In December, 2002, ten of the most prominent brokerage firms in the country agreed to a massive settlement. The charges involved well-documented claims that analyst reports issued by these firms were deceptive. The firms sold out their retail clients to curry favor with their underwriting clients.

Among the settling firms were Citigroup (NYSE: C), UBS (NYSE: UBS), JP Morgan Chase & Co. (NYSE: JPM), and Morgan Stanley (NYSE: MS).

Their conduct was so bad that former Attorney General Spitzer agonized over whether to indict them for criminal conduct.

The industry unleashed a massive PR campaign. It convinced you that it saw the error of its ways. They had "reformed." You could trust them again with your hard earned assets.

And you did. Money flowed back in the coffers of these firms and others.

That was the first time.

Donald Trump has a new show in the works: naughty girls are sent to a finishing school where they learn the manners they'll need to behave like socialites. Sounds tasteful.

Now The New York Daily News is reporting that Mr. Trump, as he likes to be called, is looking to get Eliot Spitzer's call girl, Ashley Alexandra Dupre, to come on his show. Jo Piazza's Full Disclosure column writes that "A production source confirmed that the group reached out to the singing floozy and former call girl on Thursday, but have yet to hear back from her. But The Donald told us that he would love to get the chance to class her up in front of a national audience."

Where to begin? I'd be willing to bet that Ms. Dupre already has infinitely more class than The Donald. He is the one who needs to be sent to finishing school. Is a man who goes on WWE, calls Rosie O'Donnell "a pig," and has been married 3 times, really in a position to be putting anyone through charm school? This is to say nothing of his heinous coif, personality, and numerous failures in the business world.

I'm sure this show will be a flop with or without Ms. Dupre, but here's my advice to her: If you go on TV with Donald Trump, having sex with Eliot Spitzer for $5 thousand per hour could be seen by some people out there as the classiest thing you've ever done.

Today's markets were foiled with worries of counter-party risks, and even the "denying of rumors" didn't manage to help. You know that headlines of "Oil Nearing $108" isn't a huge help there. On the economic front, we saw some old data on January Wholesale inventories being +0.8%, above a forecast of +0.5%.

New York's Governor Eliot Spitzer has been caught up in a prostitution ring, and even though he is no longer Attorney General this didn't even manage to cheer Wall Street up after years of having Spitzer take down insurance companies, Dick Grasso, and more. Below are the day's unofficial closing prices:

• DJIA 11,740.15 (-153.54; -1.29%)
• S&P500 1,273.37 (-20.00; -1.55%)
• NASDAQ 2,169.34 (-43.15; -1.95%)
• 10-YR T-Bond 3.438%; -0.1030 (bonds still trading)

There were a few major standout stocks today, mostly to the downside.

The New York Times has reported that New York Governor Eliot Spitzer -- my governor, a man I voted for, covered when he was Attorney General, and have defended in many a heated conversation with friends and colleagues -- has admitted to being 'involved' in a prostitution ring.

How is he involved? Let's just say, I don't think he has been running the thing. In fact, as of this writing, I'm still holding out a smidgen of hope that the report is somehow wrong. Maybe he was just investigating it! (Okay, wishful thinking).

When the news conference starts -- presumably any minute (It's now 2:45 PM) -- I'll liveblog it to the best of my ability here (refresh this post to see updates). Then you too, can be among the first to know what Spitzer, possibly this century's greatest law-and-order hypocrite, has to say for himself.

3 PM: We're still waiting for the press conference to start. But CNBC has reports that government investigators have text messages of some sort. The discussion on TV now is that Spitzer will have to step down if there is any truth to this story. Commentators are also reprising just how zealous Spitzer was in his prosecutions of Wall Street executives. Silly me, I thought that meant he really knew the difference between right and wrong.

3:13: Oops! missed it! That was quick. Spitzer read a brief statement. All I heard was him apologizing to his family.

3:15: Rewind: He said, "I have I've acted in a way that violates my obilgations to my family and that violates my or any standards of right or wroing. I apologize first and foremost to my family."

Bond insurer MBIA (NYSE: MBI) said hedge fund founder William Ackman's proposal for a restructuring of U.S. bond insurers is no more credible or viable than his flawed open-source model, The Wall Street Journal reported [subscription required].

"Like Mr. Ackman's open-source model, his statements in the media and the barrage of letters he has sent to regulators and the rating agencies -- which contain half truths, innuendo and faulty analysis -- this proposal is simply a continuation of Mr. Ackman's campaign to profit from his short positions and credit default swaps in the bond insurance industry," MBIA said. MBIA added that it is continuing to work with New York State Superintendent of Insurance Eric Dinallo and his advisers to evaluate options for maintaining the highest rating for its policyholders.

Furthermore, MBIA, the nation's largest bond insurer, said it agrees with a spokesman for the New York Insurance Department who said Ackman's proposal would split the company and likely lead to a substantial downgrade for the structured side.

The University of Pittsburgh opted to buy back $92 million in bonds after market rates on some of its existing auction-rate debt topped 17% last week -- threatening to add $605,000 in weekly interest costs, The Wall Street Journal reported Tuesday (subscription required).

Further, the university said it may make offers to buy back almost $340 million more in debt, Bloomberg News reported Tuesday. Other good-credit institutions that have faced higher auction-market interest rates include The Port Authority of New York and New Jersey, Georgetown University and Carnegie Hall.

Auction-rate securities are long-term bonds that mimic short-term debt. Interest rates are reset in auctions held regularly, usually between seven and 35 days. Typically, municipalities, student-loan providers and museums, among others, use this type of instrument because it gives them a long-term credit source at short-term interest rates.

Jittery auction-rate market

However, these are not typical times for the credit markets. Auctions have failed when investors refused to buy the securities, and investment banks such as Citigroup (NYSE: C) and Goldman Sachs (NYSE: GS), already laden with unwanted debt and trying to rebuild their balance sheets, refused to provide capital to support the market.

Amid calls for disclosure of more information on bidding for auction-rate bonds after dealers stopped buying the securities, two economists told BloggingStocks Friday that the problem of a lack of investor demand speaks directly to the need to re-capitalize bond insurers MBIA and Ambac.

"The problem is not merely a lack of demand for bonds. The problem is that institutional investors are shunning these investments because they are concerned about a lack of available insurance for this debt and related credit market uncertainty, which underscores the need to address the liquidity concerns of MBIA and Ambac," economist David H. Wang said Friday.

MBIA, Ambac: two linchpins

The bond insurers, Wang said, are two linchpins of the bond market [municipal, corporate], and, by extension, of the financial markets.

Shares of MBIA (NYSE: MBI) and Ambac (NYSE: ABK) have lost more than 70% of their value in the past six months, as investors have fled them amid concern that the two do not have sufficient capital to fund insurance policies for mortgage-backed and collateralized debt obligations held by banks and institutions. MBIA and Ambac executives have rejected the accusations, arguing that they have sufficient capital to fund claims and can modify/improve their business models, long-term, aided by re-capitalization. MBIA fell 80 cents to $11.82 and Ambac fell 45 cents to $10.08 in Friday afternoon trading.

New York Governor Eliot Spitzer, famous for his work cleaning up Wall Street as Attorney General, is forming a panel of Wall Street executives, lawyers, consumer groups, and regulators to brainstorm ways to improve regulation of the financial services industry in the state. Given New York's prominence in the field, any changes could have sweeping effects across the country, and I hope that investors will be well-served.

But there's a new challenge. As U.S. markets face competition for listings from exchanges in Europe, a delicate balance must be struck: adequate protections for consumers, but not too cumbersome or costly to turn away companies. The presence of so many executives on the panel (CEO's of Goldman Sachs, Citigroup, AIG and MetLife) indicates that Spitzer is concerned about keeping the industry competitive internationally, but his work as Attorney General also gives him credibility with the consumer groups.

I think that most of the changes that need to be made in the regulation of the financial services industry are way down at the consumer level (rather than in corporate governance), and that there should be ample room to protect consumers without hurting companies like Goldman Sachs, or financial markets in general. The changes needed mainly come in the form of disclosures made to individuals planning for retirement. Here are 2 of the issues I would like to see the panel focus on:

• Adequate disclosure of expenses for 401(k) accounts.
• Given the record of index funds beating 80% of actively managed funds, whose best interests are being looked after when a plan automatically puts the investor in costly mutual funds?

Sarbanes-Oxley has done a lot of good in holding corporations and their executives and directors responsible for the information they disclose to investors. More focus needs to be put on the disclosures made to working Americans, making sure that they can understand their finances and have the information to make good financial decisions.