I see that the Financial Times has signed U2 singer Bono on to do some blogging, and to get things started he answer a question on Wall Street's current troubles:

AB: And finally – how much money have you personally lost so far in the Wall Street turmoil?

Bono: I’m OK. I’m not super careful, but I’ve always tried not to be stupid about money. It’s a serious business – especially if you don’t have any.

I'm assuming he's not talking about himself when refers to not having any money.

I'm torn about the news this morning on Goldman and Morgan flipping to a bank holding structure. It's overdue that the two companies are shrinking their leverage and rethinking their approach to risk, and I don't care about the end of Wall Street's supposed gilded age.

But saddling up with the Federal Reserve as banks worries me. To be somewhat cynical, anything that Goldman Sachs and Morgan Stanley agree on that involves any sort of backstop by U.S. taxpayers is almost, by definition, not good for the rest of us. It's sort of like the old joke that if you're playing poker and you don't know who the mark is at the table, it's you.

Feel free to talk me down, but this feels like we're heading in worrisome new directions. I would like to see more bank consolidation, not less, and the sudden rush among banks to be backstopped by the Federal Reserve and consumer deposits in a shrinking credit environment is a trend that can only go so far without creating new risks.

More here.

My friend Nouriel Roubini in the weekend FT talking about then next stage in the current crisis:

The next stage will be a run on thousands of highly leveraged hedge funds. After a brief lock-up period, investors in such funds can redeem their investments on a quarterly basis; thus a bank-like run on hedge funds is highly possible. Hundreds of smaller, younger funds that have taken excessive risks with high leverage and are poorly managed may collapse. A massive shake-out of the bloated hedge fund industry is likely in the next two years.

Even private equity firms and their reckless, highly leveraged buy-outs will not be spared. The private equity bubble led to more than $1,000bn of LBOs that should never have occurred. The run on these LBOs is slowed by the existence of “convenant-lite” clauses, which do not include traditional default triggers, and “payment-in-kind toggles”, which allow borrowers to defer cash interest payments and accrue more debt, but these only delay the eventual refinancing crisis and will make uglier the bankruptcy that will follow. Even the largest LBOs, such as GMAC and Chrysler, are now at risk.

We are observing an accelerated run on the shadow banking system that is leading to its unravelling. If lender-of-last-resort support and deposit insurance are extended to more of its members, these institutions will have to be regulated like banks, to avoid moral hazard. Of course this severe financial crisis is also taking its toll on traditional banks: hundreds are insolvent and will have to close.

There is a small silver lining in all the carnage out there: lots of MBAs are going to have to rethink their career choices. Finance and investment banking have been top of the pops for some time, and that grew remarkably in recent years. Until now.

Anyway, consider the following graduation data from Harvard's MBA program:

Finance: 44% (2008) / 42% (2007)

Consulting 21% (2008) / 21% (2007)

Other services 18% (2008) / 15% (2007)

Manufacturing 17% (2008) / 19% (2007)

Even being somewhat conservative, those finance numbers have to come down by at least a quarter -- there are fewer i-banks and hedge funds aren't hiring in quantity -- so we are set to have a sea change in MBA employment come 2009. Should be interesting to watch, even if we don't end up with recently-minted MBAs on breadlines.

More here via Roy Soifer.

Okay, I never thought I'd say this, but I agree with John McCain: SEC Chair Chris Cox should be fired. Who would have thought he would stoop so low as to use the front page of the SEC site to blame seniors for the current credit crisis? Ageist bastard.

This was supposed to be an Inc 500 discussion on Friday with John McCain and Barack Obama's economic advisors, but Obama's guy was a no-show (which is more than a little strange). Anyway, worth watching, as my friend and colleague Carl Schramm interviews Doug Holtz-Eakin, who is McCain's economic advisor. In particular, catch the moment when Holtz-Eakin hops across and pretends to channel the spirit of Obama advisor Jason Furman.

I know it's all the rage to ooh and aah at the market's implosion right now, but a momentary diversion isn't so bad. The folks over at the excellent Science of Sports have put together this video retrospective of some of the highlights of the Bejing Olympics (remember that?), plus some performances of games past. It's definitely worth a look.

Provocative comments from mega-quant Cliff Asness of AQR on the current crisis:

Let’s step back. Wall Street’s greed and short sightedness, and the consumers’ real-estate bacchanalia, was certainly a big part of recent events, but the biggest drivers in creating the current crisis were (IMHO) not the fault of private enterprise but, as usual, of the government:

1. Not being willing to have a real recession. After Greenspan wrongly changed his mind and let the tech bubble grow to a dangerous level in the late 1990s, policy-makers decided instead to pump/print tons of free money to support the economy, creating a massive real estate bubble and the accompanying derivatives bubble.
2. The GSEs were structured with the government/taxpayers absorbing the downside and a few anointed businessmen (I would guess the same ones who know how to get rent controlled apartments) and shareholders owning the upside. (Consumers who got cheap loans were also winners, but of course that was what GSEs were set up to do.) It’s the first part that’s bad. Tell anyone running a business that they get a lot of the upside and the government/people get the downside and watch what you get… That is a Frankenstein’s monster that free marketers and socialists alike should abhor, as it’s a toxic combination of the two.

Read the rest here.

As an amused aside, Asness's disclaimer is arguably even better. An excerpt follows:

This is Cliff speaking now. AQR's legal department would like me to add that I am criminally insane and barred by an order of rhetoric protection from speaking on AQR's behalf. Anyone trading on my advice, or a client, consultant, employee or Iraqi insurgent thinking he has been wronged by my attitudes or opinions can have a $250 out-of-court settlement right now if they'll sign a waiver, otherwise we'll break you. Oh, and we lied about the $250, but seriously, we will break you. Please note, nobody can predict where markets will go in the short-run and sometimes even the long-run. When I point out individual things in the marketplace that I think are strange, or wrong, it doesn't mean I have the perfect answer or can easily make money from it for my clients, for myself, or certainly for you reading this blog! Furthermore, if you read one guy's opinion on a blog and do anything based solely on that, you are an idiot. Next, as the legalese above
alludes to, the actual funds and accounts AQR manages are run using models that may or may not agree with what I'm writing herein, particularly as our models will generally have a shorter time horizon than the things I'll be writing about. LISTEN TO ME AT YOUR OWN RISK! If you choose to read what I write please only use it as one input for you to critically evaluate in your decision process.

Finally, my style is to write very aggressively and passionately about what I believe. So unless you are a libertarian/objectivist, small government and free market loving, socialist hating, value investing geek you probably won't agree with everything or anything I say. If you find the way I say it insulting, I'm sorry about the first few words you couldn't help reading, but if you read a moment past that (in this disclaimer or later), it is on you. I agree we need to censor things occasionally but only to protect children and madmen (and of course the children of madmen). If you believe in censoring anything else short of a nuclear secret you'd probably look good in hobnail boots and the crooked cross. Thanks for listening.

Sure. Got it. You go, Cliff.

Here is the quote of the day:

To paraphrase Oscar Wilde, the idea that Goldman Sachs' rogue tendencies can be adequately restrained by banking regulations strikes me as the triumph of hope over experience.

     -- Me, on Twitter today

First in what I'd like to hope will be a regular series:

Scene: A midtown Manhattan bar, around 1am on September 15/ 2008.

Guy walks in dressed like a banker -- blue shirt, grey pants, etc. Has a few quick drinks, walks to karaoke setup and belts out incredibly angry rendition of angry speed metal song. Ends it with, "Fuck you, Paulson!" Finishes drink in one gulp. Walks out of bar to scattered applause.

Feel free to send more such things.

What is truly disgraceful is that investment banks could only manage returns on equity of 15-25% with a balance sheet that was often leveraged to the sky.

         -- Niels Jensen and Jan Wilhelmsen, of Absolute Return Partners

[via John Mauldin]

Am I the only one who was surprised more wasn't made of the following quote from a WSJ article today? It concerns the speedy transition of Morgan Stanley and Goldman Sachs to bank holding structures.

Morgan Stanley officials have been talking about this option internally for several months, and Fed officials have been stationed at the bank since the crisis intensified earlier this year. After last week's market crisis, Morgan Stanley officials asked the Fed to speed up its review and grant the bank designation sooner. "It became clear that the world had changed," said Morgan Stanley spokeswoman Jeanmarie McFadden.

If true, it implies that there were two giant stories out there for months waiting for journalists/analysts/investors to find. First, Morgan Stanley (and almost certainly Goldman Sachs) had long been investigating turning to a bank holding structure. I never that reported anywhere before last night.  Second, discussions with the Federal Reserve on the issue were sufficiently advanced such that Fed was doing a review and had people on site at Morgan since earlier this year.

Hello? Is this thing on? Does it strike no-one else as major news that we apparently had a giant taxpayer-backed put in place for Morgan and Goldman?

Walter Sobchak: Were you listening to The Dude's story, Donny?
The Dude: Walter...
Donny: What?
Walter Sobchak: Were you listening to The Dude's story?
Donny: I was bowling.
Walter Sobchak: So you have no frame of reference here, Donny. You're like a child who wanders into the middle of a movie and wants to know...
The Dude: (interrupting) Walter, Walter, what's the point, man?
Walter Sobchak: There's no reason - here's my point, dude, there's no fucking reason why these two...
Donny: Yeah, Walter, what's your point?

       -- The Big Lebowski (1998)

I pity taxpayers wandering into the credit crisis story at this point. It is absurdly complex, and centers on a subject that most people neither care about nor understand. And the last time they looked in they were told this was about subprime and housing, which it no longer is -- at least not in large part.

Instead, it is a costly and complex saga involving the unwinding of global credit markets, overlayed with debt syndication, new derivatives, the collapse of the investment banking business, the changing nature of leverage, flawed risk models, structured finance, greed, the housing bacchanalia, savings, paranoia about prior credit crises, and the paradox of thrift. Don't forget, of course, populist political pandering in an election year.

Is it any wonder that most of even the most well-intentioned commentary on the current crisis sounds clueless, unhelpful and mildly dangerous?