Goldman Sachs Group Inc. (NYSE: GS) is cracking down on how its employees can waste their time while they are at work.

According to Dealbreaker, the top investment bank has blocked Facebook and prohibits workers from posting comments on the snarky Web site. The incident is so noteworthy that the gossip blog has a flashing siren graphic above its post on the topic.

"I'm sure the lot of you are going to argue that the vast majority of financial firms have long blocked access to the social networking site, but Goldman's supposed to be above such pedestrian measures," the blog says, adding that Chief Executive Lloyd Blankfein used to not care about such things as "as long as you're kicking ass (by lying about level three assets)."

Fair enough but times are tough on Wall Street. Investment bankers are scrambling to hold onto their jobs as the credit crunch shows no signs of easing. Nannies who used to care for the children of Wall Streeters are finding themselves unemployed. I am sure the strippers at New York's "gentlemen's clubs" are hurting too.

Even Goldman, the best run of any Wall Street bank, is not immune. Its shares are down more than 25 percent this year. Maybe Blankfein needs to remind Goldman's employees that they should be grateful to have jobs at a time when banks are laying off tens of thousands. They are plenty of eager people who could live without recreational Internet surfing who would love to take their place.

Lehman Brothers Holdings Inc. (NYSE: LEH) Chief Executive Richard Fuld is running out of rabbits to pull out of his hat.

The troubled Wall Street bank, which reportedly is set to take a $4 billion write down in the third quarter, is desperate to raise capital. The Wall Street Journal says it's shopping around its investment management business, which includes Neuberger Berman. During the second quarter, the business reported net revenue of $800 million, down from $1 billion a year earlier. Its assets under management were $277 billion. Though these results were hardly spectacular, they stood in contrast to the Capital Markets business, which reported negative revenue of $2.4 billion.

Selling the asset management business would bring in between $8 billion and $10 billion, according to analysts cited by the Journal. Lehman's market capitalization now stands at about $10.4 billion thanks to the 77% decline in the stock price this year.

"Any change in the unit's ownership structure would be bittersweet for Lehman," according to the Journal. "The division has been a strong performer ever since Lehman bought it in 2003, holding up well despite the mortgage crisis. While a sale would give Lehman a cash infusion, the investment bank would lose a steady source of revenue."

Lehman acquired Neuberger for $2.6 billion in 2003, and some unhappy Neuberger executives are eager to dump their shares, the paper said.

Not all investors, however, believe that all hope is lost. Lehman's shares rose Friday on a report that billionaire George Soros boosted his stake in the company.

If the sale goes through, there is no way that Lehman will be able to remain independent.

Want a classic example of how the real estate slump is affecting not only the construction industry and home owners, but also states and municipalities, as well?

Consider the plight of the nation's largest city, the City of New York.

Wall Street's mortgage losses have ballooned to such a degree that some firms may pay small or no taxes for years, Bloomberg News reported. That's right: no taxes for years.

Rising tax revenues, no more

For much of the current decade, indeed for much of the 1990s as well, the city could count on rising tax revenue from Wall Street firms -- based on increased securities industry business -- as a starting point for the city's budget. Not now: the city, which derives about 20% of its revenue from Wall Street businesses, is projecting a decline in revenue from Wall Street firms -- a contraction that is expected to widen the this year's $1.5 budget deficit in fiscal 2009 to $2.3 billion next year, fiscal 2010, and then to $5.96 billion in fiscal 2011 budget deficit, Bloomberg News reported. The city's budget for fiscal 2009 is $59.1 billion.

The Wall Street recession has put the social service goals of Mayor Michael R. Bloomberg on hold, for the most part. Bloomberg has already asked city department and agency heads to implement a 6.4% spending cut; he will likely ask department heads to identify other cost savings of up to 3%, should revenues continue to come in below projections.

It was just a matter of time. People with poor credit have been defaulting on mortgage payment in large numbers for more than a year. Now the problem has moved to homeowners with reasonably good credit.

According to The New York Times, in April "delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent" from a year earlier.

The problem is going to get much, much worse. Many mortgages held by people with good credit have interest rates resetting at higher prices. The trouble is deeper than that. Higher energy costs and falling employments have a leveraging effect on the overall ability of many homeowners to keep up with their payments.

All of this means that write-downs of asset by big banks and brokerage firms may only be in early stages. The IMF has estimated that total write-offs among banks due to mortgage problems will hit $1 trillion. By most estimates only $400 million of that has shown up in earnings reports.

For investors in bank and brokerage stocks, the implications are that these firms will lose more money and have to raise more capital to bolster their reserves. That means more dilution.

Bank stocks have much further to fall.

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

Shares of JPMorgan Chase & Co. (NYSE:JPM) soared today after the New York-based bank reported second quarter results that were not as lousy as expected.

They were terrible of course. Net income fell 53% to $2 billion, or 54 cents a share, ahead of the 44-cent average estimate of analysts surveyed by Bloomberg News. Net revenue fell 3% to $18.4 billion, beating the $16.6 billion average Bloomberg estimate.

The results, though, underscore how well the company has fared under the leadership of CEO Jamie Dimon.

Here are some highlights:

• Investment banking fees were $1.7 billion, their second highest quarter ever.
• Net income in commercial banking rose 25% to $355 million.
• Net income was a record $425 million in Treasury and Security Services, up 21% from a year earlier.
• Equity underwriting fees rose 6% to $542 million.
• Fix income markets revenue dropped only 4% driven largely by net markdowns of $696 million on leveraged lending funded and unfunded commitments, as well as mortgage-related net markdowns of $405 million.
  

The straight-talking Dimon did not mince words about the challenges that lie ahead for JPMorgan, saying in the release, "Our expectation is for the economic environment to continue to be weak – and to likely get weaker – and for the capital markets to remain under stress.... In spite of the environment, we are confident that we are building an increasingly strong and profitable company."

But unlike many on Wall Street, Dimon can walk the walk and talk the talk.

A number of corporations bought auction rate securities with their excess cash. They believed that since the instruments offered better yield than many market funds, they would be good for balance sheet management. They also thought that since auction-rate paper had been liquid and widely traded since 1985 that moving in and out of the market would be easy.

It was easy until it wasn't.

The investment banks and money center banks which made the market in these instruments pulled out at the beginning of the credit crisis. They did not want to keep risking their own capital to buy the paper and hold it to keep the market trading. Traditionally what was not bought at one auction was picked up by banks and held until the next round of trading. In essence, large financial firms kept the market trading by underwriting the system in exchange for large commissions.

MAJOR PAPERS:

• The Wall Street Journal's "The Game" column speculates that one of the results of the Bear Stearns crash could be the push of investment banks and commercial ones closer together, which could result in better handling of volatility with more stability. Some observers think Merrill Lynch & Co (NYSE: MER), Morgan Stanley (NYSE: MS) or The Goldman Sachs Group Inc (NYSE: GS) could go that route by buying a commercial bank. Any move would force them to adhere to better reserve ratios, affect short term bank funding, and shrink balance sheets.
• The Wall Street Journal reported that Google Inc (NASDAQ: GOOG) will soon make available a new service that measure hits on the Internet with the intent of helping advertisers decide where to buy ads online and would directly compete with comScore Inc (NASDAQ: SCOR) and Nielsen Online. Ad executives said Google's method could make targeting markets more efficient.
• A Manhattan judge dismissed four claims made by American International Group Inc (NYSE: AIG) in its fight to regain control of a block of its shares held by Starr International, a company that once founded a lucrative compensation plan for AIG executives. AIG believes the shares held by Starr should continue to be used to fund employee compensation, the Financial Times reported.

WEB SITES:

• According to Scorpio Partnership, Bloomberg reported that UBS AG (NYSE: UBS) and Merrill Lynch had slower growth in assets under management last year due to losses connected to the U.S. subprime crisis.

Two separate pieces of news hit the market. They did not appear to be directly related, but they do say that employment on Wall Street could drop much further this year.

According to The Wall Street Journal, Citigroup's (NYSE: C) "will dismiss thousands of investment-banking employees world-wide as part of a plan to cut the roughly 65,000-employee group by 10%." The FT reports, Goldman Sachs (NYSE: GS) "is now expected to cut up to 10 per cent of staff in the division that handles mergers and acquisition advice and corporate fundraisings."

Because Goldman is perceived as doing relative well in a tough financial environment, the news is particularly bad.

The information is another sign that the world of Wall Street is not turning around. If these companies saw a second half recovery, they might be less likely to cut so deeply.

But, it is part of a trend. After bottoming in March, U.S. financial stocks started to move back up at the end of Spring. There was talk that the credit crisis had seen its peak.

With new write-offs and thousand of people in the industry about to be out of work, it looks like the April rally was for suckers.

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

Lehman Brothers Holdings Inc. (NYSE: LEH) Chief Executive Richard Fuld continues to keep his job even though shares of the New York-bank have slumped more than 60% this year. Meanwhile, American International Group Inc. (NYSE: AIG), whose shares are down 42%, ousted CEO Martin Sullivan because of the continued poor performance of the world's largest insurer.

Why didn't Fuld follow Sullivan onto the unemployment line, albeit the cushy one for failed CEOs? It makes no sense.

Last week, Fuld shocked investors by pre-announcing that Lehman lost $2.8 billion, or $5.14 per share, results that were officially confirmed today. In the earnings release, Fuld proclaimed the results as "unacceptable" and vowed to "take the necessary steps to restore the credibility of our great franchise." Well, at least he says that's what he wants to do. He dismissed Lehman President Joseph Gregory and Chief Financial Officer Erin Callan last week. On the conference call, Fuld even took responsibility for the loss and investors cheered this act of contrition, sending shares of Lehman up.

The euphoria is not going to last. I am not sure why Wall Street believes that Fuld can extricate Lehman from the financial quagmire that occurred on his watch. They certainly did not give Merrill Lynch & Co.'s (NYSE: MER) Stan O'Neal and Bear Stearns & Co.'s (NYSE: BSC) James Cayne or Citigroup Inc.'s (NYSE: C) the benefit of the doubt.

The news from Lehman (NYSE: LEH) was not bad enough. The brokerage will post a loss of $2.8 billion and raise $6 billion in new capital. Now word comes that big Swiss bank UBS (NYSE: UBS) is in trouble again.

According to The Wall Street Journal, "When it proposed its capital-raising plan to investors, UBS said further write-downs may hit earnings, and it said in May that some asset classes continued to deteriorate and will hamper future earnings."

Of course, the news begs the question: how bad can things get for US banks? Citigroup (NYSE: C) may be the prime example. It still holds billions in mortgage paper and LBO debt, and it could face charges on credit card defaults. The market has already started to price more trouble into the US bank's stock.

Citi is now trading below $20 for the first time since March when a panic hit a number of large US bank shares. The stock recovered to almost $27 in late April. Several other American banks have seen their shares drop by similar amounts.

Citi's stock probably has not found a bottom. If the bank reports weak numbers in the next two quarters, it may have to raise money the way Lehman did. Substantial dilution could take the shares down another 10% to 15%.

Douglas A. McIntyre is an editor at 247wallst.com and the author of the Ten Stocks Under $10 letter.

This post is part of a series on some of the most memorable companies that have disappeared.

Going, going, gone!

No more Bear Stearns. What a shame. It did not have to be, but alas -- bad management, greed, and too much negativity on Wall Street made it unsustainable when sustainability is the word of the day. It is, or should I say was, one of the foremost investment banks on Wall Street for many decades.

JPMorgan Chase (NYSE: JPM) completed it acquisition of Bear Stearns (NYSE: BSC) on May 30, 2008. As a result, Fitch Ratings has upgraded the ratings of BSC and removed them from Rating Watch Positive, where they were originally placed on March 17. As the direct and sole owner of BSC, JPM has assumed the capital structure of BSC.

Bear Stearns had been one of the top investment banking, clearing, and brokerage firms in the United States, serving major corporations, institutions, governments, and high net worth individuals. Through several subsidiaries, it provided asset management, lending, and merger and acquisition advisory services. It's been a leading market-maker for NYSE-listed securities (through Bear Wagner Specialists), as well as for OTC shares, corporate and government bonds, and derivative products.

It was these derivative loan instruments that did them in. Bear Stearns, a company that for decades was relied upon to help its customers assess risk, fell short when it came to managing its own. Management was not watching very closely, and if they were, they did not understand what they were seeing. (See Serious Money: The page on Buffett Part V: Company Management.)

Citigroup Inc. (NYSE: C) is unmanageable. That's my conclusion after trying to understand its latest quarterly report. The concept behind this 100-armed corporate octopus is that people like to buy all their financial services in one place and therefore it makes sense to be able to sell them a full line of products from stocks to bank accounts. But I suspect that customers don't want all their financial eggs in one basket, so the concept is fatally flawed.

Moreover, its financial performance reveals that Citi is a complex mess whose many different businesses do not diversify its earnings streams. According to its quarterly report, Citi lost $5.1 billion. Most of the losses came from its Securities and Banking (-$6.4 billion), Alternative Investments (-$509 million), and U.S. Consumer (-$476 million) units. Two bright spots were $1.3 billion in earnings from International Consumer and $732 million in Transaction Services.

But wait, there's more in its huge, risky portfolio. Citi has $40 trillion in derivatives -- enormous bets on interest rates and currencies. And it has $1.2 trillion worth of off-balance sheet entities (remember Enron?). Nobody really knows what these are worth or how much they'll cost. And that doesn't even get us to the $262 billion in Level 3 assets -- illiquid, difficult-to-value securities -- which are 2.1 times Citi's $128 billion in capital. That's a pretty thin cushion for future write-downs.

It may be victory of hope over reason. Merrill Lynch (NYSE: MER) is telling everyone who will listen that it has enough cash to make it though the current crisis and will not have to raise any more.

It might be best for the management at Merrill to say nothing, but it cannot help itself. According to The Wall Street Journal, Merrill's top two financial executives "attempted to assuage concerns that Merrill will have to raise more equity to maintain its strength as its difficult-to-value assets and its exposure to weak counterparties rise."

Merrill has created reserves against future losses, but the firm acts as if it has an ability to look into the future. If the current credit crisis has two hallmarks, they are that Wall Street did not see the problems coming and that, over time, the trouble seems to be getting worse and not better. Merrill not only has to face mortgage-backed securities losses but it also faces troubles with LBO loans and consumer credit derivatives.

Investors are having none of it. Over the last six months, shares in Merrill are down almost 15%, about the same as Morgan Stanley (NYSE:MS) and not nearly as good as the Dow.

Merrill now faces the potential humiliation of not living up to its promise if the tide turns against it later in the year. Shareholders don't like managements to make promises that they cannot keep.

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

The perceptive and common sense-rooted Ben Stein, in a business column in The New York Times, has weighed-in on the credit crisis, and for market absolutists, it's an argument they probably don't want to hear.

Stein, like many of us, has pondered how the massively well-paid men and women of Wall Street could create such a catastrophe. How did some of the smartest, talented executives, Stein ruminates, generate such immense losses that "they made banks clam up on lending -- at great risk to the economy?"

Compelling questions

Stein asks: Where were the fail-safe devices? The government watchdogs? The ratings agencies? A speech by Greenlight Capital hedge fund manager David Einhorn at a Grant's Interest Rate Observer event, provided the answers -- the unfortunate truths of the recent housing/credit boom -- which Stein summarized:

Confidence in the global economy improved for the the first time in five months in April 2008, a Bloomberg News survey of news / analytics subscribers to Bloomberg on five continents indicated Wednesday.

The Bloomberg Professional Global Confidence Index, which surveys 5,905 Bloomberg subscribers, rose to 14.5 in April 2008 from 13.1 in March 2008. The measure increased to 18.5 from 17.6 in the U.S. and to 11 from 7.5 in Asia. It declined in Western Europe. A reading below 50 indicates negative sentiment.

Economist Peter Dawson, who was not a part of the survey, told BloggingStocks Wednesday the April 2008 uptick is welcome news, but investors/traders should not become prematurely optimistic.

"Overall sentiment remains cautious and downbeat," Dawson said. "We are close to a recession in the U.S., with little signs of life in the housing sector or from the consumer to inspire confidence that recovery is just ahead, so you've got to place the higher April data in the proper context."