A lot of sports teams claim that they pay players ludicrous salaries because otherwise they would go to competing teams. The argument has an elemental logic to it. Rich franchises get the best players. The best talent gets rich. It is a sort of free market analog to what goes on in the business world.

Shareholders are always hard pressed to understand why public company CEOs make tens of millions of dollars. Corporate boards argue that there is a limited pool of skilled people who went to the Harvard Business School but did not go on to become consultants at McKinsey or Bain.

Wall St. will probably flush out the best 5% or 10% of its talent by not paying them a competitive wage. The best people will end up at hedge funds and private equity firms. It is easy to say that those institutions are also in trouble, but the cream of them can still raise billions of dollars, and the very finest still make money. The heads of these companies know that they are about to be able to cherry pick the real talent out of Wall St.

Losing the best people at the large commercial banks and brokerages might be OK in robust times, but, of course, the best people make a lot of money when these firms are flush so they stay on. During periods of real trouble the floundering operators cannot afford to part with their real stars. Who will be left to think and trade their way out of the deep holes the industry has dug for itself?

No one.

Douglas A. McIntyre

Reuters reports that Congress and The White House are close to a bill that would give Detroit modest loans.

Reuters reports that Fannie Mae (FNM) and Freddie Mac (FRE) execs were warned years ago about the risks of some of their lending.

Reuters reports that regulators are still troubled about how to fix the housing crisis.

Reuters reports that Ford (F) is discussing selling Volvo to a Chinese firm.

Reuters writes that Sony (SNE) will cut 8,000 jobs.

Reuters reports that Fedex (FDX) cut its outlook and its shares fell sharply.

The Wall Street Journal reports that the US may end up owning shares in The Big Three.

The Wall Street Journal reports that the US may use bailout funds to help some credit unions.

The Wall Street Journal reports that Yahoo! is closer to finding a CEO with the ex-Vodaphone (VOD) chief as a lead candidate.

The Wall Street Journal reports that the CEOs of Morgan Stanley (MS) and Merrill Lynch (MER) will get no bonuses.

The Wall Street Journal reports that Chrysler talks with China’s Chery Automotive about building a strategic relationship have died because of the economy.

The Wall Street Journal reports that may auto parts companies are failing.

The Wall Street Journal writes that Dow Chemical (DOW) will cut 11% of its staff.

The Wall Street Journal writes that LBO candidate BCE got a positive report on its solvency.

The Wall Street Journal reports that tech companies are working on cutting the legal risk of using open source software Linux.

The Wall Street Journal reports that Texas Instruments (TXN) and National Semi (NSM) cut forecast.

The Wall Street Journal reports that S&P downgraded Russia’s debt.

The Wall Street Journal reports that sales at McDonald’s (MCD) jumped.

The Wall Street Journal reports that tech spending will slow in 2009.

The Wall Street Journal reports that the head of Playboy (PLA) will step down.

The New York Times reports that Japan’s recession deepened in the third quarter.

The New York Times reports that car dealers are preparing for closings or a fight with The Big Three over their franchises.

The New York Times reports that modified home loans often lead borrowers back to trouble.

Bloomberg reports that Obama hopes to borrow China’s wealth and clout to stabilize the US economy.

Douglas A. McIntyre

Late today, according to The Wall Street Journal,  Thain’s people said he told the board he wanted nothing. Perhaps now the compensation committee at the big broker can be magnanimous and give him a few million dollars anyway.

Douglas A. McIntyre

The board is wrong about Thain. He wants $10 million and he earned it.

According to The Wall Street Journal. the financial firm’s compensation committee does not want to give Thain a dime. Among other things it would look bad with all that carnage in the banking industry.

One point of view about Thain is that he surrendered Merrill into servitude without much of a fight. He could have tried to hang on like Morgan Stanley (MS) did. Thain has only been at his company for a year, and he walked into the pigsty that former CEO Stan O’Neal left behind. Merrill could have gone under like Lehman and Bear Stearns did. No one will even know.

What can be known is that Merrill sold down to under $14 when investors panicked in July. It dropped below $12 in September before Thain did his deal with B of A.  Today, Merrill shares is off 40% for the last three months. Morgan Stanley, which took outside money to stay independent, is down over 50% for the same period.

If Thain did not save Merrill as an independent company, he did save its share price for dropping close to zero and kept investors from losing billions of more dollars.

For accomplishing that, $10 million is nothing.

Douglas A. McIntyre

Reuters reports that governments are bracing for a long crisis ahead.

Reuters reports that Paulson says the financial bailout still faces hurdles.

Reuters writes that oil is steady below $44.

Reuters reports that some members of the Senate are pushing for a GM (GM) merger with Chrysler.

Reuters reports that the infrastructure building boom is Asia is not likely to pay off soon.

Reuters reports that Toshiba will sharply cut chip output due to lack of demand.

Reuters reports that Microsoft (MSFT) picked up a key Yahoo! (YHOO) executive to run its online business.

Reuters writes that Facebook is delaying plans for an employee stock sale.

Reuters reports that ex-CEO Greenberg says AIG (AIG) needs a unified plan.

The Wall Street Journal writes that the Fed is considering taking unconventional steps to help the economy.

The Wall Street Journal reports that companies are accelerating lay-offs.

The Wall Street Journal reports that Boeing (BA) may delay delivery of the 787.

The Wall Street Journal reports that Harvard plans a bond issue.

The Wall Street Journal reports the November retail sales were as bad as feared.

The Wall Street Journal reports that Credit Suisse revealed a big loss.

The Wall Street Journal reports that the fall of oil is threatening energy-driven companies and several countries.

The Wall Street Journal reports that AMD (AMD) sharply cut its forecasts.

The Wall Street Journal writes that the car companies are taking their case to the web.

The Wall Street Journal expects the November jobs report to be grim.

The Wall Street Journal reports that the Merrill Lynch (MER) deal with Bank of America (BAC) goes to a vote today.

The Wall Street Journal reports that China is looking to Wall St. to lure back native talent.

The Wall Street Journal reports that layoffs at Viacom (VIA) says a lot about the performance of some of its businesses.

The Wall Street Journal reports that Siemens (SI) expects slow growth in China.

The Wall Street Journal reports that concerns about debt are weighing on Rio Tinto (RTP)..

The Wall Street Journal reports that Toll Brothers (TOL) narrowed it loss but sales continued to fall.

The Wall Street Journal reports that Starbucks (SBUX) is moving to keep sales and cut costs.

The Wall Street Journal reports that Nokia (NOK) cuts its forecasts for handset sales, again.

The New York Times reports that Washington’s new trek is to help homeowners.

The New York Times reports that AT&T (T) cut 12,000 jobs as its landline business continues to fall.

The FT reports that The Big Three would accept government oversight in exchange for loans.

The FT reports that Europe’s central banks slashed rates.

The FT reports that Bernanke called for action on foreclosures.

The FT warned about a Latin American credit squeeze.

Bloomberg reports that California may resort to recession-era IOUs are cash tightens.

Douglas A. McIntyre

Reuters reports that Boeing (BA) will sign a new deal with machinists.

Reuters reports that the auto sales slump is expected to continue through November

Reuters reports that Toyota (TM) will cut bonuses.

Reuters writes that Greenberg says AIG (AIG) needs a federal guaranty.

Reuters writes that frugal Asia will dodge most of the credit card problems which will hit other regions.

The Wall Street Journal reports that China fears that workers will begin to return to rural areas.

The Wall Street Journal writes that Bernanke says that he can do more to ease the credit crisis.

The Wall Street Journal reports that Ford (F) plans to build smaller cars.

The Wall Street Journal reports that Goldman Sachs (GS) may report a $2 billion loss.

The Wall Street Journal reports that Nokia (NOK) is preparing to release an extremely advanced smartphone.

The Wall Street Journal reports that delinquent mortgages are expected to double by the end of next year.

The Wall Street Journal reports that the Redstone debt talks are moving slowly.

The Wall Street Journal reports that UAW officials will meet to discuss more cuts.

The Wall Street Journal reports that Palm (PALM) will cuts costs and workers after a weak forecast.

The Wall Street Journal reports that the self-employed are being frozen out of mortgages.

The Wall Street Journal reports that many LBO deals may never get back to their original prices.

The Wall Street Journal reports crude prices hit a three-and-a-half year low.

The Wall Street Journal reports that J&J (JNJ) will acquire Mentor.

The Wall Street Journal reports that Delphi won an extension of loans.

The Wall Street Journal writes that online stores are offering free shipping and discounts.

The Wall Street Journal reports that chip sales declined last month.

The Wall Street Journal reports that Intel (INTC) will ally with Hitachi on flash data-storage devices.

The New York Times reports that The Big Three may have to cut models.

The New York Times reports that the monitor appointed by Congress to keep track of the bailout says there is no consistent plan.

The FT reports that Tudor Jones has suspended redemptions from its flagship fund.

The FT reports that GE (GE) will try to calm investor fears at a meeting with analysts.

The FT reports that Ford (F) may sell Volvo.

The FT writes that canceled M&As are beginning to overtake successful takeovers.

Bloomberg reports that "The Great Recession" may be starting as job losses move up and credit tightens.

Douglas A. McIntyre

Reuters reports that the downturn in the Chinese economy deepened.

Reuters reports that BHP Billiton (BHP) was gloomy about its prospects and defended it bid for Rio Tinto (RTP)

Reuters reports that Panasonic slashed its earnings forecast.

Reuters writes that GM (GM) may fold its Pontiac division as part of a restructuring.

Reuters reports that Chrysler may not be viable without loans.

The Wall Street Journal reports that the Fed approved Bank of America’s (BAC) buyout of Merrill Lynch (MER).

The Wall Street Journal writes that Daimler’s attempt to sell the rest of Chrysler to Cerberus has broken down.

The Wall Street Journal reports that durables and spending showed more economic slowing.

The Wall Street Journal reports that mortgage rates fell after the Paulson expanded his bailout.

The Wall Street Journal writes that BCE buyout is in trouble due to its financial picture.

The Wall Street Journal reports that the Perot fund closed due to bad investments.

The Wall Street Journal reports that economic trends show that deflation is setting in.

The Wall Street Journal reports that online shopping is flat with last year.

The Wall Street Journal reports that UAL (UAUA) shares moved up on lower oil.

The Wall Street Journal reports that revenue at Warner Music (WMG) fell.

The New York Times reports that food prices will keep going up because of the costs of packaging and shipping.

The New York Times reports that falling oil prices are increasing tension among OPEC members.

The New York Times reports tha Tiffany (TIF) lowered its full year outlook.

The FT reports that AIG (AIG) will pay out retention bonuses.

The FT reports that Lehman has risk in the billions of dollars across Asia.

The FT reports that Carlos Slim took a large position in Citigroup.

The FT reports that the yield on 10 year Treasuries dropped below 3% for the first time in 50 year.

Douglas A. McIntyre

It would be hard to find a bank or brokerage house that has not missed its forecasts in one or more of the last four quarters. Securities analysts’ projections for next year are useless.

Reuters makes the observation that Citigroup Inc’s repeated assurances that it did not need additional capital, followed by its quick about-face in accepting billions of dollars in aid from the U.S. Treasury, has many investors wondering what other banks are hiding.

The answer to the question of why Citi was wrong about its future is more frightening than the idea that investors, regulators, and customers are being duped. They aren’t. The banks simply don’t know what they own and, after a year of trying, still don’t know how to value it. Executives at these firms cannot make projections because of old flaws in their systems of stuffing their balance sheets with unstable financial instruments and trying to follow hundreds of thousands of data points which can change their values day-by-day.

The government and financial industry still want to fill a hole, but don’t know how big it is. That means that the sums of money put into institutions to "save" them will almost always be inadequate. The balance sheets of the firms are tied to the general housing and credit markets in such byzantine ways that the will never be correctly assessed until home values, consumer obligations, and corporate debt find a bottom.

There is no trick to getting exact numbers for the assets and liabilities which banks hold. The entire system is too fluid now. What no one wants to admit is that until the "deleveraging" process is over and the value behind financial instruments moves down to its foundation, any figure banking management or the government wants to come up with as the full cost of saving the credit system is only a guess.

Douglas A. McIntyre

According to The Wall Street Journal, there is a way to save some jobs."Managers can minimize the number of employees they fire by dismissing higher-paid traders and bankers." Very clever.

Pandit is stuck in mud he created on his own. While other banks like Wells Fargo (WFC), Bank of America (BAC), and JP Morgan (JPM) were buying financial institutions to build deposit and talent bases, Citi did not do much. Some companies like Wachovia and Merrill Lynch (MER) even had the foresight to do something. They sold themselves before being reposed by the government.

Pandit came into Citi with the promise that he would emphasize the institution’s strengths and sell-of operations which would not be part of his "strategic" view of the future of the world’s financial industry. Analysts would be hard pressed to find much of that. If anything did happen, it must have been during the dead of night.

Citi is face with the unenviable prospects of more losses and a consumer credit portfolio which is likely to go through substantial rates of default among its customers. There are very few large financial institutions to buy. Citi may even face an AIG-like event if its write-offs get large enough and its share price drops far enough.

Perhaps, the Fed could merge Citi and AIG (AIG). There must be come cost savings in that.

Douglas A. McIntyre

Reuters says that Congress challenged banks on how they would use bailout funds.

Reuters reports that companies including Honda (HMC), Home Depot (HD), and Dow Chemical (DOW) want the Fed to buy their commercial paper.

Reuters writes that RBS (RBS) will cut 3,000 jobs.

Reuters writes that EADS raised its financial targets for next year.

Reuters writes that Nissan will cut its Japan output further due to a recession in that country.

Reuters reports that Dow Jones has remained loyal to GM (GM) by keeping it in the DJIA.

Reuters writes that hedge funds see more regulation coming.

Reuters reports that the federal bailout may help the value of asset-backed securities.

Reuters reports that Kohl’s Corp (KSS) and Nordstrom (JWN) cut their financial outlooks.

The Wall Street Journal writes that banks are in a war to get new deposits by raising rates.

The Wall Street Journal reports that Citigroup (C) will make large job cuts and raise rates on its credit cards.

The Wall Street Journal reports that tensions are rising in labor negotiations between Boeing (BA) and the unions that represent white-collar engineers and technical workers.

The Wall Street Journal reports that Wal-Mart (WMT) is defying the retail slowdown.

The Wall Street Journal reports that luxury good makers are cutting US prices.

The Wall Street Journal reports that there are culture clashes in the merger of Bank of America (BAC) and Merrill Lynch (MER)

The Wall Street Journal reports that Microsoft (MSFT) will offer zero percent financing on some business software.

The Wall Street Journal reports that OPEC will try to stop the falling price of oil.

The Wall Street Journal writes that PC makers are scrambling to get more share of a shrinking market.

The Wall Street Journal reports that Sprint (S) will offer some employees buyouts.

The Wall Street Journal reports that Treasury drew fire from Congress for shifting bailout fees away from buying toxic bank assets.

The Wall Street Journal reports that an auto industry bailout bill will probably not pass this year.

The Wall Street Journal reports that mortgage rates are still falling.

The Wall Street Journal reports that Google’s (GOOG) ad model is being hurt because consumers will not even search for products during the recession.

The Wall Street Journal reports that credit rating agencies cut several car suppliers including Dana (DAN) and Magna (MGA).

The Wall Street Journal reports that NBC and Fox will start a pool to gather local news.

The New York Times reports that the FDA detained some Chinese products for testing.

The New York Times reports that Google (GOOG) added search by voice to Apple (AAPL) iPhone software.

The FT reports that Citigroup (C) CEO bought shares in the bank.

Bloomberg said Cerberus said it would give up future profits if the government would bailout Chrysler.

Douglas A. McIntyre