http://money.cnn.com/…

“This is the first time in the history of United States that anything has been done by Congress to curtail excessive CEO compensation,” said House Financial Services Chairman Barney Frank, D-Mass, on Sunday. “It’s not everything we’d like, but it’s a very good beginning.”

“A very good beginning.”? They regulate the hell out of the corporations which they help artificially inflate by supporting the Federal Reserve System. Effectively controlling a significant portion of their business. Now they are nationalizing components of them or creating sweetheart deals for their friends in other firms by taking over a failing company instead of letting them work through bankruptcy. Allowing the likes of Citi Group and JP Morgan Chase to purchase assets deemed nearly worthless by the FDIC. Now Frank is bragging about how they have a foot in the door to controlling salaries of CEOs. If that’s the beginning the end is little better than complete state socialism/communism or the more likely fascism.

Is he ignorant or malicious? I hope the former. Perhaps than he could be convinced to read F.A. Hayek’s The Road to Serfdom.

http://www.bloomberg.com/…

Morgan Stanley and Goldman have defended their business model, saying they have adequate capital and don’t need the deposit funding that banks have. Mack, 63, lambasted short sellers for pushing his firm’s shares lower.

In a memo to employees yesterday, Mack said the management committee is “taking every step possible to stop this irresponsible action in the market” and urged employees to contact clients to reassure them that the firm is performing strongly and has plenty of capital.

“There is no rational basis for the movements in our stock or credit-default spreads,” Mack wrote in the memo. “We’re in the midst of a market controlled by fear and rumors, and short sellers are driving our stock down.”

Things are bad and people don’t want to lose their investments. That is rational behavior. As for the short sellers… also rational. They expect prices to drop and wish to take advantage of that. It bugs me when individuals use the word rational in this way. Which is really “I don’t understand what’s going on or wish to excuse or diminish the action by claiming no one understands.” By definition those actions are rational.

The rumors surely are abundant. Who’s merging with who? Who’s got Morgan Stanley? Is it Wachovia? Citic Group? HSBC? Wells Fargo? JPMorgan Chase? Seems like people are just throwing out names. “What banks still exist? Yeah that one will buy them!” I’m guessing the reason Goldman isn’t getting this kind of attention is because they are a larger firm.

According to their press release MS has $170+ billion liquid. Some, months ago, was criticizing MS for having that much on hand as it would hurt their earnings just sitting around. They had a good quarter considering the environment. Goldman did relatively worse but still is in an decent position overall. It seems to me there is some game going on. As if there are forces trying to make these firms merge with a bank. Both firms’ credit default swaps are at 10ish levels below what Moody has rated them for which would put them at junk levels and their stocks plummeted on what looks to me to be nothing but positive news.

Unless GS and MS are lying about their liquid assets and the market knows something I don’t… I can’t help but feel like something bigger is going on. Perhaps it’s is just fear and shorters, people selling off to invest into safer things (gold stocks were up 7-12% yesterday) and those furthering the issue by taking advantage of it. With language like this I’m concerned the industry will become even that much more regulated and the world will be thrust further into financial crisis.

http://online.wsj.com/…

Lehman Brothers Holdings Inc. came under mounting pressure Tuesday after hopes faded for an investment deal with a Korean bank, helping to trigger a 45% fall in the firm’s shares.

Lehman’s troubles mark the latest installment in the worst financial-system crunch in decades, coming just two days after the U.S. government announced its plan to take over the two giants of the mortgage business. U.S. stocks fell Tuesday, giving back gains that had greeted the weekend bailout of Fannie Mae and Freddie Mac.

The drop in Lehman shares highlights the continuing nervousness in markets as the company attempts to raise fresh capital to offset sharp declines in the value of its assets. Shares of Lehman, which is heavily exposed to troubled real-estate investments, have been under pressure for months and were down about 80% this year before Tuesday’s drop. Investors have been frustrated as Lehman has taken months to pull together a plan to raise capital to absorb expected losses.

On Tuesday, credit-rating services Standard & Poor’s and Fitch Ratings placed their ratings on Lehman on review for downgrades. S&P cited uncertainty about the firm’s ability to raise capital, “based on the precipitous decline in its share price in previous days.” If downgraded, Lehman may be required to post billions of dollars in collateral to its trading partners on derivative contracts and other agreements.

Oh and don’t forget Merrill Lynch’s and Wachovia’s problems. Fun times. Domestic stocks down, international stocks down, precious metals down… a lot. Wouldn’t mind so much if we also had price deflation for the rest of the commodity markets.