The SEC's ban on short selling ended Thursday. This creates the conditions to resume the cycle of value destruction that brought down Lehman Brothers Holdings. What happens is that a threat of a credit downgrade causes a spike in the premiums for credit default swaps (CDSs) that insure the bank's debt. That premium spike requires a collateral call which the bank lacks the cash to meet. This jeopardizes its effort to raise capital and sends the stock plunging -- to the profit of the short sellers.

Enter Morgan Stanley (NYSE: MS). A few weeks ago, it announced that it would raise $9 billion from an investment from Japanese bank Mitsubishi UFJ Financial Group, which is due to close on October 14th. However, the $25 a share purchase price is now about double Morgan Stanley's closing stock price Thursday. If the $9 billion capital commitment remains constant, MUFJ would own 65% of Morgan Stanley rather than the original 21%.

And this morning, a report emerges that Moody's (NYSE: MCO) will put $200 billion of Morgan Stanley's debt on downgrade watch -- helping drive its stock down 27% in pre-market. As happened at Bear Stearns and Lehman, hedge fund clients have pulled out their money and its CDS premiums are up so much that it can't issue new debt. Specifically, Morgan Stanley's 5-year CDSs rose to an upfront payment of 28% of the amount insured -- yesterday it was 19% -- plus 5% percent a year. So Morgan Stanley would pay $2.8 million to insure $10 million of debt plus $500,000 a year.

Citigroup (NYSE: C) has dropped out of the bidding for damaged bank Wachovia (NYSE: WB). It may be glad it did. According to The Wall Street Journal, "Wells Fargo & Co. (NYSE: WFC) won the battle for Wachovia Corp. as rival suitor Citigroup Inc. walked away from compromise negotiations because of worries about the quality of some of Wachovia's assets."

Citi wanted the FDIC to put a safety net under the value of some of Wachovia's assets. Investors and analysts viewed the Wells Fargo bid as better because it valued Wachovia's share price at a higher level and did not involve any government guarantees at all.

The lack of government guarantees and the likelihood that Wachovia's balance sheet is getting worse each day could cause Wells Fargo to pass on a buyout just as Citi did. In a credit crisis as severe as this one, it is almost certain that the value of bank assets is dropping due to mortgage-backed paper and weak loans. Wachovia has been viewed as having a balance sheet that is worse than any other large American banks. That would make it likely that its situation has gone from being troubled to being desperate.

At this point, the odds have to be 50/50 that Well Fargo will either disappear or sharply drop the value of its offer.

Douglas A. McIntyre is an editor at 247wallst.com

U.S. stock futures were significantly lower Friday morning, a day after the Dow industrials had already plunged 678 points. The Dow dropped 21% in the past 10 days. U.S. stock markets are looking to join the plunge in global markets as Japan's Nikkei 225 fell 9.6%, Hong Kong Hang Seng dropped 7%, London's FTSE 100 declined 5.5% and the German DAX 30 was down 8% to name but a few that have managed to remain open. Some global markets actually had to close today, prompting the name "Black Friday."

Wednesday's coordinated rate cut didn't seem to loosen frozen credit markets as investors seem to completely lose confidence in the world's financial system. Finance officials from the G7 are meeting in Washington Friday to address the financial meltdown. On the economic front, August trade data and September import prices will be released. Oil prices plummeted to a one-year low of $82 a barrel.

General Electric (NYSE: GE) -- meanwhile this morning, GE reported results that met the lowered expectations. GE's profit fell 22% to $4.3 billion, or 43 cents per share, compared with $5.56 billion, or 54 cents, a year earlier. GE's revenue climbed 11% to $47.23 billion. Analysts polled by Thomson Reuters forecast earnings of 45 cents a share on revenue of $47.34 billion. GE recently got a $3 billion infusion from Buffett's Berkshire and raised $12.2 billion through a stock offering. Shares of GE are down about 1% in pre-market trading.

The headline in The Wall Street Journal is "Yahoo! (NASDAQ: YHOO) Investors Seek A Savior." But there probably isn't one to be found.

After moving above $34 on a bid from Microsoft (NASDAQ: MSFT), Yahoo!'s shares have now fallen below $14. One would think Microsoft would come back. The company could be picked up for a song now. But Redmond is nowhere to be seen. With Yahoo!'s piece of the search market still shrinking, Microsoft may think it is not worth the capital or the risk of integrating the portal with its own MSN property.

The press keeps mentioning AOL as a merger partner. The theory is that a deal would involve Time Warner (NYSE: TWX) putting its big internet company into Yahoo! and providing some cash, perhaps $2 billion, for a third of the combined company. The trouble with that is that Yahoo!'s market cap is only $19 billion. Take away its ownership in Yahoo! Japan and China e-commerce company Alibaba, and Yahoo!'s value is well below $15 billion. Time Warner would be getting a piece of a firm with a declining stock price, so its third of Yahoo! would be worth less than $5 billion on day one. With the integration risk of marrying the two internet companies, that is not much of a prize. And what happens when Time Warner wants to sell its Yahoo! stock? It would probably tank the price.

The real key to Yahoo!'s future value is the direction of display advertising. By most accounts, the fourth quarter is not going to be very good. The economy is too rough and marketers are looking for more targeted methods of finding customers. In many cases, this involves dropping internet display ads and using links in search results.

Yahoo! may not find a savior because there is little left to save. If the company has a bad quarter and guides for a poor 2009, its stock could go to $7 or perhaps less. A flailing internet firm is really not worth much.

Douglas A. McIntyre is an editor at 247wallst.com.

Walgreen Co (NYSE: WAG - option chain) shares are rising today after the company withdrew its buyout bid for Long's Drug Stores (NYSE: LDG). This clears the way for CVS Caremark (NYSE: CVS) to complete its $2.7 billion buyout offer of LDG, which was a smaller offer than that of Walgreen.

It seems that investors approve of this action, since WAG is up a nice chunk today. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on WAG.

WAG opened this morning at $26.89. So far today the stock has hit a low of $26.44and a high of $27.27. As of 12:30, WAG is trading at $26.80, up 62 cents (2.3%). The chart for WAG looks bearish and S&P gives WAG a 3 STARS (out of 5) hold ranking.

For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $25 range.

A cool $85 billion ought to be enough to save any company. That is what the government loaned AIG (NYSE: AIG), the beleaguered insurance company. The money is supposed to be paid back and the Fed got an 80% interest in the firm.

But the $85 billion did not cut it. Yesterday, the government had to come up with another $37.8 billion. According to The Wall Street Journal, "The move, which comes less than a month after the Federal Reserve agreed to bail out the giant insurer, raises questions about whether the government will need to keep injecting money into the troubled company."

It actually raises a much bigger issue than that one. If AIG cannot get by on the $85 billion it got just last week, how much worse is its position getting and how fast? Since AIG is only one of many large financial companies with problems, why isn't it fair to ask whether the Treasury's $700 billion bailout program will be enough?

The AIG trouble shows that the government's aid to the financial system is a slippery slope. US taxpayer money goes into a failing system. As the credit crisis gets worse, the Fed and Treasury feel the need to double down. Gamblers and investors who take that path often find out that they lose everything, their initial investment and money that came later to protect it.

If AIG needs more money, it is a good bet that the rest of the system will need more as well.

Douglas A. McIntyre is an editor at 247wallst.com.

A settlement may be close in the battle of whether Citigroup (NYSE: C) or Wells Fargo (NYSE: WFC) ends up owning Wachovia (NYSE: WB). Wells Fargo came in with what was considered a winning bid after Citi thought it already had a deal.

An appellate court has ruled against a stay requested by Citi. Most investors and the Wachovia board appear to think the Wells Fargo deal is better for investors. It also does not involve money from the FDIC which the Citi purchase did. That has to be attractive to the government.

To get the fighting over, it appears that Wells Fargo will get about 75% of the WB deposits and Citi will get the rest. According to Reuters, "Analysts said it may make sense for Citigroup to get at least some assets in the transaction because the bank worked with the FDIC on the deal and supported Wachovia financially last week."

But, with the banking industry falling apart, does either bank want Wachovia? Its assets, especially mortgage-backed paper, could be falling in value every day. Some bank stocks were down as much as 20% yesterday on concerns about their liquidity and ability to stay in business.

Citi and Wells Fargo may be better off letting Wachovia fail and picking up the pieces at a fire sale. It has become that dangerous to be a big US bank taking on assets which could potentially have huge problems. Honoring deals has become a thing of the past. Fear has trumped honor

Douglas A. McIntyre is an editor at 247wallst.com.

U.S. stock futures turned higher Wednesday after the Federal Reserve, in a coordinated move with other central banks, cut rates by half a point to 1.5%, in an effort to help credit markets and boost financial markets. Before the rate cut, futures were lower as Wall Street was about to join global markets in a world-wide plunge that saw the Nikkei down 9.4% and European main markets down 5-6%. On the economic front, August pending home sales released later today might crimp the mood somewhat.

Alcoa Inc. (NYSE: AA) kicked off earnings season after the close Tuesday. The world's third-largest aluminum producer reported a 52% drop in third quarter profit as sharply lower aluminum prices and lower demand hurt results. AA shares are down 4% in pre-market trading.

American International Group Inc. (NYSE: AIG) -- in what could only be described as unbelievable nerve, days after the $85 billion federal bailout loan, AIG spent $440,000 on a posh California retreat for its executives that included spa treatments and much more. Lawmakers were enraged over the thousands of dollars AIG spent on executives even as the company was staving off bankruptcy. It seems it is morally bankrupt. AIG stock is recovering 5.4% this morning after the rate cut.

Advanced Micro Devices Inc. (NYSE: AMD) has been struggling with $5 billion in debt, operating losses and frightening competition from larger rival Intel (NASDAQ: INTC). For the last year, it has looked like the company might not stay independent.

Now, it has fashioned it own rescue package and it appears that it will work, perhaps extraordinarily well.

AMD will spin off its capital intensive manufacturing operation and become a chip design operation. According to the FT, "AMD plans to create a new enterprise, initially called The Foundry Company, with Abu Dhabi's Advanced Technology Investment Company (ATIC)." The new venture would have capital to expand it plants

ATIC would make new investments in the operation of as much as $6 billion and part of AMD's huge debt would be passed off to the new entity

Former AMD CEO Hector Ruiz, who nearly ruined his company, will get to be chairman of The Foundry Company. It is hard to imagine how he talked AMD and Abu Dhabi investment executives into that. His incompetence has been almost without boundaries.

AMD's investors, who have been crushed by management's actions for over two years can ask a very good question. "What took so long?" AMD has been talking about getting out of the manufacturing business for over two years. In early 2006, AMD traded near $40. Now it is just above $4.

It was an ugly show and shareholders have had a front row seat.

Douglas A. McIntyre is an editor at 247wallst.com.

With rumors of bankruptcy swirling, the shares of Hartford Financial Services Group Inc (NYSE: HIG) have plunged over the past few weeks. Hey, if AIG (NYSE: AIG) can implode, why not the others?

Well, the death of Hartford has been greatly exaggerated. Today, the company announced that it received a $2.5 billion capital infusion from Allianz, a mega German financial firm. Despite today's huge drops in the markets, Hartford's shares spiked 16% to $31.88.

The deal is certainly beneficial to Allianz, which gets preferred stock (that converts to common shares at $31 a piece) as well as junior subordinated debentures (there are also warrants to buy $1.75 billion of Hartford at $25.32). Yet, it's still a nice boost for Hartford.

Essentially, Hartford has an extensive portfolio of investments, which have suffered declines (it looks like the recent carnage in hedge funds was a big contributor). In fact, the company believes that there will be a Q3 loss of $8.50 to $8.80 per share.

But, with the capital infusion, Hartford should weather the storm – as well as be positioned to deal with possible credit downgrades (there will be $3.5 billion in excess capital). What's more, there may be opportunities to capitalize on the wreckage. After all, AIG is preparing to sell a large number of assets.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website

It appears that the New York Fed is stepping in to help decide whether Citigroup (NYSE: C) or Wells Fargo (NYSE: WFC) will end up buying Wachovia (NYSE: WB). Both banks have made offers. Citigroup says its deal came first. Wells Fargo says its deal is better for shareholders and the FDIC.

According to The Wall Street Journal, "Under the leading plan being discussed Sunday night, Citigroup and Wells Fargo would divvy up Wachovia's network of 3,346 branches along geographic lines." The FDIC would give no backing for Wachovia's assets.

The intervention by the Fed looks a bit more like the government socialism that has basically put the Fed and Treasury in charge of the banking system. In Wachovia's case it may be absolutely necessary. Maybe.

Wachovia's shares had lost 90% of their value before Citigroup made its bid. Because of the toxic assets on it books, Wachovia might have failed the way Washington Mutual did. The government would be left to help pick-up the pieces.

A long legal battle between Citigroup and Wells Fargo could leave Wachovia to fail.

But would its failure be such a bad thing? The FDIC might have to put in a huge sum to protect depositors. Then it could auction off the branch system. The toxic assets might be sold to a vulture fund with some government guarantees.

A lot of people would lose jobs, but is it the Fed's job to keep them employed? No.

Douglas A. McIntyre is an editor at 247wallst.com.

U.S. stock futures fell Monday morning, indicating a sharply lower open on Wall Street as the world's financial crisis rather than get a boost from the $700 billion rescue plan, seemed to have deepened in Europe. This as well as economic fears depressed world markets. Most major global markets plunged at least over 4%.

Wachovia Corp. (NYSE: WB) -- After a lower court decided in favor of Citigroup (NYSE: C), a state appeals court blocked the ruling late Sunday night, thus tilting the battle over Wachovia in favor of Wells Fargo (NYSE: WFC). Both banks want Wachovia for its deposits and branches. Despite that, WB shares are down about 18% in pre-market trade, WFC's down 2.7% and C's down 3.7%.

Bank of America (NYSE: BAC) -- a subsidiary has agreed to modify loans to tens of thousands of borrowers -- previously Countrywide Financial clients -- in 11 states that would enable them to keep their homes, or even help them move to a new home. If all 50 states were to join, the settlement could provide $8.7 billion in relief to 400,000 borrowers. BAC shares are down 4.3% in pre-market action.

National City Corp. (NYSE: NCC) shares are down over 22% in pre-market action as its debt was downgraded by Fitch Ratings.

No industry has cash flow like the tobacco industry. Making cigarettes costs very little compared to what the consumer pays. With a few plant upgrades, there is not much capital expense. Many tobacco firms have operating margins of 20%.

That made it all the more shocking that Altria Group (NYSE: MO) said it would delay buying UST Inc. (NYSE: UST) because of concerns about the credit market. Altria is considered one of the most stable large companies in the U.S. According to The Wall Street Journal (subscription required), "While attention has been focused on problems in the market for short-term loans or lending between banks, the Altria situation shows that even highly rated companies borrowing money for standard purposes such as acquisitions are having trouble getting funding."

The transaction for UST was valued at just over $10 billion, but the company had $2 billion in revenue and almost $900 million in operating income last year. The firm only has $1 billion in long-term debt.

If the Altria buyout can be scuttled by the credit crisis, any deal can be. More pending M&A transactions may be delayed or killed, even if both companies in a marriage are healthy.

Things has gotten that bad.

Douglas A. McIntyre is an editor at 247wallst.com.

Google Inc. (NASDAQ: GOOG) and Yahoo! Inc. (NASDAQ: YHOO) agreed to delay their advertising sales partnership while the Justice Department reviews the deal. The news may look like a retreat by Google, but it undermines one of the key reasons Yahoo! gave for staying independent from Microsoft Corp. (NASDAQ: MSFT). Google was going to improve Yahoo!'s revenue.

It looks like there is some chance the partnership will not happen at all. That would justify the fact that Yahoo!'s stock is down by more than half from its 52-week high. Yahoo! indicated that the wait might be short. "The companies have agreed to a brief delay in implementing this agreement to continue our ongoing discussions with the (U.S.) Department of Justice," Yahoo! said in a statement. "We have had discussions with regulators and look forward to responding to their questions about this agreement."

The trouble is that Justice can take its own time. It's under no pressure to give an answer in short order. The news also begs the question of whether the two companies will wait for antitrust reviews in the EU and Canada.

Each day that passes without Yahoo! having a sales relationship in place with Google is a day its earnings do not recover.

Douglas A. McIntyre is an editor at 247wallst.com.

So, Take-Two Interactive (NASDAQ: TTWO) has had enough of arbitrage. According to reports, management decided that it will remain an independent entity after all. You'll recall that the software publisher was being courted by Electronic Arts (NASDAQ: ERTS). That relationship never panned out. Take-Two said "give us more money, EA." And EA apparently said "no way." It was interesting while it lasted. And if you had sold out of Take-Two when the offer was made oh-so-long ago, you made money. Hopefully you aren't still holding the shares.

I don't know why Take-Two didn't decide to cash out, especially when it was becoming apparent that the economy was headed for a severe downturn. I mean, you would think that executives in a company such as this would have more information than I do and would have known where things may have been headed, or at least have a strong indication. Let's face it: Take-Two is an investment/trading idea based on the notion, in part at least, that it's going to be taken out at some point. Otherwise, you've got one big intellectual property, Grand Theft Auto, to get excited about. Now, truth be told, I know and you know that the company has a little more than just that. There's BioShock, for one thing. But this is the perception on Wall Street, and it's a hard one to fight. And since I already own Activision Blizzard (NASDAQ: ATVI), I don't think, at this juncture at least, I'd want to invest in a second game-software publisher. I'd be going for a shorter-term trade. That line of thinking kind of makes me wonder why management didn't decide to trade out of Take-Two months ago. Oh, I forgot. Greed. Hey, greed might be good, but it isn't always smart.

I don't think Take-Two will remain independent forever. It'll be bought out sometime in the future. Someone will want Grand Theft Auto. Will EA come back to the table? That's a strong possibility. Maybe Microsoft Corporation (NASDAQ: MSFT) or Sony Corporation (NYSE: SNE) will make a bid. Doesn't matter who it is, it'll happen. Just not now, maybe. However, I personally wouldn't consider entering Take-Two's shares until they drop much further from current levels. Below $9 a share would be a cool price.

Disclosure: I own Activision Blizzard; positions can change at any time.