No more home mortgages for the time being. The former number two originator of home mortgages in the United States, IndyMac Bancorp (NYSE: IMB), is shutting down its operations and laying off 3800 workers, more than half of its employees.

By halting its prime business, IMB might as well have announced they have turned to stone, as it seems its financial situation is frozen for now. Last quarter it announced continued losses and changed its outlook from being profitable in the fourth quarter to seeing nothing but losses through 2008.

It is always difficult to discuss one's failings, but nothing has been worse than my suggestion that IndyMac might be a screaming buy last year. The stock is down 97%. The sad truth is it was a screaming sell and my worst call since I have been writing for BloggingStocks.com. That will be a separate story.

Today, IndyMac is trading down 47% to $0.37. It will have to restructure once again and will be submitting a survival plan to the FDIC. The current market cap is about $37 million, while its losses over the last twelve months exceed $600 million.

In one of the least convincing editorials in recent memory -- no small accomplishment -- Service Employees International Union international president Andy Stern argues that "short-term capital infusions from private-equity funds will only make the banking crisis worse, by encouraging risky behavior and abusive banking practices."

He's so wrong. Risky behavior is encouraged by compensation systems that reward returns regardless of risk, supine directors lacking true independence, and an ownership structure so diffuse that there is no one to enforce accountability.

A private equity fund with a large equity stake and no ulterior motives -- they make money from increased shareholder value, not fees and bonuses -- who paid cash for their shares is the best thing for shareholders. The one valid point that Stern makes is this: "It's hard to imagine private-equity funds resisting the urge to double down on the tactics banks have used to drive profits in recent years -- unfair lending practices, higher fees, and exorbitant interest rates on credit cards and other consumer products."

That's probably true -- private equity funds may push public companies to improve their profitability, but that's their job. Consumer protection is the domain of regulators, and publicly-traded banks have a responsibility to increase their profits as much as possible within the confines of the law.

We shouldn't blame private equity for lax regulation.

Fellow BloggingStocks contributor, Aaron Katsman, and I were discussing the pros and cons of investing in high-yield bonds this morning. You know, those types of risky bonds that pay a pretty good yield in return for investors lending a risky company their hard-earned cash. Inevitably, Washington Mutual's name came up.

Is it worth the risk of default to get some juicy yield?

Dunno, but just as we were discussing the troubled lender, some news rolled out over the wires.

Washington Mutual (NYSE: WM), the largest savings and loan in the U.S., announced it's taking an investment totaling $7 billion from an investor group led by private equity firm, TPG, or Texas Pacific Group.

Well, that helps provide some stability. At least for a while.

Billionaire investor George Soros believes the current financial crisis is the worst since the Great Depression, and said stocks have not bottomed yet, Bloomberg News reported Thursday.

Soros said the most recent market bottom "will probably not prove to be the final bottom," adding that the current stock rebound will last six weeks to three months as the United States moves closer to recession, Bloomberg News reported.

Further, Soros, in an op-editorial column in The Financial Times, argued that the cause of the market's current problems is a flawed premise: the belief that markets are self-correcting and tend toward equilibrium. They aren't and don't, Soros argues, and the laissez-faire policy creates bubbles, including the most-recent housing bubble, which, in turn, when it started to burst, led to the current credit crunch.

Soros cites deregulation

Soros added that the market's current troubles originated in 1980 when U.S. President Ronald Reagan and United Kingdom Prime Minister Margaret Thatcher led a laissez-faire movement that reduced/eliminated regulation of banks and financial markets, the FT reported.

In an article in the San Fransisco Business Times, Wells Fargo (NYSE: WFC) CEO John Stumpf spoke about how he wouldn't at all mind getting involved in a Federal Reserve brokered deal, like JP Morgan Chase (NYSE: JPM) did with Bear Stearns (NYSE: BSC).

According to the article: "I would not be averse to a Fed-assisted transaction," Stumpf said, adding that any deal would have to meet the company's traditional acquisition targets and benefit the bank's acquired customers. Wells has built a reputation as a disciplined buyer over the years, focusing on deals that generate at least a 15% internal rate of return and contribute to the bottom line within three years.

"Fixer-uppers don't bother us," he added.

Who wouldn't want to be part of a deal like this? It's become pretty obvious that JP Morgan Chase got an amazing deal to buy Bear Stearns, and now Wells Fargo wants to join the party.

With all of the bloodshed in the financials -- and suggestions that Citigroup (NYSE: C) will need to raise additional capital to shore up its balance sheet -- I am continually amazed that the struggling banks aren't eliminating their dividends.

The Wall Street Journal muses (subscription required) that, "At some point, many banks will have to decide what will alienate shareholders more: cutting their common stock dividends or diluting them with expensive capital-raising exercises that just don't seem to end."

Here's the thing: the shareholders who would rather have the company raise dilutive capital at a depressed share price (if you don't think the stock price is depressed, why own the stock?) deserve to be alienated! Maintaining any dividend -- even after the cut, Citigroup is still committed to paying out more than $6 billion per year -- to please investors while simultaneously raising capital is short-sighted pandering at its lowest ebb, and the handful of intelligent shareholders should be smacking the company's management and board of directors around over this travesty.

Citigroup is sacrificing its long-term future prospects to appease schizophrenic yield chasers. Pathetic.

FDIC Chairman Sheila Bair has been sounding alarm bells for more than a year about the hazards for banks as foreclosures increase. Now, her worst dreams may soon be reality. This morning, the FDIC released its year-end numbers and the number of "problem" institutions jumped to 76 at the end of 2007, up from 45 a year earlier -- a 69% increase. At the end of the third quarter that number was 65.

As a result, the FDIC is staffing up. The Wall Street Journal reported that the FDIC is looking to bring back 25 retirees from its division of resolutions and receiverships. At the height of the savings and loans crisis in 1993, there were 572 "problem" institutions, and back then the FDIC had more than three times the number of employees it has today. So the FDIC needs to hire some new folks who can quickly get up to speed in the process of dealing with bank failures. More than 90 duty locations are listed for R&R [Resolutions and Receiverships] Specialists, but the announcement specifically indicates that the FDIC plans to rehire 25 retirees. If you've got the experience the pay is great: $67,836 to $180,770.

Employees hired according to the job listing will "engage primarily in resolution and receivership activities of financial institutions. They will be responsible for gathering, compiling, researching and manipulating financial data to prepare a variety of financial documents, management reports and presentations." They must be able to "analyze financial statements, operating and project reports, cost data, managerial practices, capital and reserves, credit condition, loan file documentation, cash flows and other elements to determine the soundness of the assets held by an insured institution and determine the risks and value of the assets and liabilities." FDIC obviously wants to hire quickly. The job listing opened on 2/20/2008 and closes on 2/28/2008.

Inflation: "An increase in the amount of money and credit in relation to the supply of goods and services; An increase of the general price level; An excessive or persistent increase in wages and costs causing a decline in purchasing power."

Recession: "A temporary falling off of business activity during a period when such activity has been generally increasing."

(Source: Websters New World Dictionary, Third College Edition)

Rather than an opinion piece, which is what I generally write, this little snippet is meant more as a discussion generator than a statement of my own economic view. I earnestly invite our readers to weigh in on the matter. Inflation or recession, are we now experiencing either or both?

With all eyes this weekend on whether the New England Patriots can go undefeated for the whole season and beat the New York Giants in the Super Bowl, here are two stocks that should move up nicely so that you can go to Disney World on the profits.

Ing Groep (NYSE: ING) is certainly best of breed. The bank is very well run, and has not had to write off too much for subprime. It is currently trading with a dividend yield of 5.2% and has a tiny PEG of 0.77. This is a stock that Tom Brady can take to the bank.

Host Hotels and Resorts (NYSE: HST), formerly Host Marriott, the largest hotel real estate investment trust (REIT) in the US, owns some 120 luxury and upscale hotels in North America. Most of its hotels operate under the Marriott and Ritz-Carlton brands and are managed by sister firm Marriott International. Other brands include Four Seasons and Hyatt. It is currently trading with a 4.9% dividend yield and very close to the 52-week low. As the economy starts exiting the slow growth mode, it should do well.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer has no positions in any stock mentioned as of 2/1/08.

The New York Times DealBook recently asked the question "Should banks take back their bonuses?"

The top investment banks will be paying out a record $39 billion in bonuses for 2007, a year in which most posted massive writedowns on bad subprime loans and saw their share prices shrink precipitously.

Making matters worse, traders and investment bankers earned huge bonuses on deals in past year that have now been written down. The deals weren't valued properly in the first place, but who cares! They already got their bonuses.

At the risk of being inflammatory, I have to tell you: This reminds me of Enron, where executives "marked to market" deals based on hypothetical future profits, paid themselves huge bonuses and, in one case, had cashed out and become the largest landowner in Colorado by the time stuff hit the fan.

The problem with the Wall Street bonus system is that it rewards risk over prudence. The compensation philosophy on Wall Street seems to be "Heads I win, tails I still win, as long as I can convince people it was actually a heads at the time I toss the coin. When they find out it was really a tails in a few years, I'll already have spent my bonus on that mansion in the Hamptons, and the shareholders can jolly well deal with it." Or something.

Until someone has the courage to make some changes in the Wall Street bonus structure, we can expect big blow-ups like this from time to time. As economics teaches us, people respond to incentives, and Wall Streeters are incentivized to take big risks with other people's money.

The Associated Press reports that Bank of America (NYSE: BAC) and Wachovia Corp. (NYSE: WB) both banked badly in the fourth quarter -- seeing profits plunge 95% and 98% -- respectively.

Here're are the lowlights:

• Bank of America: Net income fell to $268 million, or 5 cents per share, in the fourth quarter from $5.26 billion, or $1.16 per share in Q4 2006.
• Wachovia: Net income fell to $51 million, or 3 cents per share, from $2.3 billion, or $1.20 per share, in Q4 2006.

The culprit? Bloomberg News blames home loan write-downs for Wachovia's bad numbers. Wachovia's provision for credit losses rose to $1.5 billion from $408 million on September 30. And Bloomberg News fingers $5.28 billion in mortgage-related write-down as reason for Bank of America's poor results. Some good news for Bank of America: it had a pretax gain of $2 billion from its holding in Visa Inc., the credit-card network that's planned an initial public offering for later this quarter. We'll see.

Bank of America is down 5.5% in pre-market while Wachovia is a mere 3.6% lower.

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

In the face of daily headlines about just how strapped the banks are for cash in the wake of massive and continuing subprime related writedowns, we finally get some news that the worst may be over.

According to the Wall Street Journal [subscription required], "The results of the Federal Reserve's latest auction of loans to commercial banks suggests that the banks' need for money is growing less urgent." The Fed saw the difference between the minimum bid rate and the accepted rate in its auction narrow.

A month ago, banks were jumping at the Fed's loan auction, bidding for over $60 billion in loans, although the Fed only lent a third of that amount.

That's good news for shareholders in banks: The worst of the writedowns may be through, and the banks may not need to raise more cash by selling themselves off to foreign investors at firesale prices.

But stability for the banks and less need of cash may make the Fed less likely to continue to slash interest rates.

Bloomberg News reports a blizzard of bad news about Citigroup (NYSE: C). Its management team does not know what's going on with its Collateralized Debt Obligation (CDO) portfolio, and loan losses on the consumer side of its business are climbing fast.

I am most concerned about Citi's inability to quantify the CDO damage. According to DealBreaker, the conference call did not go well, with Citi's CFO "having to admit many times that he either wouldn't comment or didn't know the answer to detailed questions about credit market exposure. Merrill's Gary Moskowitz asked about what the original par value of the CDO portfolio. Crittenden said he didn't know. How about specifics on modeling versus market tests? Nope, just more hand-waving!"

Another analyst, Jon Fisher, who helps manage $22 billion at Minneapolis-based Fifth Third Asset Management said, "There are probably issues on their balance sheet that the management team, who's only really been running the company for about a month, doesn't even know about."

Bank of America Corporation (NYSE: BAC) announced Monday it closed a $12 billion, enhanced money fund after major clients pulled-out amid losses on complex asset-back securities, including structured investment vehicles, Bloomberg News reported.

The Columbia Strategic Cash Portfolio was closed last week and is being "wound down," Bank of America spokesman Robert Stickler told Bloomberg News. Sticker said the fund's net asset value, which had been $33 billion two weeks ago, was 99.4 cents on the dollar as of Monday.

The ever-prescient Financial Times columnist Martin Wolf, an economist, raises, and to some degree answers, a question that no-doubt has been on the minds of U.S. investors, readers, as well as Europeans: Why does banking generate such turmoil?

Or, as Wolf put it another way: why is banking an accident waiting to happen, with the crisis in securitized lending the latest example?

The answer - - or fault, to paraphrase Shakespeare - - lies within ourselves, Wolf argues, due to the very things nations have established to protect depositors - - namely, depositors' insurance and government guarantees, which prompts banks to take high risks.