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The Wall Street Journal reports (subscription required) that private equity heavyweight JC Flowers & Company recently told its investors that it had marked down $6.5 billion worth of holdings by 30%.

That's not good news but it's interesting to note how much worse off Mr. Flowers would probably be if he'd been able to do all the deals he wanted. In 2007, Flowers was set to pay $25 billion for student lending giant SLM Corp. (NYSE: SLM). That deal fell apart and the stock is down about 80% since then on credit market turmoil. Flowers was also a contender for Bear Stearns.

But Flowers isn't backing down. He recently raised $2.5 billion last month for a third fund and received regulatory approval to buy a small Missouri bank.The Journal adds that "Although it is a flyspeck of a transaction -- the bank has just two branches and $14 million of assets -- the deal provides Mr. Flowers a base from which to acquire failed banks or their deposits."

Recent gaffes aside, Flowers has an excellent reputation as a bargain-hunter, and the fact that he's building his war chest with an eye toward the financial sector should give investors something to think about.

Given the continued deterioration in the financial markets and mortgage industry, it seems likely that Bank of America (NYSE: BAC) badly overpaid for Countrywide Financial -- if the company's equity was worth anything at all.

This latest bit of news won't help. Attorneys general offices in California and Illinois have negotiated a settlement with the lender that will require Countrywide to modify terms on tens of thousands of loans. The settlement will offer strapped California borrowers $3.5 billion in relief, and if all 50 states sign on the total price could soar as high as $8.7 billion, according to the Illinois Attorney General's office. So far, Arizona, Connecticut, Florida, Iowa, Michigan, North Carolina, Ohio, Texas and Washington have joined Illinois and California in the deal.

In a statement, California Attorney General Jerry Brown Jr. said that "Countrywide's lending practices turned the American dream into a nightmare for tens of thousands of families by putting them into loans they couldn't understand and ultimately couldn't afford."

Of course, Bank of America knew going into the deal that it would have billions in litigation expenses to deal with but the downward spiraling of the economy has given CEO Ken Lewis a lot less margin for error. There are still shareholder class-action lawsuits and piles of consumer litigation to be sorted through, and, at a minimum, he has to be wishing he'd saved his ammunition to acquire cheaper assets in the midst of the carnage.

Long-term, it seems doubtful to me that the Countrywide Financial brand has any value at all. Why would anyone go to the poster child for the biggest real estate meltdown in history for a loan?

In the face of a tough economy, a weak stock price, and formidable competition from lower cost coffee sellers like Dunkin' Donuts and McDonald's (NYSE: MCD), The Wall Street Journal reports (subscription required) that Starbucks (NASDAQ: SBUX) is taking steps to bring down its labor costs.

The idea is to have fewer workers working more hours, with an eye toward making more of the baristas full-time, working 32 hours or more per week.

The Industrial Workers of the World, a labor union that has been trying to make inroads at the chain, complains that the new system does not guarantee that workers will actually receive those hours. The idea is that cost savings will come from lower employee turnover and reduced training expenses. Because Starbucks already offers generous benefits packages to its part-time workers, the cost increases on that side will likely be minimal.

More importantly though, the move will deliver a more consistent experience for customers, with more knowledge full-time, familiar faces serving coffee.

A Miami bankruptcy judge ruled that the U.S. Trustee Program, an arm of the Justice Department that oversees bankruptcy court related issues, cannot seek sanctions against Countrywide Financial in bankruptcy court. The U.S. Trustee had filed three lawsuits on behalf of debtors (WSJ subscription required) who had allegedly been "abused" by Countrywide during the bankruptcy process.

The judge, A. Jay Cristol, ruled that only federal prosecutors can bring such lawsuits, while still commending the agency for "noble intentions and efforts to protect the public from reprehensible conduct by an apparently overreaching mortgage lender."

The next step will hopefully be for federal prosecutors to take on the company. Countrywide, which is now owned by Bank of America (NYSE: BAC), is still facing a plethora of litigation from its former shareholders and customers. Given the continued meltdown in the mortgage industry since the deal closed, it seems likely that Bank of America overpaid badly for the lender. The millions that Bank of America will have to put up for legal expenses, settlements, and possible judgements also won't help, and that's to say nothing of the distraction it creates for the company's executives.

Goldman Sachs analyst Matthew J. Fassler told investors in a research note that Nintendo's latest portable gaming device (described here by Steven Mallas), which allows users to download games electronically, poses a "tangible early threat" to the physical sale of video game CDs and cartridges. He wrote that "While content will be limited at first, we believe it will likely ramp very quickly."

The Associated Press headline on the story was "Analyst: Best Buy video-game sales vulnerable," but I would say GameStop (NYSE: GME) is in much more trouble because selling video games is essentially GameStop's only business. While the decline of CD sales hasn't ruined Barnes & Noble (NYSE: BKS), it has absolutely murdered Trans World Entertainment (NASDAQ: TWMC), the operators of mall-based music stores like f.y.e.

It's too early to say when video game downloads will wreak havoc on brick and mortar video game stores, but I don't think there are too many people who would say that that will never happen.

Even with the stock near its 52-week low at 16 times earnings, that's a risk that long-term investors will want to pay close attention to.

In an interview with Reuters, Senator John McCain mentioned Warren Buffett and former eBay (NASDAQ: EBAY) CEO Meg Whitman as possible choices to succeed Hank Paulson as Treasury secretary: "I think it would be someone that Americans would recognize that would inspire trust and confidence. There's people like (Cisco chief executive) John Chambers, there's people like Meg Whitman, there's people like Warren Buffett."

That certainly would be interesting as, in addition to being the greatest financial mind in the world ever, Buffett is also a hardcore Democrat and a supporter of Senator Barack Obama.

It's also almost inconceivable that Buffett would leave Omaha and Berkshire Hathaway (NYSE: BRK.A) to go wrestle pigs in Washington. Buffett's pledge of substantially all of his fortune to the William and Melinda Gates Foundation demonstrates his commitment to charity and improving the world but there is nothing in Buffett's history to indicate he would want to spend his days devoted to matters of public policy: he enjoys investing.

So why would McCain bring it up? He probably just wants to look more competent and open-minded on matters of economic policy -- and name-dropping Buffett is easy because he knows nothing will ever come of it.

When IHOP acquired Applebee's to form DineEquity (NYSE: DIN) back in July of 2007, I wrote this:

Maybe IHOP can work some magic and turn the chain around, but it might be difficult. The company is financing the entire acquisition with debt, and may not be so quick to provide the face lift the restaurants so badly need.

But then again, IHOP's revenue in 2006 was lower than it was in 2002. So maybe this is a case of two drunken sailors trying to hold each other up. There's nothing much to get excited about for shareholders of either company.

Since then the stock has gone from around $60 per share to $16, and Robinson Humphrey analyst Christopher O'Cull wrote in a note to investors that turning around Applebee's and refranchising stores to pay down debt is hardly an easy bet: "Even in a favorable economic environment this plan would be difficult to execute with little precedent within the restaurant industry. Now, given the weakening consumer backdrop coupled with tightening credit conditions this task will prove even harder." More ominously, O'Cull warned that if the company is unable to refranchise stores quickly, it may have to reduce its debt load "in a fashion that would be materially dilutive to equity holders." And with the stock price in the toilet, the timing couldn't be worse.

I don't take too much credit for being skeptical of the deal: betting on the failure of a large scale acquisition is like betting on Tiger Woods to make the cut at a Hooters Tour event.

A good rule of thumb that will save you from a lot of disaster: when a company you own announces a major acquisition, sell the stock.

Earlier this week I wrote about what a bad idea the SEC's new rule requiring short selling hedge funds to disclose their positions was:

Mandatory disclosure of short positions will expose fund managers to issuer retaliation, frivolous lawsuits and harassment. What's so ridiculous about this rule is that a short position in a stock does not represent ownership of a security, and other than subjecting short sellers to harassment, there is no reason to require that the positions be publicly disclosed.

The SEC failed miserably in its responsibility to protect investors, and now it's compounding that mistake by targeting the wrong enemy.

Happily, the SEC has since seen the light. Short sellers will now be required to disclose their positions to the SEC -- which is fine -- but will not be required to make those disclosures public. If you like PDF files, you can read the announcement here.

What's so hypocritical about this is that while press releases posted prominently on the SEC website were made available for the crackdown on naked short selling and mean trash-talking hedge fund managers, you have to do a bit more digging to find the new announcement that backtracks.

It just goes to show what many of us have been saying all along: the "crackdown" on short sellers was just pathetic grandstanding by an agency that failed miserably in its duty to protect investors from misleading statements by public companies.

With Freddie Mac (NYSE: FRE) shareholders all but wiped out by a government takeover resulting from mismanagement, sloppy practices, and overall incompetence, it's interesting to see what information is on the Facebook group for "Freddie Mac College Hires." Here's the description:

Australia's Herald-Sun reports that Donald Trump's first speaking tour of Australia is in "doubt after an Ipswich-based promotion company collapsed this week, leaving about 1500 ticket holders owed more than $1.5 million."

Ever the gentleman, Trump is reportedly refusing to return the more than $1.5 million he's already been paid and is even demanding more money. Malcom Quinn, the promoter behind the bankrupt firm that had booked The Donald, told The Sun that "He has provided no services for the moneys he has received and he has indicated to me in writing on two separate occasions that not only will he be keeping the funds he has received but expects to be paid the balance regardless of whether he does or doesn't come out here."

What went wrong? It turned out that Trump wasn't the draw Quinn had hoped he would be. Tickets costing up to $2500 have been available since June but only a quarter of the seats have been sold. Ouch!

If you've recently been laid off from your six-figure job at a top Wall Street investment and haven't been able to find anything on Monster.com, your search is over: Playboy (NYSE: PLA) has you covered. The magazine is looking for models for an upcoming "Women of Wall Street" feature.

Gary Cole, Playboy's photo editor, told Reuters that "It would be more interesting to have someone who's a financial analyst." Compensation will be determined in part by how many people apply for the "positions."

The whole thing's a little cheeky, but I'm sure they'll have no shortage of applicants. No word yet on whether Playgirl will be plastering the bare torsos of Richard Fuld and Jimmy Cayne on its covers.

As a side note, Playboy really isn't in much of a position to be poking fun at the troubles of Wall Street firms. Its stock is trading at $3.22, an all-time low down from the 52-week high of $12.

The absolute meltdown of financial stocks -- especially names like Lehman, Bear Stearns, and Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) -- has landed a body blow to the performance of quite a few well-respected value investors. Most notably, Bill Miller has seen his remarkable streak of beating the S&P 500 turn miserably, with his fund down about 30% so far this year. Overall, large-cap value funds are down an average of 24% over the past year.

So what happened? Basically, the pessimistic majority was 100% right on the future of many of these financial firms and the contrarians were completely wrong. But I think there was a larger problem for many of these top value investors: they abandoned their principles and bought big into companies they didn't understand, with risks and balance sheets that no one understands.

Eugene Fama told (subscription required) The Wall Street Journal that it's "not true" that value investing is safer than other forms of investing.

I disagree. What's risky is investing in stocks that you don't understand based on superficial analysis, and that's what got people like Bill Miller in trouble.

The Securities and Exchange Commission, or NAMBLA for short, is focusing its resources on an investigation of whether gossiping short sellers hastened the collapses of Lehman and Bear Stearns by spreading rumors.

The SEC is looking into a variety of rumors that spread in the days and months before the companies collapsed, including suggestions that some counter-parties had stopped trading with the firms.

I'll quote DealBreaker's brilliant commentary on the collapse of Bear Stearns:

Let's just say they did spread the rumors, which I don't believe they did (and, as an aside: if a company can be brought down by the corporate equivalent of 7th grade girls passing notes in class, perhaps it doesn't deserve to be in existence anyway).

It's a shame that the SEC is tossing its very limited resources into wild goose chases that serve to intimidate the people who were smart enough to predict trouble at companies like Bear and Lehman, long before either company was giving investors the full story.

In the end, the short sellers were proven right because Lehman was insolvent, and a buyer couldn't even be found at $1. You can only blame the company's management for creating that mess.

Oh how the mighty have fallen.

With Lehman Bros. in the midst of winding up what's left of its operations following its bankruptcy filing, chairman and CEO Richard Fuld has been kicked out of the corner office at Lehman's Manhattan headquarters -- and sent packing to to a 41st floor office at 1271 6th Avenue.

Lehman's building at 745 7th Avenue is now the headquarters for Barclays' investment banking operations. It has no use for Mr. Fuld. With a flair for drama, The Wall Street Journal sums it up (subscription required) this way: "Napoleon cooled his heels on Elba. The Dalai Lama lives in Dharamsala, India. And Lehman Brothers Holdings Chairman and CEO Richard Fuld Jr. will be banished to 1271 Sixth Ave."

Meanwhile former CFO Erin Callan -- who was pushed out as a sacrificial lamb back in July -- gave her first post-Lehman interview to Fortune, telling the reporter that Mr. Fuld had been brought to tears by the difficulties the company was facing.

If you're in the market for $15 million worth of Fuld's modern art collection, Christie's has got you covered.

Give Kohl's (NYSE: KSS) credit for bravery. The Wall Street Journal reports (subscription required) that in the midst of a consumer slowdown that few observers believe will turn around anytime soon, the company opened 46 new stores. Today. CEO Kevin Mansell told the newspaper that "We've been in a period now for over a year where the customer is shopping less. You'd better start figuring out how you're going to take more from the other guy."

I like the way Mr. Mansell thinks. While competitors are battening down the hatches and closing stores, Kohl's is making an aggressive move to take market share. In addition, the company may be able to negotiate more favorable leases for new stores right now and when economic conditions rebound, as they always do, the company will be well-positioned.

Too many companies over-invest when times are good and then cut back when times get tough. That "buy high, sell low" strategy is the exact opposite of what works, and it's what's gotten the housing industry in so much trouble. Think about it: banks would lend money to anyone when homes were overpriced and now that bargains are available, you can't get a mortgage.

Kohl's strategy may not yield great results in the short-term, but it looks smart to me.