Out New York had aspirations of building up its online event listings into a sort of Craigslist of North American listings. The magazine invested in its website in pursuit of this, but the project never completely panned out. But according to some tipsters, that might just be the start of TONY's problems. Could the stalwart around-town manual be in (*dramatic pause*) life-threatening financial trouble? The rumor's not a complete surprise—we were reporting last year that some freelancers were having trouble getting paid by TONY. Our tipsters, though, say that's just a symptom of more serious money problems for publisher Allison Tocci and company:

The rich have more stressful lives than the poor, declares NYU sociologist Dalton Conley in a Times op-ed; what nonsense, responds Slate's Timothy Noah, who points out that working longer hours doesn't equal more stress, because it usually involves "meetings" which are "dull," but not stressful. Hey, we never imagined chewing over story ideas with Jacob Weisberg and Meghan O'Rourke was a barrel of laughs, but they've got feelings too, Timothy. [NYT/Slate]

There's a scene in the first episode of Mad Men when the ad agency pulls its only Jewish employee out of the mailroom and has him sit in on a meeting in order to impress a Jewish client. This is called "casting," and it happens in real life too! Today Jews are more adequately represented (we assume), but the ad industry is currently seeking another group for a starring role in central casting: the young. Because young people "get it" in this changing digital age, haha, supposedly! Veterans say this is stupid—mostly because they're scared of getting fired. But they're also right! The ad industry is in a downturn right now, just like the media. That means higher-salaried employees are the ones that agencies would most like to let go. Also, every client wants something "digital," and having taken their cues from Mountain Dew commercials, they're convinced that only young slacker types can truly deliver the audience they need buying their widgets. So, no matter how smart people are, you can't put any old folks in front of clients seeking young buyers, regardless of who actually comes up with the good ideas. And ruminate upon this quote:

You think you've got it rough with gas prices through the roof? Hell, all you have to worry about is driving to work, forgoing vacations, and watching your family freeze this winter. Meanwhile, hip-hop entrepreneur Sean "P. Diddy" Combs can't even fly his private jet to L.A. these days to further his "acting career." Seriously, the man has been reduced to flying first class and posting videos about this frightening turn of events. "As you know, I do have my own jet, but I've been having to fly back and forth to L.A. pursuing my acting career," he says. "Now, if I'm flying back and forth twice a month, that's like $200,000, $250,00 round trip. I'm back on American Airlines." His sad, sad video blog post-in which he whines, "Give a shout out to all my Saudi Arabia brothers and sisters and all the brothers and sisters in all the countries that have oil... if you could please send me some oil for my jet, I would truly appreciate it."-is after the jump.

American Media, the publisher of Star and the National Enquirer, has come to an agreement with its creditors to "refinance" $570 million of its more than $1 billion in total debt. That's code for going to the people you owe money to and saying, "Funniest thing—I just can't pay you. Wanna change our deal a little bit? Or would you prefer I just declare bankruptcy and we both get screwed?" As savvy financial types like to say, if you owe the bank $1 million, they own you; if you owe the bank $1 billion, you own them. Although AMI squandered millions needlessly on things like, you know, the services of Bonnie Fuller, the Enquirer's upsurge from the John Edwards scoop may be just the thing to push them back towards profitability. If they can figure out how to sell some extra ads on it, that is. AMI's ad sales were down slightly in the first half, though not as much as the rest of the industry. So chin up. Remember, down is the new flat! [WSJ]

Is iTunes helping the music industry—or destroying it? That's the dramatic question we will answer for you in this post. Itunes is the single largest retailer of music in the US, period. It sells nine out of every ten digital song downloads in the country. And since it helped put the Tower Records of the world out of business, lots of artists think there's nowhere to go except iTunes. But how much money are (even famous) bands really making off all those 99-cent singles? Here's, uh, one perspective: