Back in the Roaring 1980s, Carl Icahn was known as a prototypical corporate raider as he went hostile on a myriad of old-world companies such as B. F. Goodrich and American Can.

Now, in his early 70s, Icahn hasn't slowed down much. Funny enough, these days he's targeting tech companies, like BEA, Motorola (NYSE: MOT) and, of course, Yahoo! (NASDAQ: YHOO). Hmmmm... maybe these companies have become bloated and mature -- just like the laggards of the 1980s?

Perhaps so. After all, Icahn's strategy is to agitate for change, such as for cost cutting, share buybacks and higher dividends.

As for his pursuit of Yahoo (which involves a proxy fight), it's certainly a gutsy play. Simply put, there's no guarantee that Microsoft (NASDAQ: MSFT) will come to the table again. So far, the company is doing a good job in showing disinterest.

The New York Times reported a blockbuster revelation from yesterday's Congressional testimony on the JPMorgan Chase & Co. (NYSE: JPM) acquisition of The Bear Stearns Companies (NYSE: BSC). It turns out that the religious right and government bailouts go hand in hand -- that's because Treasury Secretary Hank Paulson decided that he would not put $30 billion worth of taxpayer money at risk unless JPMorgan paid a really low price for Bear.

The reason? Moral hazard. Specifically, Paulson wanted to use Bear as an example that would scare all the other banks that borrowed $32 for every dollar of equity to buy Collateralized Debt Obligations (CDOs) and other difficult -to-value securities. Paulson wanted to wipe out Bear shareholders so they would be reluctant to seek government help if they got into trouble.

And another thing. Alan Schwartz, Bear's CEO, claims to have misunderstood and thought it was a 28-day loan granted on Friday 14th. This would have given him a month to straighten things out. But he later learned that the loan lasted only for the weekend. And he would need to file for bankruptcy or accept the deal that Paulson was offering. Faced with two terrible choices, Schwartz took the Paulson deal.

How much will taxpayers lose due to Paulson's moral qualms? Was this really necessary? Wouldn't the 28-day loan have avoided this?

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

Today, the U.S. Treasury Secretary presented a plan to overhaul regulation of U.S. capital markets. As I posted over the weekend, the plan does not really address the cause of all those economic problems.

However, it is very consistent with the administration's tendency to use crises as a way to push its agenda. That's what happened in 2001 when it used the recession to push its $1.3 trillion tax cut. And then there's the biggest enchilada of all – using 9/11 as an excuse to attack Iraq – a move that's cost the lives of 4,000 soldiers and is forecast to take $3 trillion out of the U.S. Treasury.

I don't think the proposal will stand up for long but the deeper issue of what caused the problem and how to keep it from happening in the future remains. And while there are clear answers to either, I definitely think that serious analysis of these questions should be done before changes are made to the system.

The plan proposed by Secretary of the Treasury Henry Paulson to revise the United States' financial system is meant as an initial step in reforming the current regulatory environment and institutions. This would be the largest overhaul of the system since the legislation implemented by the Roosevelt administration during the Great Depression. It is needed to deal with current challenges posed by the recent credit crisis.

This is only a first step in the process. Many government agencies will be merged to create even more powerful agencies. However, the key element that stands out in Secretary Paulson's proposal is the new role of the Federal Reserve as a regulatory "Supercop." In essence, the proposal makes the Fed formally responsible for the risk management of our financial system. This would be the third mandate for the Federal Reserve after price stability and full employment.

In several ways, the Fed has already undertaken this role of guaranteeing financial market stability with its assistance in the sale of Bear Stearns (NYSE: BSC) to J.P. Morgan Chase (NYSE: JPM) and the extension of discount window lending to the investment banks acting as primary dealers. This would merely grant the Fed the regulatory authority necessary to do this on a formal basis.

MAJOR PAPERS:

• Treasury Secretary Henry Paulson will today outline a new plan to better organize the overall bureaucracy that oversees financial markets, the Wall Street Journal reported. Paulson's new proposals include merging or eliminating all together institutions such as the SEC.
• According to people familiar with the matter, the Wall Street Journal also reported that Alphonso Jackson, the Housing and Urban Development secretary, is expected to today announce his resignation, a move which could deal a blow to the Bush administration's efforts to combat the crisis in the housing markets.
• The Financial Times reported that Bank of America Corporation (NYSE: BAC) may take its equity prime brokerage business off the market after receiving weak interest from potential bidders. People close to the situation emphasized that no final decision has been made on the unit.

WEB SITES:

• Bloomberg reported that Citigroup Incorporated (NYSE: C) will set up an independent credit card unit, according to sources. The rest of the consumer division, mainly bank branches and non-bank lending, will be divided into five regional groups, according to the inside sources.

U.S. Rep. Barney Frank, D-Massachusetts and Chairman of the House Financial Services Committee, Thursday introduced legislation to enable the Federal Housing Administration to insure and guarantee mortgages that have been written down banks and other mortgage holders, Rep. Frank announced in a statement.

Rep. Frank's proposal would permit the FHA to provide up to $300 billion in loan guarantees which could potentially result in the refinance of 1-2 million at-risk mortgages, preventing foreclosures, "protecting neighborhoods and help stabilize the housing market."

Treasury Secretary Henry Paulson is not normally the first person I'd look to for cogent, well-reasoned analysis, but I have to say his comments on mortgage bailouts are right on.

Talking to the Wall Street Journal (subscription required), Paulson referred to many of the aid proposals making the rounds in Washington as "bailouts" for reckless lenders and borrowers: "I don't think I've seen any scenario where the American taxpayer needs to be stepping in with more taxpayer dollars."

He added that "I'm seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes. Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street."

Mr. Paulson believes that urging the lenders to cut borrowers some slack is the role the government should play, and I agree. Knock yourself out: if you can talk to the bankers and convince them to play nice, I'm all in favor of it. But don't spend our money bailing out lenders and borrowers, while artificially propping up the housing market.

And I'm still dying for an answer to my lingering question: Why is it bad if someone with no equity in their home loses the home? Is someone who "owns" a home but doesn't have any equity really a home owner?

Fed Chairman Ben Bernanke along with SEC Chairman Christopher Cox and Treasury Secretary Henry Paulson testified before the Senate Banking Committee on the state of the U.S. economy and financial markets. In his prepared remarks, he focused on the credit crisis in the financial markets, the deteriorating financial conditions of many of the major banks, the housing downturn and the increase in unemployment.

Chairman Bernanke acknowledged the possibility that the economy could slip into a recession but did not say it would do so. He emphasized the moves that the Fed has made to address these problems: the use of the new term auction facility (TAF) and the reduction of the Federal Funds Rate target by 225 basis points from 5 ¼% to 3% since September.

One of the most important aspects of the testimony is the secondary focus on inflation. Chairman Bernanke did not even mention inflation until almost halfway through his testimony. When he did, he clearly relegated it to a secondary role.

He emphasized that his primary focus is on the weak economy. In essence, the Chairman said that he gets it and understands the gravity of the situation. He mentioned the FOMC "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks."

This is quite a change from his prior statements and further indicates his willingness to take aggressive action to cushion the economic downturn as demonstrated by his two most recent rate cuts. All eyes will be on the next FOMC rate decision for additional confirmation of the Fed's aggressive loosening of monetary policy.

Doug Roberts is the Founder and Chief Investment Strategist for FollowtheFed.com. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.

Bank of America, Citigroup and other major U.S. banks and lenders announced Tuesday a revised plan to help some borrowers in danger of default remain in their homes.

Encouraged by U.S. Treasury Secretary Henry Paulson, the banks will offer a 30-day freeze on foreclosures while loan modifications are considered for borrowers who are at least three months late on payments. The program will include borrowers with prime mortgages, as well as those with poorer credit histories.

Second wave of defaults

The program is being initiated as the United States prepares for the second wave of mortgage defaults as variable mortgages rates reset in 2008. The U.S. Federal Reserve estimates that about two million mortgages will reset to higher rates, with foreclosures expected to soar to one million, absent an intervention. In a typical year, the U.S. has about 500,000-550,000 foreclosures.

As traders and investors digested the impact of the market's latest sell-off on both assets and investor psychology, Tuesday's jolt is likely to speed the passage of a U.S. fiscal stimulus package to boost the ailing U.S. economy, economists and analysts said Tuesday.

President Bush and U.S. Congressional leaders from both parties are expected to discuss this afternoon that fiscal plan, which should aide place $140-160 billion into the econmy, Bloomberg News reported Tuesday.

Fiscal stimulus: sooner the better

Independent currency trader Andrew Resnick, said if Tuesday's market jolt prompts President Bush and lawmakers to agree on a package of tax cuts/rebates and spending increases, then the market's latest gyrations "will turn out to be a blessing in disguise."

The Wall Street Journal is reporting today that Alan Greenspan, whom some believe had fueled the housing bubble, has joined Paulson & Co., a hedge fund with almost $30 billion under management.

The former Federal Reserve Board chairman has created an advisory firm, Greenspan Associates, and will be consulting with various firms in different industries.

Fed after 18 years as chairman, Greenspan left in January 2006. The Journal article quotes some (unnamed) Greenspan's critics claiming that he "helped fuel the housing bubble by keeping interest rates at 1% from 2003 to 2004, and then raising them too slowly."

Whether or not you view Greenspan as the cause of the problem, its symptom, or its savior, this is good news for Paulson, a firm which saw one of its credit hedge funds rise by about 590% thanks to bets that the housing market would weaken and that mortgages given to borrowers with sketchy credit would drop in value.

Good luck in your new job, Alan.

Zack Miller is the Managing Editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

U.S. Treasury Secretary Henry Paulson in a speech delivered Monday said the Bush Administration was weighing how to provide stimulus to the U.S. economy - - including a possible fiscal stimulus package - - but added that the administration does not want to rush a package.

Paulson, speaking at an event sponsored by the New York Society of Securities Analysts, said the administration's immediate goal is to minimize the impact of the housing correction on the U.S. economy.

Paulson said the nation was facing an "unprecedented wave" of 1.8 million subprime mortgages scheduled to reset to sharply higher rates, and underscored that the administration's negotiated deal with the mortgage industry to freeze selected mortgage rate five years will help the housing market recover, and avert a possible market failure.

Home prices fell 6.1% in the past 12 months -- the largest 12-month decline in at least six years, and a sign that the housing market remains in a pronounced slump, research from the S&P/Case-Shiller home price index indicated Wednesday. In the survey, all 20 metropolitan markets surveyed showed year-over-year price declines.

Analyst C. Leonard Bauer, formerly of Prudential, told BloggingStocks on Wednesday that the October 2007 Case-Shiller data confirms some of the worst fears analysts have about the U.S. housing market heading into 2008.

"This is a sobering statistic," Bauer said. "It confirms a housing market in a deep slump. This is the worst year-over-year decline in prices that I've seen nationally, and I've been following housing for 20 years. The northeast [U.S.] condo slump in the early 1990s saw bigger percentage drops but that was only one section of the market. This is across the board."

In an essay/column in this week's issue of The New Yorker magazine ("Paulson's Plan," December 17, 2007) writer James Surowiecki offers a more-somber analysis of the subprime mortgage default issue than, say, Financial Times' columnist Martin Wolf.

In Surowiecki's analysis, (which, readers should note, was researched and published before the European Central Banks' infusion of $500 billion Tuesday to ensure year-end liquidity for banks), the current problem is one unlike any other that Wall Street has faced. The problem is not liquidity, as Martin Wolf argued, but 1) high-risk home owners who spent way too much n overpriced houses, and 2) a deep mistrust of the financial system because of the way the system rates and values assets like mortgages.

At issue: Wall Street?

Hence, the Bush Administrations' proposed assistance plan to the mortgage sector and some homeowners, even if it becomes more-encompassing, would not solve the problem: the financial system - - and presumably Wall Street - - simply does not rate and value assets correctly, and the government package doesn't speak to that dimension.

China and the United States on Wednesday agreed that the relationship between the world's two largest economies is becoming increasingly interdependent but again differed on the pace of Chinese currency reform, as trade talks between the two nations continued in Beijing, The Associated Press reported.

Separately, U.S. officials pronounced as a success a side process Tuesday during which the two sides signed several agreements, including one on food safety, calling for U.S. health inspectors to play a greater role in inspections in China itself, the International Herald Tribune reported.