How's this for depressing: You can still watch enthusiastic recruiting videos for both Lehman Brothers (here) and Merrill Lynch (here) online. [Via VSL]

Everyone wants to figure out what happened to the market last fortnight! Which is why the week of September 14 marked the highest ratings in CNBC's nineteen year history, the New York Times reported today in a story about how people keep tuning in to the business news network looking for answers on What It All Means only to get hooked because CNBC anchors have no idea What It All Means. It is all just moving so goddamn fast! (Like um, while I was getting a picture for this post, the House voted down the bailout package, what do you know…) Between the squawking and spinning and bank failing, no one had a chance to acknowledge the real ideological shift underway among just about everyone who bothers thinking about that sort of crap. Listicle time again! I read all the deep, probing stories over the weekend about What Actually Happened And Who Profited Off That so you wouldn't have to.1. "Profit" is kind of a scam. Profit, as they say in the business, is the "bottom line."* But when every financial institution in America can follow a decade of unprecedented "profits" with the threat of Universal Abject Ruin, you have to conclude the whole damn "bottom line" is bullshit. Yesterday the NYT ran a story about an obscure unit of the insurance company AIG that generated shitloads of profits in the boom years. It generated shitloads of profits because it sold "credit default swaps." Credit-default swaps protect the principal paid on a bond in the case of a default. AIG made shitloads selling them in the boom years because a lot of other guys on Wall Street were making shitloads of money rolling up mortgages into bonds, and a guy from Morgan Stanley called up a guy at AIG named Joseph Cassano, told him about these rolled-up mortgage security deals, and asked if AIG would be interested in getting into the business of insuring these mortgages in much the same way AIG insured the houses said mortgages had been taken out to buy. Because Morgan Stanley would totally buy that insurance! Goldman Sachs would also be interested. A few crafty hedge fund guys were interested too. Later that "interest" would yield a profit bonanza for the guys who were smart enough to load up on them! But first the profit bonanza's was AIG's. By 2005, this unit of AIG generated three and a quarter billion dollars revenue. And you know what the operating profit margin on that revenue was? Fucking 83%. Eighty-three percent. That is after they paid everyone's salary and Blackberry bills and sleeper-class airfares and five-star hotel rooms and for all their office supplies. AIG shared the wealth with employees more, of course. At the end of the day people who worked in that unit brought home between a third and 44% of revenue. Forty-four percent!!! That is literally unreal. Isn't the whole point of having an "insurance" company that you save money like that to have on hand for disaster? What sort of insurance company makes an record-breaking profit the same year they're on the hook over a billion dollars for a record-breaking natural disaster? (An insurance company with a freakishly profitable near-impossible-to-understand unit that does not report to any insurance regulators, for one!) Well anyway, Goldman ended up putting as much as twenty billion dollars "on the line" with AIG's CDS-es. Twenty billion dollars is just over a billion dollars less than Goldman gave out in Christmas bonuses last year because, in stark contrast to most other banks on Wall Street, Goldman had been so smart and prudent and visionary and bought CDS-es early and booked record profits. In any case, now Goldman was worried about AIG. Goldman stock could plummet if AIG went under! And Goldman CEO Lloyd Blankfein must have told his old boss Hank Paulson that, because Hank invited Lloyd to be the only investment banker in attendance at a special meeting two weeks ago about the fate of AIG. Hank saved the insurer, and while they were at it they made some sort of arrangement for Goldman and Morgan - the guys who hatched this whole plan in AIG's head to begin with! - to become "holding companies" that would be protected by the FDIC. This effectively eliminated investment banking, and one hopes, some of the heady profit margins with which it was once synonymous. 2. Because the system - like CNBC itself! - is rigged to reward fear of commitment. On CNBC this announcement was met with a lot of talk about how investment bank stocks would no longer "justify" their huge price-earnings ratios because, as real banks instead of specialized "investment" banks, they wouldn't be able to continue to take such big risks and generate the same grotesquely large profit margins they once did. There is something seriously warped about that mentality, though. If you watch CNBC you probably buy into the notion that profits are somehow "the bottom line," that the pursuit of profit makes everything more efficient, that profits create jobs and therefore salaries should more closely track the "bottom line," and if everything ran more "like a business" then employees would be more "accountable." Maybe you buy into this notion because it seems rational; maybe you buy into this notion because it takes so goddamn long at the DMV, but whatever the case, if you are watching CNBC now, it might dawn on you that they are too panicked trying to relay to you all this pressing urgent information to give you the real story, which is that all those assumptions about profits and the bottom line and accountability get turned completely on their heads when it you impose upon them the term limits of the fiscal year and everyone gets to cash out. Nowhere is our national fear of commitment more readily apparent than our willingness to allow Hank Paulson to pay no taxes on a half billion dollars in Goldman stock options to take a government job for three years because we are so wary of investing such faith in an entrenched bureaucrat, only to have him hit us up for a line of credit when all that fear of commitment results in a whopping expression of our collective fear of commitment. 3. "Demand" is also a construct. A corollary to the "profit" construct is the "demand" construct. A story: the other day my friend the NYSE trader was ruminating on the absurdity that the defining buzzword of the subprime mortgage crisis was "tranche." Yeah, why does everyone pronounce it funny? I wondered. Because it means 'slice' in French, he told me. When you are selling bonds assembled from the foggy promises of ignorant unskilled people to pay ever-increasing fees to ensure their continued residences in shitty overpriced tract homes in eastern San Diego for thirty fucking years - unskilled people who at best work themselves in real estate - it helps to pretty up the sales pitch with pretty French verbiage. On the front of today's Wall Street Journal "Marketplace" section are two stories on top of one another that form a neat little parable about the nature of demand. One is about how fast food chains like McDonald's and Panera Bread are worried about the credit crisis because Bank of America and other banks have suddenly tightened lending to people whose plan to make money depends on opening evermore McDonald's and Panera Bread locations. Just below this story is another story about how food makers like Campbell's, Kellogg and Kraft are excited about the credit crunch, because it enables them to make the pitch to American consumers to spend more money on "value" foodstuffs such as Frosted Flakes and condensed soup, and those kinds of foods have huge profit margins because of course they are actually a terrible value to consumers, but that doesn't matter as long as some ad agency is being paid eight figures to come up with a folksy campaign reminding Americans what great "value" they're getting. Whatever the outcome of the credit crunch, the only logical takeaway of the two stories goes, Americans will continue eating junk. Which reminds me: I could go for a tranche of pizza right now! But the point is, demand is highly manipulable, and we are the masters of manipulation. We've convinced ourselves that if a lower-profit margin-generating division of a company is sold to a Japanese company or simply discontinued it is because that division — and thus the country — is "moving up the value ladder." In the market's ceaseless quest to ascend the value ladder America has, of course, left behind such resilient, and also arguably valuable, industries as the manufacture of sophisticated computer chips and the construction of half-billion dollar oil tankers and probably soon car manufacture, for Asians to occupy themselves working on. 4. Good people will be punished. Good people are always punished. Just ask the Jews. The Asian countries, of course, are concerned about this. Just because they work six day weeks in sweltering assembly lines doesn't mean they aren't addicted to our demand. China keeps living standards artificially low to maintain high employment, and they build up excess reserves they have to invest it in our iffy financial system, and Chinese people are aware of this, which is why the government faces angry internet retaliation back home when those investments suffer, as they did when Blackstone stock started crashing a few months back. Which brings me to the Jews. As any Chinese person could tell you, the Jews have long been associated with a knack for making money. But many Jews also pursue relatively unprofitable jobs, like running for Congress. Much has been made of the need for Congress to vote on a bailout package before the Jewish holidays, because there are 43 Jews in Congress, almost all of them Democrats, and as Barney Frank so wryly noted last week "It's a well-known rule; God will only hear your prayers if you're in your congressional district." Barney can say that because he is of course himself Jewish. Anyway, this morning on CNBC Charlie Gasparino was trying desperately to hammer home to viewers that Barney Frank was largely to credit for getting the bailout package done in time to save Wall Street. (Uh, or not!?!) Other anchors kept cutting Charlie off. As Frank himself just told the Washington Post, "You don't get credit for a disaster averted." You also don't get credit for holding your nose and doing the politically unpopular thing and trying to avert disaster if you did not have the votes to avert disaster because everyone hates everyone. However, Barney Frank does get credit for being funny just now. Sigh. 5. And despite the protestations of contrarian pundits it is hard to believe some sort of disaster was/is not at hand. Because in a story on the Lehman bankruptcy today, the Wall Street Journal noted that the Tuesday morning following the announcement the London Interbank offered rate, the interest rate at which banks offer one another overnight loans, the interest rate to which some $300 trillion in contracts are anchored, rose from 3.11% the day before to 6.44% and "even at those rates, banks were balking at lending to one another." The two guys who actually calculate the Libor have not been on CNBC to my knowledge, but I bet I can tell you what they were thinking when they went through their spreadsheets that day: "Holy Fuck." (And maybe also: "Why again do we securitize mortgages? Isn't the one book read by everyone in the entire finance industry sort of about how that was a bad idea?) In any case, nothing on CNBC managed to be quite so startling as this story. Maybe because they've desensitized everyone with their incessant re-loop of Jim Cramer's prescient freakout clip.

♦ President Bush turned up outside the White House early this morning to urge lawmakers to pass the $700 billion bailout and a vote is expected later today. Bored today? The full text of the bailout is here. [NYT, WSJ]
♦ Citigroup has agreed to buy Wachovia in a deal brokerered by the FDIC. [Dealbook]
♦ The governments of Belgium, Luxembourg and the Netherlands have teamed up to bail out Fortis, one of Europe's largest banks. [WSJ, Bloomberg]

Fortune snagged an interview with Erin Callan, who served as second-in-command at Lehman Brothers until she was ousted in June. What does she have to say about the whole debacle? Callan says she's lucky she got when she did (duh!) and probably overdid it a wee bit with the press. She also mentions that Dick Fuld broke into tears when he fired her. [Fortune via Dealbreaker]

If you're stressed out about losing your job or not being able to pay your mortgage, you may want to take a lesson from Kathy Fuld, the wife of Lehman CEO Dick Fuld and the man who will forever be known as man who led the firm into bankruptcy. According to art dealers, Kathy has put a set of Abstract Expressionist drawings worth some $20 million up for auction. She didn't waste any time either: Christie's announced the November 12th sale of the drawings just four days after Lehman went bankrupt. The Fulds aren't exactly in the poorhouse—Dick took home $35 million last year—but Kathy's a sensible gal and replenishing the coffers isn't the worst idea in the world when you have a large estate in Greenwich and mortgages on a $20 million Park Avenue co-op and $13 million Florida beach house.

It was only a matter of time before something like this turned up. Someone is now selling "toilet targets" on EBay with reviled Lehman CEO Dick Fuld's face on them. It probably isn't a disgruntled Lehman banker fretting over the mortgage payments on his Tribeca loft who came up with the idea, though. The seller is located in South Milwaukee, Wisconsin. [EBay]

♦ Treasury Secretary Hank Paulson and Federal Reserve chair Ben Bernanke's visit to Washington did little to reassure lawmakers, who were almost uniformly critical of the government's proposed $700 billion bailout. [NYT, WSJ, WSJ]
♦ By the way, how much is $700 billion? Slate runs the numbers. [Slate]
♦ The FBI is now involved in the meltdown. The agency has opened preliminary investigations into possible fraud at Fannie Mae and Freddie Mac, Lehman Brothers and AIG. [NYT, WSJ]
♦ Warren Buffett's $5 billion investment in Goldman is viewed as a strong sign of confidence. And Goldman's stock is way up, not surprisingly. [NYT]
♦ Three top Lehman execs including Dick Fuld sold shares after Lehman filed for bankruptcy, with Fuld selling 3.17 million shares at an average of 21 cents a share. [WSJ]

Dick Fuld has been missing in action for nearly a week now. The man who presided over Lehman Brothers as it plunged into bankruptcy, Fuld hasn't uttered more than a few words to the press since the firm went belly up last week. He hasn't made an appearance in the office (or has he?), although as we noted last week, his secretary is answering the phone outside his spacious 31st floor office at Lehman (Barclays!) headquarters at 745 Seventh Avenue. But what about the big man himself? We guessed he was holed up at his compound in Greenwich. But it turns out he's not at home either! Click on the video above and it will also become clear that despite the millions he's pocketed in recent years, Dick's yet to invest in a decent answering machine.

We thought this might have been a Photoshop prank when we first saw it, but the Post now confirms it: Barclays, the British bank that announced it was purchasing a bankrupt Lehman Brothers last week, changed the neon sign outside Lehman's headquarters at 745 Seventh Avenue this morning. Like you wouldn't do the same thing if a $1.5 billion office building landed in your lap for pennies on the dollar! [NYP]

♦ The markets were down sharply yesterday as investors worried about the government's $700 billion bailout and lawmakers squabbled over the specifics. More will be revealed today when Treasury Secretary Hank Paulson and SEC chair Christopher Cox discuss the plan in more detail in front of the Senate. [NYT, WSJ, WSJ, Marketwatch]
♦ The SEC's new short-selling rules have been generating plenty of questions and complaints the past few days. Now the SEC plans to revise a number of the rules. [Dealbook, WSJ, NYP]
♦ Nomura is close to acquiring the European operations of Lehman Brothers, a day after the Japanese bank snagged Lehman's Asian operations for $225 million. [WSJ]
♦ The Times' Sorkin: "Treasury Secretary Henry M. Paulson Jr.'s $700 billion proposal to bail out Wall Street is both the biggest rescue and the most amazing power grab in the history of the American economy. [NYT]

This week's New York contains a brief story on the "sudden-onset poverty" — poverty, huh? — of an anonymous Lehman Brothers trader. There are million dollar mortgages and million dollar options packages gone to shit and wives who "can't" work and a sobbing nanny and mostly, lots and lots of blistering infinite anger in search of a target other than the indefensible practices and corrupted culture of an industry he bought into willingly. It's like, "Oh I'm so happy these guys get to stay home and spend time thinking about what's really important while instilling their own unique values systems in their kids!" Except the opposite:

♦ Morgan Stanley and Goldman Sachs have won approval to become bank holding companies, which will give them greater access to federal funds and also put them under tighter oversight and regulation. [WSJ, NYP]
♦ After suspending talks with Wachovia over the weekend, Morgan Stanley announced this morning that it is selling a 10-20 percent stake to Japan's largest bank, Mitsubishi UFJ. [WSJ, Bloomberg]
♦ The proposed $700 billion bailout package turned into a political football this weekend. [WSJ, NYT]
♦ Nomura will pay $225 million for Lehman's Asian operations. [WSJ]
♦ After last week's wild ride, everyone is bracing for another eventful week on Wall Street. [NYT]

Lehman Brothers gave $39 million to charity last year; Merrill Lynch handed out $43.7 million in 2007. So it's not surprising that charities in the city are now wondering how they're going to make ends meet. [Forbes]

Who's making money in this lousy economy? Mega-lawyer Rodge Cohen of Sullivan & Cromwell sure is! He handled both Lehman's bankruptcy and the AIG bailout this week. [AmLaw via ATL]

♦ The Federal Reserve and Treasury are working with Congress on a sweeping bailout program that would represent the biggest intervention in financial markets since the '30s. Asian and European markets soared on the news. [WSJ, Bloomberg, NYT]
♦ Five banks are now looking at Washington Mutual, including Wells Fargo, JPMorgan Chase and HSBC. [WSJ, Dealbook]
♦ Morgan Stanley's John Mack fought for his life yesterday, lobbying for regulatory changes, twisting arms, and discussing deals with potential partners. China's sovereign wealth fund, China Investment Corp, is now believed in be in discussions to take a 49 percent of Morgan. [WSJ, Marketwatch]

♦ The world's major central banks teamed together to flood the markets with dollars as part of an effort to contain the unfolding financial crisis. [WSJ, NYT]
♦ Morgan Stanley has been in talks with Wachovia, Wells Fargo and the Chinese bank Citic; Morgan's CEO, John Mack, blames short sellers and rumors for yesterday's big drop. [NYP, CNBC, Dealbook, WSJ]
♦ Washington Mutual's bankers at Goldman Sachs are "frantically looking for a buyer or a capital infusion in the next several days." [NYP]
♦ Rules introduced by the SEC today will make it harder for traders to drive down prices and will require them to share more info about their trades. [WSJ]

Chelsea Clinton made a surprise appearance at a meeting of Lehman Brothers’ bankruptcy committee this afternoon. (She was there to represent the hedge fund she works for, Marc Lasry's Avenue Capital.) But let's move on to the more important question: What was she wearing? "She was smartly dressed in black pants, white collared dress shirt and black vest, very blond hair up in a bun. Her chic black shoes appeared to have a platform, and her name was etched on her cell phone." [WSJ/Deal Journal]

Brokers Wanted [AP via Valleywag]

Later this week, San Francisco biotech startup Fluidigm plans to become only the seventh venture-backed startup to go public this year. 86 venture-backed startups pulled the trick last year. “This is terrible timing for this company,” said Scott Sweet, a senior managing partner at specialty research firm IPO Boutique, to the New York Times. Fluidigm, which makes a rubber-based circuit for life-science research, should be intimately aware of that. It's backed by bankrupt investment bank Lehman Brothers' Healthcare Venture Capital division. Fluidigm wants to raise between $70 million and $85 million. Sweet doesn't think it's going to happen. “In this environment, when people are feverishly babysitting the little profits they have left in their core positions, why would they want to take a risk on Fluidigm?” (Photo by azrainman)

Dick Fuld's enthusiastic assistant has returned to her desk! The same young lady who was picking up the Lehman Brothers chairman's line on Friday—but was noticeably absent yesterday—is once again taking Dick's calls. We can't imagine dealing with calls from pesky reporters all day is much fun, but we salute you for your dedication and hard work. And we hope Dick's lined up a job for you at Barclays.