finance

On Thursday, two Bear Stearns executives surrendered to federal agents over charges that they had misled investors about the state of Bear Stearns hedge funds.

As night follows day, arrests follow financial scandals. Investors in those funds can't be unhappy about seeing their managers doing the perp walk. And the evidence certainly seems damning. Days before they delivered an upbeat assessment to their investors, the two execs were exchanging worried e-mails about the state of the funds. "I think we should close the funds now," one wrote. Instead, they reassured their worried customers. Only a month later came the now-infamous meltdown that eventually led to the fire sale of their 85-year-old firm.

Citigroup posted a $5.1-billion loss and announced 9000 layoffs.

Analysts call it a "kitchen sink quarter." Companies in shell-shocked industries write down everything that even looks like it might go wrong, clearing the balance sheet for future growth. For banking, that quarter was supposed to be the end of last year. Friday's earning report from Citibank, however, indicates that some in the industry might still have faulty plumbing yet to expose. After giant write-downs last quarter, Citibank again announced it needed to revalue its assets sharply downward. The financial giant took massive write-downs across multiple business lines, pushing revenue into negative territory and causing its second consecutive quarterly loss. The bank has now written down almost $40 billion due to the credit crunch.

Investment firm Bear Stearns ran out of money, and the Federal Reserve stepped in to save it from ruin.

Bear Stearns, the smallest of New York's bulge bracket banks, has been the hardest hit by the subprime crisis, and speculation about its balance sheet has been floating for months. Liquidity problems in credit markets have made things worse. This week, worries turned to fears, as rumors made other financial institutions reluctant to do business with the ailing bank. In finance, expectations -- even false ones -- can rapidly become realities: If no one will loan you money or trade with you because your firm might go under, your firm will go under. MORE

Wall Street greets the resignation of Eliot Spitzer.

Republicans are gleeful at Spitzer's downfall, but if you want to witness real ecstasy, visit Wall Street. As New York's attorney general, Spitzer made his political career on attention-grabbing settlements with banks, insurance companies, and mutual funds, positioning himself as the only man willing to clean up Wall Street's mess. To Wall Streeters, however, he was a bully and a boor, less a legal eagle than a rogue prosecutor and one-man Star Chamber.

Many of the abuses he attacked were real. He went after the tendency of equity research to serve investment-banking clients, rather than the retail investors who were reading it. And his inquiry into mutual funds who were letting big clients profit by trading shares after market close ended a scandalous practice.

But his methods were deeply troubling. MORE