Citizens of Boston, you heard some awful news this week. According to reports, rock institution WBCN 104.1 FM will no longer be filling the airwaves with its iconic brand of irreverent broadcasting. Instead, it will live on as a web domain. In its place will be WBMX, a station that was formerly at 98.5 in the FM universe. An all-sports format will take up WBMX's old home. Who can you thank for this? Send all complaints to CBS (NYSE: CBS), the station's owner.

Actually, before you compose a bunch of angry missives, please consider the state of terrestrial radio. Quite frankly, CBS doesn't have a choice. Between the lousy growth prospects for the medium, and the challenged status quo of the advertising market given the terrible global recession that continues to rip through the markets like a hideous beast, changes have to be made. Changes that you thought would never come.

Today marked intra-day 2009 for the S&P 500 and NASDAQ, although these might not have closed on the highs for the year. Also that won't be known until the formal 4:30-ish closing reset adjustment. This came on the heels of slightly less-bad jobs data and on some confusing retail gains. Unlike earlier Treasury auctions, today's 30-year Treasury Bond auction was a help to the markets as yields reached a high enough level that investors jumped in. Here are today's unofficial closing bell levels:

Dow 8,770.92 +31.90 (0.37%)
S&P 500 944.88 +5.73 (0.61%)
Nasdaq 1,862.37 +9.29 (0.50%)

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Now at last we will have some transparency in the CDS (credit default swaps) markets. Regulators approved a joint venture between the CME (Chicago Mercantile Exchange) and Citadel, a hedge fund to clear swaps trades that will begin operations within 30 days. The size of this market is mind boggling at 54,000 billion dollars.

One of the underlying factors in our current credit crisis has been the lack of supervision in the CDS markets. Very often it was difficult and nearly impossible to figure out who the players were. You had the original parties to the CDS and then you had speculators who gambled on the credit worthiness of the underlying bond.

While this move to clear CDS trades is a good thing, it does not eliminate the speculation and risk taking by traders in the swaps market. That may never go away but at least it will be easier for trading managers to monitor their trader's actions more closely.

The typical structure of a hedge fund can be precarious. For example, there are usually huge amounts of leverage. At the same time, investors can redeem their shares, which often happens in tough times. The upshot: a fund may have to shut down.

Just look at Citadel Investment Group. As of the end of November, the firm's two main funds have lost close to 50%. What's more, investors are requesting redemptions of $1.2 billion, which comes to 12% of overall assets.

What to do? Well, Citadel isn't going to honor the redemptions -- at least for now.

No doubt, this will anger investors. But, hey, in the hedge fund world, the investors are sophisticated, right? Shouldn't they anticipate such things? Besides, other hedge funds have done the same thing (such as Tudor Investment Corp.)

To allay things, Citadel is making a concession. That is, the firm is going to pay its own operating expenses for 2008 (keep in mind that this usually comes out of investor dollars). And this is no small amount, which could be $200 million to $300 million.

The problem is that -- in light of the huge investment losses -- it will be extremely difficult for Citadel to generate incentive fees. So, in light of this, why will top employees stick around? If anything, they may start their own funds.

In other words, Citadel is in a tough spot right now. And, it could easily take many years for the firm to regain its former stature – if it ever happens.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market. He is also the founder of BizEquity, a valuation website.

The Dow lost 385 points this week with a 315 point election day rally on Tuesday, two consecutive days which totaled 929 points down, and a Friday rally of 248 points. Did the market rise on hopes of a McCain upset only to fall due to disappointment that Obama won? Did the market rally Friday because the 6.5% unemployment rate was not as bad as expected? It could be, but I doubt it.

More likely, the markets are moving because of the trading behavior of endowments, pension funds, and hedge funds. They make decisions for very different reasons. But some reporting on daily market movements looks like a joke -- nobody knows why the market goes up or down, but commenters use price movements as a daily barometer of the national mood. So how do endowments, pension funds, and hedge funds move the markets? Here's how:

• Endowments. Big university endowments, such as Harvard's, are desperately trying to unload billions of dollars worth of illiquid interests in venture capital and private equity firms. Harvard is reportedly trying to dump $1.5 billion worth of such interests into a market where there is likely to be very little interest. Not only that, these private equity firms are demanding that endowments fork over the money they committed to them so they can make new investments. And with the S&P 500 down 36.6% so far this year, many endowments are selling anything liquid to meet these commitments and to pay shorter-term obligations -- such as paying professors and keeping the lights on.

Kenneth Griffin, who manages the massive Citadel Investment Group Inc. hedge fund, has produced a sterling record over the past 20 years. Actually, he's one of the world's top money managers.

But, in "Black September," Griffin's tracked record got trashed. Apparently, his flagship fund is down as much as 22% for 2008.

Interestingly enough, Wall Street has been abuzz with rumors that Citadel is dumping lots of shares – putting further pressure on the markets (and may have accounted for some of yesterday's losses on the Dow and S&P).

But Citadel is not alone. Other hedge fund operators have also suffered major losses.

One key issue has been the erratic regulatory response to short selling (essentially, the ban made it illegal for hedge funds to make profits). Of course, investors have also been requesting redemptions.

In fact, it looks like some key hedge fund managers are staying on the sidelines (can you really make money when the markets look irrational?)

As for Citadel, the fund had some other problems. For example, Griffin loaded up on convertible securities. While such things are okay in normal times, they can become illiquid during periods of crisis. Besides, the short-selling ban made it excruciatingly difficult to employ arbitrage strategies.

Something else: with the significant losses, hedge funds will have a hard to getting incentive fees. The reason is that they need to recoup the losses (this is known as the high-water mark). As a result, many hedge funds may decide to close shop.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market. He is also the founder of BizEquity, a valuation website.

E*Trade (NASDAQ: ETFC) is naming its chairman, former JPMorgan (NYSE: JPM) vice-chairman Donald Layton, to be the company's new CEO.

The stock was trading up more than 5% on the news earlier, probably because of speculation of a possible sale. The Wall Street Journal reported [subscription required] that "E*Trade and Citadel have discussed the possibility of trying to find a buyer for the home-equity portfolio, which would lift a tremendous burden off E*Trade and could pave the way for a sale of the entire company, according to people familiar with the matter."

But Mr. Layton told the Journal that selling the home-equity portfolio is not an option right now.

I think investors should, as always, be extremely cautious about buying shares in the company on takeover speculation. E*Trade's woes -- and declining share price -- are hardly an unknown entity given its status as a poster child of subprime stupidity. The fact that Ameritrade (NASDAQ: AMTD) and other well-capitalized competitors, which had expressed interest in acquiring E*Trade before its precipitous decline in value aren't stepping up with an offer, tells me all I need to know: there's really no reason to think a deal is coming any time soon.

As we read of writedowns, impending bankruptcies, and the faltering U.S. consumer, it's interesting to get a glimpse at the players behind this whole snafu.

The Wall Street Journal published an article today about Magnetar Capital, a fund started by a star trader from Citadel Investment Group. Magnetar was a key player in the structuring of CDOs, or collateralized debt obligations. Magnetar acted as a "lynch-pin investor" in over $30 billion of these syndicated bundles of subprime mortgages and derivatives, according to the article.

In spite of the losses being racked up on Wall Street, the fund, with about $9 billion in assets, made about 25% returns last year.

According to the article, "Magnetar swooped in on securities that it believed could become troubled but were paying big returns. CDOs are sliced based on risk, with the riskiest pieces having the highest yield but the greatest chance of losing value." Magnetar concentrated its trading on these riskiest pieces.

MAJOR PAPERS:

• The Wall Street Journal reported that in a list released last night by the FCC, Google Inc (NASDAQ: GOOG), Cablevision Systems Corporation (NYSE: CVC) and other "nontraditional" players are set to compete against more traditional wireless companies like Qualcomm Incorporated (NASDAQ: QCOM) and MetroPCS Communications Inc (NYSE: PCS) in the federal government's spectrum auction next month.

OTHER PAPERS:

• Banks that include Merrill Lynch & Co Inc (NYSE: MER) and The Bear Stearns Companies Inc (NYSE: BSC) are reportedly in talks to help bail out struggling bond insurer ACA Capital Holdings, which lost $1B in the most recent quarter, according to two people briefed on the situation and reported by the New York Times; ACA Capital has guaranteed $26B in mortgage securities.
• Executives at Tribune Company (NYSE: TRB) were faced with last-minute questioning from bankers that were reluctant to fund the final portion of the $8.2B deal to take the company private, according to sources close to the company, the Chicago Tribune reported.

WEB SITES:

• Barron's Online's "Inside Scoop" reported that analysts are not convinced that the deal with Citadel is enough to save E*Trade Financial Corporation (NASDAQ: ETFC), as it does not eliminate E*Trade's $12.4B second-lien mortgage exposure, and the company could potentially face further customer attrition, which many think will continue to pressure the shares.

Legally, E*Trade (NASDAQ: ETFC)'s press release announcing its deal with Citadel might have been fine.

But according to Fortune's Colin Barr, the 8-K detailing the transaction makes it sound a lot less appealing. Barr writes, "One reason the Citadel deal initially appeared so bullish for E*Trade was that Citadel was taking big, apparently unhedged, debt and equity stakes in the struggling online financial company -- seemingly betting that it could oversee a recovery in the company's fortunes."

But the reality is that much of the debt Citadel bought could become more senior than the other senior debt in the event of a bankruptcy.

This looks a little bit like the infusion that Countrywide Financial (NYSE: CFC) got from Bank of America (NYSE: BAC). The $2 billion investment gave Countrywide notes paying a 7.25% interest rate to Bank of America and providing the bank an option to purchase Countrywide shares at $18 -- 41% below their their market price back then (of course, the infusion has, long-term, done little to stop the bleeding: Countrywide now trades at just $10.42 per share.

The point is that hedge funds and banks, usually (Merrill Lynch (NYSE: MER) says hi) don't dole out money with pathological stupidity. Citadel invested as a vulture, and got a great deal by preying on E*Trade's desperation and fear of bankruptcy.

There's nothing wrong with that, but it's hardly bullish for E*Trade.

A good rule of the thumb for investors is not to own shares in desperate companies. Desperate companies do desperate things, and acts of desperation are often detrimental to the creation of shareholder value.

Less than a week after selling $3 billion worth of asset-backed securities for about 30 cents on the dollar, E*Trade (NASDAQ: ETFC) is hiking the yields on its savings account and short-term CDs. According to The Wall Street Journal, "For savers, E*Trade's move presents an opportunity to take advantage of rates that are among the highest available on short-term deposit accounts and are several percentage points above national averages."

And now, ladies and gentleman, the greatest PR spin of the month, courtesy of Jarrett Lilien, E*Trade's acting chief executive. She told the Journal that "it was a great opportunity to give a thank you to our loyal customers in the face of a difficult time like the last couple of weeks".

Right -- but what about the shareholders who will see the higher rates paid right out of what's left of E*Trade's equity?

Today's news of E*Trade(NASDAQ:ETFC) receiving a $2.5 billion cash infusion as part of selling off its $3 billion asset-backed securities (ABS) portfolio, including its ABS collateralized debt obligations (CDOs) and second lien securities to Citadel Investment Group, is bound to the talk of Wall Street. As usual there are two big winners and one big loser.

The winners:

Citadel scores big-time getting the $3 billion ABS business for about $0.30 on the dollar. I can only imagine how much money it is going to make on that deal. Once the dust clears from the whole subprime mess, and credit markets calm, this portfolio will skyrocket in value and Citadel will laugh all the way to the bank.

Mitch Caplan, the CEO who gets to go home with a huge package. Glad to see the man who oversaw this whole mess is going to walk away with millions.

According to The Wall Street Journal "E*Trade Financial (NASDAQ: ETFC), which is ensnared in the mortgage crisis, is getting a $2.55 billion cash infusion from Citadel Investment Group."

Citadel will "purchase E*Trade's entire $3 billion portfolio of asset-backed securities for a value of around $800 million." The balance of the money will go in as 10-year notes with a 12.5% interest rate. Citadel will end up owning 20% of the company and have a seat on the board.

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

MOST NOTEWORTHY: Expedia (EXPE), YRC Worldwide (YRCW), Fiserv (FISV), and select radio stocks were today's noteworthy upgrades:

• JP Morgan upgraded Expedia (NASDAQ: EXPE) to Overweight from Neutral on expectations for U.S. bookings growth and margin stabilization.

• YRC Worldwide (NASDAQ: YRCW) was raised to Neutral from Underperform based on valuation.

• Fiserv (NASDAQ: FISV) was upgraded to Sector Outperformer from Sector Performer at CIBC following the CheckFree (CKFR) acquisition.

• Banc of America upgraded Citadel Broadcasting (NYSE: CDL), Cox Radio (NYSE: CXR) and Entercom Comm (NYSE: ETM) to Neutral from Sell as they believe it is time to cover short positions with the expected Q3 weakness likely priced into shares. They caution that this upgrade is not a buy signal as downside risk remains...

OTHER UPGRADES:

• Wachovia upgraded Cabela's (NYSE: CAB) and KBR Inc (NYSE: KBR) to Outperform from Market Perform.

• Baird raised Lear (NYSE: LEA) To Outperform from Neutral.

• Nokia (NYSE: NOK) was upgraded to Outperform from Neutral at Credit Suisse.

• Pacific Crest upgraded shares of eBay (NASDAQ: EBAY) to Outperform from Sector Perform.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: US Airways (LCC), Cigna Corp (CI), Gentex Corp (GNTX) and China Life Insurance (LFC) were today's more noteworthy upgrades:

• UBS upgraded US Airways (NYSE: LCC) to Neutral from Reduce based on valuation.

• Cigna Corp (NYSE: CI) was upgraded to Neutral from Sell at Banc of America to reflect the company's market share gains and share buybacks.

• Banc of America also raised Gentex Corp (NASDAQ: GNTX) to Buy from Neutral to reflect increased penetration of the company's new rear-camera display product.

• Deutsche Bank upgraded shares of China Life Insurance (NYSE: LFC) to Hold from Sell on valuation and the continued strong equity markets...

OTHER UPGRADES:

• Morgan Stanley raised DirecTV Group (NYSE: DTV) to Overweight from Equal Weight.

• Citigroup upgraded Sempra Energy (NYSE: SRE) to Buy from Hold.

• Acorda Therapeutics (NASDAQ: ACOR) was upgraded to Buy from Neutral at Banc of America.

• Merrill Lynch raised Citadel Broadcasting Corp's (NYSE: CDL) rating to Buy from Neutral.

• CyberSource Corp (NASDAQ: CYBS) was upgraded to Buy from Accumulate at ThinkEquity.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).