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Everything is upside down these days. The folks with all the money and multi-million dollar bonuses are begging for a handout on the pretext that the economy will crash if they do not get one. We're not talking money for coffee or a snack, we're talking billions of dollars.

It is crashing anyway, or at least sinking. It is just a matter of what it takes down along the way. Apparently, the folks at the Treasury and Federal Reserve are now convinced that it will be everything.

The survivors are pawing at the defeated as Wells Fargo tries to grab Wachovia despite its previous tentative agreement with Citigroup Inc. (NYSE: C). While Citigroup gained a point in Wachovia deal over the weekend, the balance has since tilted in favor of Wells Fargo again.

Bank of America (NYSE: BAC) gobbled up Countrywide (done) and Merrill Lynch (NYSE: MER) (a work in progress), while JPMorgan Chase (NYSE: JPM) corralled Bear Stearns and Washington Mutual (NYSE: WM).

Sadly, only the federal government was big enough to swallow the problems of American International Group (NYSE: AIG), Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Otherwise,those in the know think world financial markets would have crumbled due to the collateral damage, (pun intended).

When I posted Congress is screwing up -- think backstop not bailout!, I was concerned with the psychological effect as much as the financial effect of not approving the funding, but no doubt the people suffering the most are not those who created the pain.

Over the past few years, some of the big players in tech – such as Oracle Corporation (Nasdaq: ORCL), SAP (AG) (NYSE: SAP) and Microsoft Corporation (Nasdaq: MSFT) – have been been aggressive with M&A. Even after the dot-com bust, there is still a lot of excess capacity in the tech world.

However, according to a report from the 451 Group, it looks like the recent instability in the financial markets is taking a toll on things. After all, Lehman Brothers no longer exists and other major investment banks have radically changed their business models, such as Morgan Stanley (NYSE: MS) and Goldman Sachs Group, Inc. (NYSE: GS).

Looking at Q3, the dollar-value of tech deals plunged by a third to $37 billion. In fact, there were only six deals in excess of $1 billion.

Then again, with the tight credit squeeze, it's exceedingly difficult to get deals done. For instance, there were only 12 leveraged buyouts in Q3, which compares to 36 in the same period a year ago.

Of course, the financial shakeout has made many tech targets attractive. But, the problem is that the mega corporate buyers have also seen sharp reductions in market caps. And if the US economy continues to deteriorate, it's likely to cut into tech spending, making things even worse for dealmaking.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website

Oil prices are significantly down from the summer high of $147 per barrel. Wednesday October 1, New York's main contract, light sweet crude for November delivery, lost $2.11 to close at 98.53 dollars a barrel.

Now Merrill Lynch (NYSE: MER) is slashing its outlook for oil prices. Not only do their analysts believe that oil will drop below $90 a barrel next year, but they add that there is a possibility it may drop below $50. Demand is shrinking and it's hard to call a bottom.

Given all the turmoil in the financial markets this year and with a looming "consumer credit bubble" being discussed in most business publications, it would be very advisable to use any savings from lower oil prices to pay down credit card debt.

In the News:
Trading Strategies for October
Following the most volatile September in memory, here are 10 ways to play the year's scariest month.
http://www.marketwatch.com/newscommentary/tradingstrategies

Payout Jackpots for Credit Crunch CEOs
Though they were at the helm of companies that were bruised or broken by the credit crunch, these 12 CEOs were still offered big severance packages when they were shown the door. They include Merrill Lynch's Stan O'Neal who got $161 million, Citi's Chuck Prince $105 million and Countrywide's Angelo Mozilo $100 million to name a few.
http://www.cnbc.com/id/26959512

If not for the collapse of Washington Mutual (NYSE: WM) this week, I would probably not have posted this saga so soon after last Monday's report. However, since I was a shareholder of WaMu and thought there was value in it when I posted Chasing Value: Are you watching WaMu? I felt it was time to take my lumps.

I cannot go on ranting and raving about the failures and deceptions of others without making sure that I am forthright and transparent myself. I did post Chasing Value: Not -- WaMu one week later - ouch! but now WaMu is toast and so is some of my money.

Since I posted Serious Money: Tempting fate with 10 financials, the results of buying into the following pool of financial stocks at a time when the "hate 'em" factor was at a peak, with each passing day investors have found something more to hate.

The portfolio is losing 4.8% to date, not counting dividends. Some of my colleagues thought it was way too early to get back into the financial sector; seems that way now, and one read me the riot act for reporting the story so soon on MBIA Inc. (NYSE: MBI) being up substantially.

It seems that there is a problem with our financial system. That could be why Bear Stearns collapsed, the government took over Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE) and American International Group (NYSE: AIG). This problem could also explain why Merrill Lynch sold out to Bank of America (NYSE: BAC), why Lehman Brothers went bankrupt, and why JPMorgan Chase (NYSE: JPM) bought Washington Mutual (NYSE: WM). Problems with our financial system could also explain why the Commercial Paper market is freezing up -- making it harder for companies to come up with the short-term cash to pay employees and buy inventory.

But how did our system get to this point? There are five key principles of our current financial architecture that brought us here:

• Securitization. Up until about 30 years ago, people took out mortgages from an S&L and paid their loan officer every month until they owned their house. In the 1980s, Wall Street invented securitization -- the process of buying up, say, 1,000 mortgages from mortgage companies, creating a security based on those mortgages, paying for a AAA rating, and selling the securities to investors worldwide. Securitization is a problem for reasons I'll describe below.
• Too much borrowing. Over the last several years, Financial Institutions (FI) have made some $2 trillion in fees from securitization, according to DealBreaker. One reason for this is that they have been able to buy these securities -- of which there are $13 trillion on the market between Mortgage-Backed Securities (MBSs) and Collateralized Debt Obligations (CDOs) -- with a sliver of capital, roughly $340 billion. The typical FI had a ratio of assets to capital of 30:1. This meant that a mere 3% decline in the value of these securities would wipe out all the capital.

TheStreet.com's Jim Cramer says the bank will be ready if the bailout plan is approved. If not, only BofA makes sense.

So what happens if we get the deal? What occurs? Will we see immediate deals? I think it depends on the accounting.

If an acquiring bank were to buy Washington Mutual (NYSE: WM) (Cramer's Take), say, without any assurances that those mortgages can be written down to where they can be flipped, the acquirer would be committing suicide.

That makes Washington Mutual just a so-so bet, although its $300 billion in deposits make it a terrific target. Put it this way, the FDIC will own WaMu in a week without the plan, and that will be mighty ugly for the FDIC. But it could happen anyway, given how bad the WaMu loan process was.

Instead, I think the focus will be on Wachovia (NYSE: WB) (Cramer's Take) because I believe Bob Steel has the best handle on what the process will look like. I think he is ready to dump his bad bank on the government in return for a stake by the government in it and then his good bank can thrive. I think that Wachovia goes from a dicey situation to one of the best ones.

Bernanke warned that a recession might come if the bailout plan did not pass. And as much as I like the idea of the government bailout of Wall Street -- I hate government interference in the free markets, and bailouts can encourage more bad behaviour. It is hard to get a good understanding of the cost of this Wall Street bailout plan. But I ran some numbers that I thought were interesting.

• $700 billion cost of proposed plan
• 305 million estimated number of Americans
• $2,295 estimated cost per American
• 151 million estimated workforce (excludes retirees, kids, etc.)
• $4,635 per working American
• $13.8 trillion estimated US gross domestic product
• 5.1% cost of bailout plan in one year's domestic product
• 13 days each American has to work to pay off bailout plan (5% of a year)

Considering we could be looking at a recession, and the economy normally grows 3% a year, this does not look so bad. A $700 billion dollar bailout would be equivalent to a one-year recession with a negative 2% growth rate. These calculations are a rough estimate of the impact of such a plan and gives one food for thought as to which is worse. So which would you prefer, a recession or a bailout?

Kevin Kersten is an Stock and Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and/or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.

Almost two months have passed since I posted Serious Money: Tempting fate with 10 financials - the results of buying into the following pool of financial stocks at a time when the "hate 'em" factor was at a peak, or so I thought. Now things are even worse, much worse, and a new market bottom was reached only last week.

Trying to predict where this market will go is not possible, but there are many ways to play it. I chose to buy into a pool of financial stocks, believing the survivors would post gains that would overshadow the losers.

When I last updated this story, the pool of stocks was up 26%. Things have gotten worse, but the group is still up 13.89% plus the dividends. This is better than any of the indices, although it is much more speculative.

There was plenty of big news since the last report. While Lehman Brothers Holdings (OTC: LEHMQ) went bankrupt, MBIA Inc (NYSE: MBI) made up for it by more than doubling. Meanwhile, Merrill Lynch (NYSE: MER) is in survival mode supported by a Bank of America (NYSE: BAC) buyout offer. Seven stocks are up, two are down and one is gone (returns from July 29 prices):

Some of you will remember this story from last November when the door to our current world-wide financial industry meltdown was just beginning to crack open. At that time, we were facing tens of billions of dollars in losses and write-downs, but now we have witnessed hundreds of billions of dollars of the same and the government is telling us that it will take another $700 billion to shore up the industry.

Naturally, most of the people that got us into this mess are receiving golden parachutes as they abandon or are ejected from their burning empires. President Bush has been in over his head for years and turned a blind eye, (I think blind in both eyes) see: The George W. Bush economic plan? The shame does not end with Bush, though he has shown no leadership on the subject.

Sen. Christopher Dodd, chairman of the Senate Committee on Banking, Housing, and Urban Affairs, said of the recent Fannie Mae and Freddie Mac bailout, "Americans deserve to know if this proposal will help keep mortgages affordable, stabilize the markets and protect taxpayer interests."

Where were Bush and Dodd when the foundation for this crises was being developed See: SEC opens the gates and the world drowns.

The entire political system is jam-packed with conflicts of interest. Here are Senators Dodd's contributors by firm and industry as reported by OpenSecrets.org:

• Top 5 Contributors, 2003-2008: Citigroup Inc. $310,294, SAC Capital Partners $282,000, United Technologies $263,400, American International Group 224,678, Bear Stearns $205,600.
• Top 5 Industries, 2003-2008: Securities & Investment $,245,796; Lawyer/Law Firms 1,976, 063; Insurance $1,416,972; Real Estate $1,262,791; Commercial Banks $850, 544.

Late Sunday night it was reported by the Associated Press that the Federal Reserve announced it had approved the request of the two investment banks, Goldman Sachs Group (NYSE: GS) and Morgan Stanley (NYSE: MS), to become commercial banks and to take deposits, bolstering the resources of both institutions.

Since Bear Stearns was acquired in a fire sale by J P.Morgan Chase (NYSE: JPM) in March both firms have been under increased pressure to show their financial strength, but the bankruptcy of Lehman Brothers Holdings (NYSE: LEH) and the buyout of Merrill Lynch (NYSE: MER) by Bank of America (NYSE: BAC) last weekend have changed the playing field too much.

So what does this mean in short? It means the investment banks wanted the comfort and security of mama bear. They wanted the protection of the Federal Reserve, along with the ability to borrow from it at the discount window, and in a worst case scenario, to be bailed out like everyone else.

The Fed, from its perspective, knows this to be true and understands that if the investment banks -- now commercial banks -- can increase their reserves, then maybe a bailout will not be required, which is better for everyone. Along with this change will come additional requirements and regulation.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I owned BSC and now own shares in its acquirer JPM.

Financial stocks, which have been bloodied over the past few weeks, rallied today on the plan announced by Treasury Secretary Henry Paulson for the government to acquire troubled bank assets. The recently announced ban on short-selling helped the shares as well.

Goldman Sachs Group Inc. (NYSE: GS), down 40 percent for the year, rose $20 to $128 in mid-morning trading. That's about an 18 percent rise and comes a day after the stock hit a 52-week low. Remember, Goldman recently reported a 70 percent decline in third quarter profits which given the billions of write-offs taken by its competitors is almost miraculous. Maybe Paulson decided the government needed to suck away the bad investments from their balance sheets when he saw pressure building on his old firm.

Today's 25 percent raise in Morgan Stanley (NYSE: MS) may alleviate some of the pressure on the investment bank to find a merger partner to avoid the same fate as Lehman Brothers Holdings Inc. and Merrill Lynch & Co. (NYSE: MER). Shares in the New York-based company rose $5.28 to $27.83. Morgan Stanley reportedly is mulling a tie-up with Wachovia Corp. (NYSE: WB).

Even Washington Mutual Inc. (NYSE: WM), another company that might get a multi-billion buyout, got a boost, soaring 81 cents to $3.80. That's an increase of more than 27 percent. Of course, the 52-week high is $39.25, so any celebration is muted.

The joy from shareholders about the Paulson buyouts is palpable. Taxpayers are more sanguine. The one thing I remember from Economics 101 -- where my professor used to always use marijuana joints in his lectures about supply and demand -- is that every transaction needs a buyer and seller. What makes the government think it will be any more successful in unloading the toxic paper than the private sector? I just don't see who is going to buy the stuff until there is a major turnaround in the housing market which may not happen for years. Even then, turning a profit will be a challenge.

In one of my recent rants I blamed the Bush administration for some of what ails us (The George W. Bush economic plan?) and now an Ex-SEC Official Blames Agency for Blow-up of Broker-Dealers, as reported by Julie Satow, staff reporter of the New York Sun, September 18, 2008.

In my post I simply tried to make the point that government policy and leadership does affect how laws are written, rules are enforced, and the sentiments of leadership affects things even when those leaders are not holding the smoking gun. I am not giving the legislature a free pass on this either, but policy is set by the President.

During the current administration, policies that were put in place in 1975 to prevent the kinds of transgressions we are witnessing now by financial institutions were shredded by the current SEC management.

Allegations are being made by a former SEC official, Lee Pickard, who says a rule change in 2004 are what led to the failure of Lehman Brothers (NYSE: LEH, not trading) , Bear Stearns (NYSE: BSC, not trading), and Merrill Lynch (NYSE: MER).

Now we learn that rules put in place regarding capital reserves, leverage limits, and basic accounting principals were removed, eased, and modified as reported: "allowing the broker dealers to increase their debt-to-net-capital ratios, sometimes, as in the case of Merrill Lynch, to as high as 40-to-1. It also removed the method for applying haircuts, relying instead on another math-based model for calculating risk that led to a much smaller discount."

As an example, up until 2004 the net capital rule required that broker dealers limit their debt-to-net capital ratio to 12-to-1. To make matters worse the SEC is not admitting the ERROR of THEIR WAYS, but are making excuses for the failings and considering even further liberalization of the rules governing lenders and investment houses.

It is an ironic twist and one that has many conservatives in an uproar that the current administration has been so liberal with fiscal policy and fiscal restraint that Federal spending has grown out of control and the controllers have turned a blind eye to their responsibility.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I owned BSC and now own shares in its acquirer JPM.

Confidence in the global economy fell in September, as concern mounted about the health of the U.S. economy and global financial system following the bankruptcy of Lehman Brothers and the near bankruptcy of AIG, which prompted a U.S. Federal Reserve intervention, a new survey indicated.

The Bloomberg Professional Global Confidence Index fell to 11.3 in September from 14.1 in August among U.S. respondents. The Western European index fell to 12.6 from 12.9. Readings below 50 indicate negative sentiment.

Economist Richard Felson, who did not participate in the Bloomberg survey of 3,000 Bloomberg Terminal users, told BloggingStocks Wednesday too many financial concerns and bankruptcies are occurring over a short period for business professionals to be positive.

"Countrywide, Bear Stearns, Indymac, Freddie, Fannie, Lehman, Merrill, and now AIG. Wow, that's an awful lot for any economic system to absorb in five years, let alone one year," Felson said. "Executives and other business professionals are justifiably concerned about credit access for business operations and about declining demand due to rising unemployment. The major U.S. economic metrics are not moving in a positive direction right now and the nation needs to correct that."

Homeowners struggling to pay their bills must find the federal government's bailout of troubled Wall Street firms confusing.

After all, government officials have repeatedly said they would not help victims of the subprime mortgage crisis, reasoning that they should not get rewarded for making bad decisions.

It's Economics 101 that people who take bad risks will continue to do so if there are no consequences to their actions. But the $85 billion rescue of American International Group Inc. (NYSE: AIG), the bailout of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), the possible rescue of Washington Mutual Inc. (NYSE: WM) and the shotgun wedding of Merrill Lynch & Co. (NYSE: MER) to Bank of America (NYSE: BAC) brings all of these cherished notions of free markets into question.

Why is the government helping companies who sold mortgages to people who they knew couldn't afford them and repackaged the loans into securities that were unloaded on unsuspecting investors -- but doing little for individual homeowners?