CRASH TALK

Wall Street Journal - Banks lined up to reveal billions in potential losses as a result of alleged fraud by Wall Street investment manager Bernard Madoff. The Royal Bank of Scotland - 58 per cent owned by the taxpayer - said L400 million was at risk in the hedge funds invested with 70-year-old . . . Spanish bank Santander, which owns Abbey and the savings business of Bradford & Bingley, said its potential exposure was more than L2 billion. . . HSBC said it believed it had a potential exposure of around 1 billion US dollars.

Wall Street Journal - New potential victims emerged of Wall Street veteran Bernard Madoff's alleged giant Ponzi scheme, with international banks, hedge funds and wealthy private investors among those sorting out what could amount to tens of billions of dollars in losses. New York Mets owner Fred Wilpon, GMAC LLC Chairman J. Ezra Merkin and former Philadelphia Eagles owner Norman Braman were among the dozens of seemingly sophisticated investors who placed money on what could prove to be history's largest financial scam.

And at least three funds of hedge funds -- which raise money from investors and farm it out to hedge funds -- may have significant losses. Fairfield Greenwich Group and Tremont Capital Management of New York placed hundreds of millions of their investors' dollars into funds overseen by Mr. Madoff. On Friday, Maxam Capital Management LLC reported a combined loss of $280 million on funds they had invested with Mr. Madoff. "I'm wiped out," said Sandra Manzke, Maxam's founder and chairman. The Darien, Conn., fund of hedge funds will have to close as a result of the losses, she said. . .

Details emerged Friday of how Mr. Madoff ran the alleged scam, fostering a veneer of exclusivity and creating an A-list of investors that became his most powerful marketing tool. From New York and Florida to Minnesota and Texas, the money manager became an insider's choice among well-heeled investors seeking steady returns. By hiring unofficial agents, tapping into elite country clubs and creating "invitation only" policies for investors, he recruited a steady stream of new clients.

During golf-course and cocktail-party banter, Mr. Madoff's name frequently surfaced as a money manager who could consistently deliver high returns. Older, Jewish investors called Mr. Madoff " 'the Jewish bond,' " says Ken Phillips, head of a Boulder, Colo., investment firm. "It paid 8% to 12%, every year, no matter what.". . .

Mr. Madoff tapped social networks in Dallas, Chicago, Boston and Minneapolis. In Minnesota, he attracted investors from Hillcrest Golf Club of St. Paul and Oak Ridge Country Club in Hopkins, investors say. One of them estimated that investors from the two clubs may have invested more than $100 million combined. . .

Jeff Fischer, a top divorce attorney in Palm Beach, says many of his clients were also Mr. Madoff's clients. "Every big divorce that came through my office had portfolio positions with Madoff," he says. . .

Richard Spring, a Boca Raton resident and former securities analyst, says he had about $11 million -- or 95% of his net worth -- invested with Mr. Madoff. "That's how much I believed in him," Mr. Spring said. . .

Eric Gibson, Wall Street Jouirnal - We can now add colleges and universities to the list of victims of the financial crisis. The stock-market collapse has badly eroded endowments, forcing schools to suspend capital projects, freeze hiring, rethink need-blind financial-aid policies and cut budgets. The Journal reported this week that Harvard University's giant-killer endowment, which stood at $36.9 billion as of June 30, has lost 22% of its value in the months since and that the university's administration is planning for a 30% decline for the fiscal year ending next June. In a letter to the Harvard community two days ago, President Drew Gilpin Faust announced that the school is "reconsidering the scale and pace of planned capital projects, including the University's development in Allston, and . . . taking a hard look at hiring, staffing levels and compensation." Many private colleges and universities are doing the same thing. In response to falling endowments, some have considered suing their brokers for putting funds into risky investments, while others are trying to get a slice of any future congressional stimulus package. Can clamor for a bailout be far behind?

Incredibly, one or two schools have even contemplated making up their shortfalls the old-fashioned way -- by increasing tuition. . . The soup-to-nuts cost (tuition, room and board, extras) of one year at a private college is already in the region of $50,000, bringing the cost of a bachelor's degree to close to a quarter of a million dollars. As one wag has observed, that's like buying a new BMW every year and driving it off a cliff.

Moreover, tuition increases have consistently outpaced inflation. Since 1992, inflation has averaged between 2.5% and 3% a year; annual tuition increases have often been as high as 6%. According to the Chronicle of Higher Education, the reason that tuition increases at private four-year institutions kept pace with inflation this year is not that these schools suddenly curbed their free-spending ways but that inflation itself jumped dramatically. The average tuition increase was 5.9%, while the Consumer Price Index rose 5.6% in the 12 months from July 2007. . .

In its latest survey, published last month, the Chronicle reports that compensation for private university presidents rose on average 6% in the past year, a figure that represents 50% more than the standard annual merit increase for private-sector employees. The total compensation (salary plus benefits) of three private university presidents for 2007, the most recent year for which data are available, was in the stratosphere: Columbia University's Lee C. Bollinger earned $1,411,894 and Northwestern University's Henry S. Bienen, $1,742,560; Suffolk University in Massachusetts paid David J. Sargent $2,800,461.

Washngton Post - Fannie Mae has agreed to let renters stay in their homes even if the owners of the properties have been foreclosed on. About 4,000 renters live in properties foreclosed on by Fannie Mae. The move comes after the mortgage-finance giant came under pressure from a Connecticut legal aid group to end efforts to evict tenants who are able to pay their monthly bills but whose landlords have lost their buildings to foreclosure.

Palm Beach Post - Congress wanted to guarantee that the $700 billion financial bailout would limit the eye-popping pay of Wall Street executives, so lawmakers included a mechanism for reviewing executive compensation and penalizing firms that break the rules. But at the last minute, the Bush administration insisted on a one-sentence change to the provision, congressional aides said. The change stipulated that the penalty would apply only to firms that received bailout funds by selling troubled assets to the government in an auction, which was the way the Treasury Department had said it planned to use the money. Now, however, the small change looks more like a giant loophole, according to lawmakers and legal experts. In a reversal, the Bush administration has not used auctions for any of the $335 billion committed so far from the rescue package, nor does it plan to use them in the future. Lawmakers and legal experts say the change has effectively repealed the only enforcement mechanism in the law dealing with lavish pay for top executives.

Bloomberg - Almost a third of hedge funds will shut or merge after the $1.5 trillion industry posted its worst ever performance this year, according to IGS Group, which advises hedge funds on raising money. . . The number of hedge funds more than tripled in the last decade to a record 10,233 at the end of June, according to Chicago-based Hedge Fund Research Inc. . . Hedge funds typically charge a 2 percent management fee and keep 20 percent of profits. . . Prime brokers, the banks that provide loans and handle fund administration, are cutting off firms they don't expect to be profitable clients, Godden added. Hedge funds will need to manage at least $300 million in assets, up from $100 million a year ago to stay in business, Sullivan said.

Reuters - Homelessness and demand for emergency food are rising in the United States as the economy founders, a report said, and homeless advocates cautioned many cities were not equipped for the increase. A survey by the U.S. Conference of Mayors showed that 19 of 25 cities saw an increase in homelessness in the 12 months to October, while four reported a drop and two cities lacked enough data for conclusive results. On average, the cities in the survey saw a 12 percent rise in homelessness, the report said. Although the results do not cover all U.S. cities, homeless advocates said they were in line with anecdotal evidence nationwide. Homeless advocates say families are flooding homeless shelters across the United States in numbers not seen for years, camping out in motels or staying with friends and relatives following foreclosures on tens of thousands of homes during the worst financial crisis since the Great Depression.

NY Times - The Superior Court system in New Hampshire will take the unusual step of halting jury trials for a month early next year because of a widening state budget crisis. John Broderick, the state's chief justice, said suspending trials was essential to avoid layoffs in the judicial system, which has already cut $2.7 million from its budget. The measure will save about $73,000, the monthly amount spent on stipends for jurors. But the head of an association representing civil trial lawyers said it could have a harsh impact on plaintiffs, many of whom have already waited years for a judgment in their case. "What are they going to rely on in the interim?" said Ellen Shemitz, executive director of the New Hampshire Association for Justice. "Some of these people have been harmed by the wrongdoing of others, are out of work as a result and are looking to the courts to protect their rights and provide some kind of financial remuneration."

NY Times - Opponents of a Congressional bailout for Detroit auto companies laid blame for its defeat on the United Automobile workers union, which refused to agree to grant wage concessions in 2009 as a condition of the deal. At a news conference, Ron Gettelfinger, the president of the U.A.W., disputed that description of the events and called on the Treasury and the White House to release financing and "prevent the imminent collapse of the automakers and the devastating consequences that would follow." . . .

Representatives for the union, which had already accepted a series of cuts in its current contract, sought instead to push any more concessions back to 2011, when the U.A.W.'s contract with Detroit auto companies expires.

In a statement Thursday night, the union said it was "prepared to agree that any restructuring plan should ensure that the wages and benefits of workers at the domestic automakers should be competitive with those paid by the foreign transplants. But we also recognized that this would take time to work out and implement" using programs like buyouts and early retirement offers to bring in new workers at lower rates.

"Unfortunately, Senate Republicans insisted that this had to be accomplished by an arbitrary deadline. This arbitrary requirement was not imposed on any other stakeholder groups. Thus, the U.A.W. believed this was a blatant attempt to make workers shoulder the lion's share of the costs of any restructuring plan," the statement said. . .

Mr. Gettelfinger said Friday that "The G.O.P. caucus was insisting the restructuring had to be done on the backs of workers and retirees rather than have all stakeholders come to the table."

Media Matters - Simply put, GM's labor costs are not synonymous with hourly wages earned by UAW employees. Many in the press have casually used the two interchangeably. But they're not.

Felix Salmon at Portfolio did perhaps the best job explaining the misinformation at play: "The average GM assembly-line worker makes about $28 per hour in wages, and I can assure you that GM is not paying $42 an hour in health insurance and pension plan contributions. Rather, the $70 per hour figure (or $73 an hour, or whatever) is a ridiculous number obtained by adding up GM's total labor, health, and pension costs, and then dividing by the total number of hours worked. In other words, it includes all the healthcare and retirement costs of retired workers. [emphasis in original]

Indeed, according to this Associated Press report, a chunk of GM's $70-an-hour labor costs goes toward paying current retirees' pensions and health-care coverage. In other words, that's money that's not going to end up in the pocket of any autoworker when he cashes his paycheck this week. That's money GM has to set aside in order to pay off costs associated with workers already in retirement. That money has absolutely nothing to do with calculating the hourly wage of a full-time UAW employee today. None. "

So, no, UAW workers don't make $70 an hour even if you factor in benefits, because a portion of those benefits are going to people who retired years ago.

Democratic Underground - While Mitch McConnell and other Republicans have hinted that their opposition to investment in the Big Three is all about busting the unions, Jim DeMint refreshingly came out and admitted it yesterday on NPR.

Norris: Now, you know the unions are saying this is also a political ploy on the part of the Republicans to try get rid of unions and use the auto industry troubles to do just that.

DeMint: Well, I'm not trying to get rid of the unions, but I am saying that they appear to be an antiquated concept in today's economy.

DC Indymedia - The sit-in and plant occupation at Chicago's Republic Windows and Doors ended in victory when the union announced that more than 200 workers and members of UE Local 1110 voted unanimously to accept a $1.75 million settlement that includes eight weeks of back pay, two months of continued health coverage, and compensation for unused vacation time.

According to UE, over the five days of the Republic plant occupation, messages of solidarity poured in from around the world. Individual workers, organizations, labor unions and federations sent emails and letters of solidarity. Protests against the Bank of America were also organized across the U.S. as word of the Republic occupation spread.

Stephen Gandel, Time - While the $700 billion bailout has been the focus of attention and scrutiny, the Internal Revenue Service and lawmakers have been quietly making changes to the tax code and how it is followed in an effort to further boost the financial strength of ailing companies. At the same time, though, the changes drain billions of dollars of badly needed tax revenue when the federal deficit is mushrooming. Many of the changes may lower corporate-tax revenue for years to come.

"The IRS has spent the past few months trying to make the rules as liberal as possible," says Robert Willens, an accounting and tax expert in New York. "They have been decreasing corporate taxes pretty consistently."

The IRS this year has issued 113 notices, many of which will lower the taxes companies will pay this year and in the future. That breaks the previous record of 111 in 2006, and is nearly double the 65 issued in the last year of Bill Clinton's presidency. Lawmakers, too, have passed tax changes and are pushing for more, which will save corporations billions of dollars this year. One of the biggest windfalls could come from a proposed change in the so-called carryback rule, which would fatten the tax rebate companies get when they have losses. The extension would be similar to one that was passed after 9/11. . .

Jonathan Stempel, Reuters - Jim Rogers, one of the world's most prominent international investors, called most of the largest U.S. banks "totally bankrupt," and said government efforts to fix the sector are wrongheaded. Speaking by teleconference at the Reuters Investment Outlook 2009 Summit, the co-founder with George Soros of the Quantum Fund, said the government's $700 billion rescue package for the sector doesn't address how banks manage their balance sheets, and instead rewards weaker lenders with new capital. . .

"Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt," said Rogers, who is now a private investor.

"What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," he said. "What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics.". . .