Few people reading today's news will pay much attention to Latvia's debt being cut to junk. So why even spend time reading about this small insignificant country?

Remember back on February 22, 2008 when the British bank Northern Rock went insolvent and had to be taken over by the state. No one back then really paid much attention. It was a small news item and didn't impress most people. What most people didn't notice was that Northern Rock was one of the top five mortgage lenders in Britain. Looking back, the failure of Northern Rock was probably the beginning of our current banking crisis.

With news the embattled mortgage lender Northern Rock is being nationalized by the British government, until it can find a buyer, the question arises whether this is a good move or not?

Analysts at Bear Stearns said that the government's move is positive for the sector. The expected managed decline in the Northern Rock balance sheet should create less competitive mortgage market conditions," said analyst Robert Sage.

Who is this positive for? Certainly not the consumer. Competitive mortgage markets are the best thing that can happen to a consumer. Why should the consumer have to pay higher mortgage rates? Does this analyst think that the government setting mortgage rates is helpful in anyway? Let's not forget that the banks are responsible for this whole mess. Had they actually been careful in their lending practices, we wouldn't be in the mess we are currently in.

MAJOR PAPERS:

• According to people familiar with the matter, the Wall Street Journal reported that Anheuser-Busch Companies Inc (NYSE: BUD) and InBev may be one possible coupling in the fast-consolidating brewery industry; the people familiar said the two have already held talks.
• HSBC Holdings Plc (NYSE: HBC) yesterday launched its first two retail branches in Japan, according to the Financial Times. The bank also kicked off its "HSBC Premier" services, which aim to tap into Japan's budding market for wealth management.

OTHER PAPERS:

• Despite rumors that none of those interested in struggling bank Northern Rock Plc (OTC: NHRKF), the UK Guardian reported that Sir Richard Branson will submit a bid by Monday's government deadline. Investment group Olivant is also expected to submit a bid for Northern Rock.

WEB SITES:

• TechCrunch has "gotten word" that Yahoo Inc (NASDAQ: YHOO) will acquire Maven Networks for $150M.

Mervyn King, governor of the Bank of England, and long-time inflation hawk, may stand out in history textbooks [subscription required] for all the wrong reasons, in the view of some monetarists, The Wall Street Journal reported Monday.

In August 2007, when markets nearly froze as Wall Street digested the first wave of subprime mortgage and related asset defaults, King initially was not moved. As the U.S. Federal Reserve and European Central Bank added billions in liquidity to the financial system, King refused to participate, arguing that the tactic would increase the intensity of future crises.

But events soon took on a momentum of their own, and King changed his stance. In September 2007, when Northern Rock experienced a bank run, King sensed a threat to the financial system and added liquidity, calming London's credit and equity markets. Still, Britain's press labeled him "Swervin' Mervyn."

Unwarranted criticism?

London-based economist Mark Chandler told BloggingStocks Monday the King criticism "is unfair, and unwarranted."

MAJOR PAPERS:

• Japanese bank Mizuho Financial Group Inc (NYSE: MFG) is today expected to announce that it will invest $1.3B in ailing Merrill Lynch & Co Inc (NYSE: MER), reported the Wall Street Journal. Merrill will also sell a Mizuho unit, Mizuho Corporate Bank.
• According to people familiar with the plans, the Wall Street Journal reported that Citigroup Incorporated (NYSE: C) is expected to announce a "sizable dividend cut" when it reports fourth quarter earnings this morning. The company is also expected to receive a cash infusion of at least $10B and a mortgage related write-down of as much as $20B.

OTHER PAPERS:

• The Tories will not hinder Northern Rock nationalization, the UK Times reported. Shareholders are set to vote today on key proposals that could block a private sector sale of the bank.

WEB SITES:

• According to a source, VentureBeat reported that Facebook is "one hundred percent buying" early social-networking site Plaxo.

MAJOR PAPERS:

• The Wall Street Journal's "Deal Journal" reported that Sam Zell's planned buyout of Tribune Company (NYSE: TRB) is contingent on the receipt of a solvency opinion, and that this is the first time they have ever seen a deal dependant on this.
• The WSJ's "Heard on the Street" reported that Countrywide Financial Corporation (NYSE: CFC) may not be out of the woods yet. Despite executives promising a return to profitability, there is still a risk the company may eventually seek bankruptcy protection or "resort to huge sales" of new stock.
• U.S. private equity group JC Flowers "is understood" to have walked away from the auction for troubled bank Northern Rock, the Financial Times reported.
• Rupert Murdoch is shaking up the management of News Corp (NYSE: NWS.A), the Financial Times reported, giving his son, James Murdoch, control over the company's European and Asian operations, and appointing two trusted executives to lead Dow Jones & Company Inc (NYSE: DJ) and the Wall Street Journal.

WEB SITES:

• Barron's Online's "Weekly Trader" said AutoNation Inc (NYSE: AN) looks attractive now, despite hovering near a multi-year low. The company has also been on a slow but steady quest to diversify away from unpopular domestic brands by snapping up luxury and import dealerships.

Today's Financial Times reports that mortgage lenders in England were warned by the UK's Financial Services Authority (FSA) on Tuesday to brace for "very difficult" market conditions next year as at least 1.4 million homeowners face a sharp jump in loan repayments.

The FT cites three reasons why concern is growing regarding the stability of some smaller UK mortgage lenders: the collapse of Northern Rock (LSE: NRK), the slowdown in the housing market and rising lending rates between banks.

The same article quotes the FSA as prognosticating that there is "a very real prospect that conditions will worsen further into next year, in terms of both liquidity and credit risks."

MAJOR PAPERS:

• Citigroup Incorporated (NYSE: C) recently received an unexpected call from a "prominent investment banker" inquiring about a merger with Bank of America Corporation (NYSE: BAC); it was rejected outright, and Citi instead turned to the Abu Dhabi Investment Authority, a part of the Abu Dhabi government, for a $7.5B cash infusion, the Wall Street Journal reported.
• As ethanol demands forced up food prices, and with questions about its capacity to be a significant oil substitute, demand has slowed, according to the Wall Street Journal, which doesn't help the prospects of newly public companies such as VeraSun Energy Corporation (NYSE: VSE) and Pacific Ethanol Inc (NASDAQ: PEIX).
• The Financial Times reported that the SRM hedge fund increased its stake in British bank Northern Rock to 8.5% yesterday, probably in order to block Virgin Group from taking over the lender. SRM and RAB Capital, with a combined stake in Northern Rock of more than 15%, are backing a rival bid for the bank by British private equity fund Oilvant.

OTHER PAPERS:

• A federal agency has subpoenaed Countrywide Financial Corporation (NYSE: CFC), in an attempt to determine whether the company abused the bankruptcy system in two Florida foreclosure cases, according to the New York Times.

WEB SITES:

• MarketWatch's Herb Greenberg believes Lululemon Athletica Inc (NASDAQ: LULU) CEO Bob Meers may have "exaggerated a bit" about his job history. While it's true Mr. Meers was employed by Reebok International, he was not president and CEO of the brand for the length of time he stated, nor was he the president of the Rockport shoe and Greg Norman brands.

MAJOR PAPERS:

• The Achilles heel of discount broker E*Trade Financial Corporation (NASDAQ: ETFC) may be its lesser known mortgage business, whose value is now at the center of debate regarded its sale price, reported the Wall Street Journal.
• According to a report prepared for European medicines authority, the Financial Times reported that Roche Holding Ltd (OTC: RHHBY) is responsible for impurities that caused an international recall of its HIV drug.
• The FT also reported that the United Kingdom's Virgin Group was confirmed as the preferred bidder for British bank Northern Rock, as the bank said it wanted to hold discussions with Virgin "on an accelerated basis."

OTHER PAPERS:

• Sources close to the matter said that Ford Motor Company (NYSE: F) may put the brakes on overseas plans in many markets including India, South Africa and China on hold until it completes the sale of its Jaguar and Land Rover units, according to the Economic Times.
• China is expected to unveil more than 20 regulations on foreign mergers and acquisitions, or M&A, according to a senior Chinese legislator, Xinhua reported.

If you're a bear, then at least another down beginning may await you in today's session. At least, that's the indication U.S. stock futures are giving this morning. As economists forecast the risk of a recession increased due to the collapse of the housing market along with the credit crunch and as oil prices jumped again on OPEC comments, it seems the bears have returned.

On Friday, U.S. stocks saw volatile session that ended with gains, with the Dow industrials rising 66 points, or 0.51%, the Nasdaq Composite up 18 points, or 0.72%, and the S&P 500 rising 7 points, or 0.52%. On the week stocks finished higher in a week full of wild swings. The Dow ended up 1.03%, the S&P 500 and the Nasdaq ended up 0.35%.

Not much economic data is due today so investors are focusing on rising oil prices, overseas activity and some M&A action.

MAJOR PAPERS:

• A former Royal Bank of Canada (NYSE: RY) trader alleged that some employees "miss-marked" bonds to increase profits at the New York office's investment banking unit, the Wall Street Journal reported.
• The WSJ also reported that private-equity firm J.C. Flowers & Co is in talks with UK lender Northern Rock, but has not confirmed it will launch a bid for the troubled firm wrapped up in the subprime meltdown.

OTHER PAPERS:

• The New York Times reported Merrill Lynch & Co Inc (NYSE: MER) CEO Stanley O'Neal contacted Wachovia Corporation (NYSE: WB) CEO G. Kennedy Thompson last week to discuss the possibility of a merger between the companies, according to inside sources; Merrill's board has reportedly started considering candidates to replace him.
• The Times also reported that designer Tommy Hilfiger agreed to sell his biggest clothing line exclusively at Macy's Inc (NYSE: M). Under the agreement, Mr. Hilfiger would remove his clothing lines from stores like The Bon-Ton Stores Inc (NASDAQ: BONT) and Dillard's Inc (NYSE: DDS).

The blind leading the blind. U.K. mortgage bank Northern Rock has almost gone under. If it were not for funds provided by the government, it might be gone already. But Northern Rock is still looking for help. In a twist of irony, that aid may come from Citigroup (NYSE: C), which has its own problems with mortgage instruments. The big U.S. bank said its earnings would drop 60% for the last quarter, some due to mortgage securities to write-downs.

According to a report in The Telegraph, there are several options being weighed to save Northern Rock. "One possibility being discussed by the Government and the company would see Citigroup, the U.S. bank advising Northern Rock, provide a funding line of up to £10bn to enable the board to run it for the long term."

The British government could also encourage a sale of the mortgage company to a hedge fund. U.S. hedge funds JC Flowers and Cerberus have expressed interest. But, a buyout from one of these firms is likely to be at a very low price that could wipe out public shareholders and some of the companies bonds.

If Citi does make the loan, it will be profiting from the mortgage problems of another company after taking a beating in the same market on its own. It would be a perverse twist of fate.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Perhaps there are not enough good opportunities to "cherry pick" assets among U.S. mortgage lenders, so U.S. buyout firms Cerberus and JC Flowers have gotten approval to deal with the board of Northern Rock (LSE: NRK), the large and troubled U.K. mortgage bank.

The two funds would probably take different approaches. Flowers is interested in having Northern Rock continue to operate, but perhaps with many fewer employees. Cerberus is interest in the bank's assets, which it believes it can get at a discount and then sell off to other institutions.

According to The Telegraph, British authorities "have said Northern Rock is solvent, but sources close to the restructuring warn that it is living on borrowed time."

A buyout of Northern Rock could be a trial for whether similar deals could work in the U.S. There is little hope that the U.S. mortgage market will be better this year and may even stay depressed into 2008. Banks like Accredited Home Lenders (NASDAQ: LEND) are still not out of the woods. And, private equity and hedge fund interests may be the only buyers left for some of these companies.

Douglas A. McIntyre is a partner at 24/7 Wall St.

In afternoon trading in London, shares of mortgage bank Northern Rock (NHRKF) are down another 30%. Over $4 billion has been withdrawn from the bank in the last two days.

Late last week, The Bank of England stepped in to help the mortgage company, but the assistance seems to have done little to calm investor fears.

The sell-off is likely to extend to mortgage banking shock in the US where shares in company's like Countrywide Financial (NYSE: CFC) have already lost almost two-thirds of value.

Douglas A. McIntyre is a partner at 24/7 Wall St.

In a stunning move this morning, Reuters reports that the Bank of England is bailing out England's Northern Rock plc (LSE: NRK), which had the biggest share of the UK new mortgage market in the first half of 2007.

The strange thing about this bailout -- in the form of an unspecified emergency loan from England's version of the U.S. Federal Reserve -- is that Northern Rock forecasts a profit for 2007. Specifically, it now expects 2007 pretax profit $1.1 billion, albeit 23% below analysts' current consensus forecast.

Given this expected profit, why would Northern Rock need a bailout? The mortgage company depends on wholesale financing as the source of cash to lend out to borrowers. And given the weak state of the market for buying packages of mortgages it and its peers originate, it appears that Northern Rock faced a short-term liquidity crisis. The funds it's receiving are at a higher, penalty, interest rate.

NRK shares, already down 50% in 2007, plunged a further 20% in early trade. If there's anyone who knows how wide and deep the problems lie in the shaky global financial network built on mortgage-backed securities, they're not saying.

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter.