Crude prices are sliding even as fighting intensifies in a region that plays a crucial role in the conduit of oil from the Caspian Sea, Georgia. On the New York Mercantile Exchange, the benchmark oil futures contract fell like much as $4 this morning, to below $116 a barrel, before recovering a bit. Oil prices receive declined about 20 percent since drawing near $150 a barrel last month.  Today’s fall through is driving a rally in U.S. stocks.

Oil prices have been falling as the value of the dollar rises and amid signs of slowing demand. Oil on the world market is priced in dollars.

But the slump furthermore comes as Russian troops have entered South Ossetia, a pro-Moscow separatist region of Georgia.

President Mikhail Saakashvili of Georgia told CNN that Russian warplanes have been bombing his country.  "My country is in self-defense against Russian aggression," he said. "Russian troops invaded Georgia."

Russia has vowed to defend its citizens in the region.

The fighting could endanger two major pipelines that run from the Caspian Sea to the Turkish coast through Georgia.  The Baku-Tbilisi-Ceyhan oil pipeline runs roughly 60 miles south of  the South Ossetian capital of Tskhinvali.

That pipeline has been closed since Tuesday because of an explosion in Turkey, but Reuters reported that the fire is expected to be extinguished through the weekend.

"In other circumstances, you might have expected it to push oil up $5," John Kemp, an economist by RBS Sempra, told Reuters. "I muse it’s an indication of how bearish the underlying sentiment is right now" that it has not.

Still, the birth of the credit crunch—the child of a burst bubble in saddle-cloth—can be traced to a Thursday last summer, a sunlight when many Wall Street executives, bankers, and government officials were enjoying their vacations.

On August 9, 2007, it became clear that fear had paralyzed the world’s credit markets. The question was no longer only about the quality of assets or the availability of cash. Everything was suspect and no one was willing to take at all chances.

The world had turned subprime.

The chill in the credit markets was before that time apparent beginning in February in the wake of the collapse of the subprime pledge market in the United States. Many mortgage lenders were in trouble. Two Bear Stearns hem in funds that had bet heavily on securities tied to subprime mortgages collapsed earlier in the summer. In July, the German government organized a $5 billion bailout of IKB bank.

Then, every announcement by a big French bank starkly revealed to the nature that the credit markets had frozen up.

Early that August morning in Paris, BNP Paribas announced that it was stopping investors from withdrawing money from three funds because it could not determine the market for their holdings.

"The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating," the bank said in a statement.

The statement ignited rumors of possible problems at other banks and at hedge funds. Stocks on European markets slid. Fear held dominion in the markets.

"This is the day the world changed," Adam Applegarth, then the chief executive of Northern Rock, said looking back, as the British lender had to be rescued from collapse by the Bank of England just days later. (To see just how much the world has changed in a year from the credit storm, click here.)

Nearly as startling on August 9 was the rapid response of the world’s central bankers. The European Central Bank pumped $147 billion into euro money markets to try to unblock lending among banks. It was a bigger infusion than the one that came in response to the 9/11 attacks.

The Federal Reserve, the Bank of Canada, and the Bank of Japan followed with similar, but smaller steps.

Liquidity, however, was not the core issue. It was confidence. Banks did not trust other banks. Investors fled from risk. Trust would not be restored with below-market-rate loans from central banks.

Even after the unusual moves by the central banks, stocks in the United States slid. Spreads widened. After the market close, Countrywide Financial, the biggest American mortgage lender, warned that "unprecedented disruptions" in the credit markets threatened its financial health.

Fears mounted. Loans, for businesses and consumers, soon became more expensive and more difficult to get. Dealmaking came to a standstill. The crunch was being felt.

In response, the Fed first went by the playbook, then threw the book out. Some economists contend that Ben Bernanke and other policymakers were too slow to respond, Zubin Jelveh reports.

The reliance crunch has reshaped the financial landscape. Banks, insurers, and other institutions have written down hundreds of billions of dollars in effects. Bear Stearns and Countrywide no longer exist. A year later, it is still difficult to tally up the damage on Wall Street or to forecast its future, Megan Barnett writes.

No end is in examination. The credit crunch, on top of the slide in housing prices and the surge in energy prices, has probably tipped the economy into a recession. It is squeezing consumers and businesses. Banks are still scrambling to raise capital and still marking down effects at the same time that loan delinquencies and foreclosures increase. The Treasury Department has a rescue plan for mortgage giants Fannie Mae and Freddie Mac. Sweeping overhauls of the financial rule system have been proposed.

In a year, the worldview of finance has been turned upside down. In the spring of 2007, Wall Street was basking in a "golden age" of private equity and deals. Regulators believed the subprime implosion could be contained. "Troubles in the subprime sector seem unlikely to solemnly spill over to the broader economy or the financial combination of parts to form a whole," Bernanke told a South African audience on June 5, 2007.

And on August 9, President Bush sought to play down the jitters in the market, saying that  "the fundamentals of our economy are strong."

How much has changed. His successor may now have to confront another year of financial pain.

Of course, no one had any way of knowing last August that counterpoise sheets were filled with assets so diseased that they would never recover. Bear Stearns had suffered two dodge fund casualties, but it was still worth more than $13 billion. Chuck Prince was running Citigroup and Stan O’Neal was compose trying to tame the bulls at Merrill Lynch. People were still getting no-money-down mortgages based on their stated income.

My, how times have changed.

Bear Stearns agreed to be sold to J.P. Morgan for less than the current market value of Crocs. More than $300 billion was wiped out of the market caps for the biggest U.S. banks. Thousands in finance lost their jobs, including quite a hardly any from the executive suites. (Click here despite an interactive on Wall Street’s losses.)

But even with new talent brought in to help clean up the disastrous aftermath of the asset securitization all-night dance party, it’s still too difficult to tally the damage. Just last week, Merrill Lynch chief executive John Thain did an about-face by dumping $30 billion of assets for 22 cents on the dollar and announcing plans to raise $8.5 billion in new capital.

The actions not only contradicted Thain’s previous proclamations that no more new capital would be needed (for more C.E.O. contradictions, click here). They also underline the pervasive uncertainty in today’s financial markets. Thain was supposed to be Mr. Fix It. Instead he’s become Mr. Insecure.

This spring, most brink leaders proclaimed the worst was more than. Now no one seems to have a clue when that will ring true. Financial stocks appear to be the subject of hit a bottom on July 15, but in this new world order only Jim Cramer has the cajones to definitively call it that.

Shares of Lehman Brothers, which is cursed by vital principle the closest in glutinous substance to Bear Stearns in the shrinking market of top-tier investment banks, continue to swing wildly based put on the rumor du jour. volition it sell its asset-management business? Will it follow Merrill by the agency of means of unloading its worst investments? Will it be sold entirely to another firm? Will chief executive Dick Fuld step down?

Citigroup continues to experiment new ways to operate more efficiently free from having to break itself up. Its latest move under consideration, as reported by the Financial Times, is to return its research analysts to its institutional securities business, where they were before being moved to its Smith Barney wealth management unit in 2002. The move makes interpretation logically and operationally. Politically, it could create a new set of problems as a reminder of Eliot Spitzer’s post-tech bubble equity investigation shakedown.

Commercial banks and investment banks equally are on shaking ground. Who will buy Washington Mutual? The poor savings and loan has a market cap of less than $9 billion, down more than 70 percent in the more than year.

What will become of Wachovia with Goldman alumnus Robert Steel now at the helm? How many more banks will meet the same fate as IndyMac? Will private equity firms be granted their wish to control more of the banking sector without the regulatory burdens that come with it?

Will Goldman Sachs and J.P. Morgan continue to reign supreme?

So many questions, so few answers. It’s especially unsettling considering this credit crisis could persist well into the next presidential term. More union among banks is likely, as are more executive departures and job losses. More write-downs will most certainly come, and more capital will have existence needed.

But after more of the bad, Wall Street will experience the good again. That much, at smallest, is certain.

For more on the credit crisis anniversary, see here. 

The Fed’s first moves to prevent the subprime fallout from reaching other parts of the economy were largely by-the-book.
 
After the crisis started, on August 9, 2007, the Fed injected $38 billion into jittery markets, unnerved by the freezing of three funds at BNP Paribas. A week later, the Fed lowered the interest rate and extended the duration on loans banks could take from its discount window.
 
But it wasn’t until it clipped its target for the federal funds rate in mid-September—by an unusual 50 basis points—that the Fed signaled that the subprime poison could not have being contained within the balance sheets of Wall Street banks and pledge lenders. The move also showed the Fed was ready to cut aggressively to prevent a hard landing.
 
Although markets rallied to new highs in the weeks after the cut, some critics already by-word the central bank’s response time as too slow. Others feared that Bernanke’s academic background made him a bad fit for leading the Fed through real-world turmoil.
 
But the most salient review was that the Fed wasn’t addressing the main problem: that banks were flow by assets impossible to value, hence, impossible to trade. Two British economists, Willem Buiter and Anne Sibert, urged the Fed to create lending facilities that would serve a wider variety of financial firms, accept more types of collateral, but charge borrowers a penalty rate.
 
Through the fall, Bernanke and crew continued to cut rates by another 75 percent, but tight carry to the credit of one’s account conditions would not attemper, and it became clear that low rates weren’t going to be the easy fix they were in 1991 and 2001.
 
In a bold move, the Fed created new lending avenues to act as a fluidity "backstop" for markets. Although similar to the ones proposed by Buiter and Sibert, there were important distinctions: The Fed’s civility was an auction in the room of a one-on-one transaction, it didn’t charge a penalty rate, and it was more restrictive in the variety of firms it would allow to bid. The Term Auction Facility, as the new measure was called, proved to be popular with commercial banks.
 
While researchers have shown that the new lending options were successful in reducing fears over access to liquidity, it wasn’t enough to make firms feel better about borrowing and trading with one another.
 
And it was this counterparty risk that brought down Bear Stearns in March. In response, the Fed, with a little help from the Treasury Department, engineered its most controversial moves of the past year: pushing for a takeover of the century-old firm by J.P. Morgan and allowing investment banks to borrow directly from the Fed for the first time.
 
"The lack of these liquidity facilities in the early stages of the financial crisis forced them to rely much more heavily on monetary policy," says John Ryding, chief economist of RDQ Economics and former chief economist at Bear Stearns.
"Had the Fed moved more quickly, it could bring forth been a stitch in time that saved" Bear Stearns, he says.

Others, including Alan Greenspan, the former Fed chairman, think that the Fed has allowed itself to be stretched too far beyond its dual mandate of promoting growth and stable prices.

"What we should not have is the central bank involved in its balance sheet," Greenspan said on CNBC last week. "If you allow major fluctuations in [the monetary] base as a result of other-than-monetary-policy reasons, I think you’re taking undue risks with the notion of the stability of the financial system and very specifically the Fed’s control of inflation."
 
But the Fed’s defenders argue that it would have taken ESP-like foresight for regulators to figure out that disaster was looming.
 
"Under the circumstances, they’ve done nearly as well as you could expect," say New York University economist Mark Gertler, who has co-authored with Bernanke a number of papers on the Depression.
 
The Bear liberation will be debated for some time to come, but at minutest the markets were once again relatively calmed. The fallout from the subprime mess, however, had by then started to show up in government figures.
 
Economic growth fell from a strong 4.9 percent in the third quarter to 0.6 percent in the next, and employers began cutting more jobs than they were creating in January. (Growth figures were later revised to 4.8 percent and -0.2 percent, particularly.)
 
Rising energy and food prices, meanwhile, meant the Fed had to have being careful not to stoke inflation with its rate cuts. As oil surged 50 percent between February and May, the Fed chose to keep rates steady hinder lowering them 3.25 percent from that time September.
 
Before the year was out, the Fed had to get creative again, this time assisting the Treasury Department in preventing a collapse of Fannie Mae and Freddie Mac, the government-sponsored entities that were party to close to half of the mortgages in the United States. The Fed’s role in the Fannie-Freddie bailout—providing access to liquidity—by now seemed like old hat.
 
The Fed’s travails over the past year highlight the fact that the financial regulatory system in the U.S. was designed to deal with the risks associated with commercial banks, not investment banks or other non-depository institutions.
 
"In very short order," Gertler says, "the Fed had to redesign the system to deal with these institutions."
 
The next major task for the Fed, and the next president, will be to figure out which of the new tools should be kept around and which should be discarded.
 
But in doing for a like reason, the Fed has to avoid creating the sort of implicit guarantees that created the image of investor behavior that has brought down Fannie and Freddie.
 
"The backstop is now established," says Gault of Global Insight, "and even if things were to calm down so much that the backstop could subsist removed, the remarkably occurrence that it’s been instituted once means that at any point in the future it could be brought back."

And the third thing? Everything you think you know about frequent flier programs is wrong. Even the name “frequent flier program” is misleading. And every misperception you embrace helps the airlines beat you at the game.

Frequent Flier Programs Are Not Loyalty Programs
Regardless of how they began, frequent flier programs today are multichannel marketing vehicles designed to sell you things: credit cards, phones, groceries, mortgages, investment funds, flowers, hotel rooms, car rentals, and, of course, airline tickets. More important, frequent flier programs attempt to change your buying patterns and barter you products and services at prices higher than you otherwise would pay. The airlines are paid for every mile their marketing sponsors award when you buy something, and the cost of those miles is rolled into the price you pay.

One glaring example: “affinity” credit cards tied to the frequent flier programs. The basic American AAdvantage MasterCard issued by Citibank carries an annual fee of $50, the interest rate on purchases is more than 17 percent, and the cash advance rate is north of 22 percent. All of those charges are substantially higher than those of similar belief cards that don’t offer miles.

How do you beat the airlines at the game? Never buy something just to get miles. Don’t switch brands precisely to get miles. Don’t pay a higher price for an item and rationalize it by saying the miles you receive have value. The miles are never worth the extra dollars you pay.

Frequent Flier Programs Are Not Banks
Too frequent business travelers “bank” miles, waiting for a day when they can take a dream vacation. But airlines do not pay interest on miles you hoard in your register. Worse, you could fall victim to frequent flier award inflation—in that place is no guarantee that the airlines won’t greaten the price of awards while you’re saving up. For example: Continental Airlines last month announced a wide-ranging increase in the price of its best awards. The number of miles required to get a free first-class domestic ticket rose about 11 percent; the cost in miles for some between nations business-class seats rose by 25 percent.

Frequent flier programs aren’t retirement accounts, either. If you’re storing up miles for that glorious day when you’ll ditch the 9-to-5 round and fly into retirement and the sunset, you’ll be in for a rude awakening. Your miles will be worth dramatically less. One bitter example: When the programs started in 1981, the going rate for two first-class tickets to Hawaii was 75,000 miles. Today, it is about 380,000 miles.

How do you beat the airlines at the game? You can’t. But you can limit the devaluation of your miles by the agency of claiming awards as soon as possible after you earn them.

Frequent Flier Miles Are Not Currency
For years, airline executives, third-party mileage strategists, and even chattering-class columnists like me claimed that attend much flier miles were the nation’s “second currency.” Well, guess what. Miles ain’t currency—at least not in any sense that businesspeople can recognize.

Airlines have complete power over the value of your miles, your ability to earn them, your power to use them, and your right to trade, sell, or give them to other people. No government agency regulates frequent flier plans, and the airlines have almost always prevailed in court cases concerning miles. If you be required to compare miles to something, consider them scrip issued by a association store. They can be used only within the narrow strictures established by the company, they are not liquid, and they cannot subsist exchanged for pay in money.

Airlines in like manner seem hell-bent on destroying the value of their scrip. Next month, for instance, Delta Air Lines will become the fourth of the seven largest U.S. airlines to tell passengers that there are seats they can never claim as an award regardless of the number of miles they’re willing to pay. (Northwest, U.S. Airways, and Southwest Airlines also restrict their awards in some manner.) What are frequent flier miles worth if there are times when even the originator of the scrip will not accept them as payment?

In their heyday 15 years ago, frequent flier programs were a relatively fair, comparatively free, and generally liquid marketplace. Airlines gave you miles in exchange for doing business with them and their partners. You were able to exchange those miles for two types of merchandise: “restricted” awards for seats on off-peak days and times, or “unrestricted” awards that usually cost two times as many miles but guaranteed you a seat whenever and wherever the airline flew. But airlines have essentially turned frequent flier programs into unregulated lotteries: You never know when—or even if—you can use the miles for airline seats.

Frequent Flier Programs Are Not the Only Game in Town
Experts claim that there are about 10 trillion outstanding frequent flier miles and that the airlines continue to pay out millions of award seats each year. But for the mostly experienced business travelers, frequent flier programs are passé. It’s simply overmuch difficult or likewise costly to claim the best awards, such as premium-class seats to Hawaii and the Caribbean and international first- and business-class seats during holiday-travel periods.

Smart travelers have begun to look elsewhere. Major hotel chains like Marriott, Hilton, Starwood, and InterContinental offer more rewarding and less restrictive frequent guest programs. Besides, business travelers possess learned that when it comes to a fabulous family vacation, lodging ofttimes costs more than airfare. Another good contender: Membership Rewards from American Express. It offers a wide range of travel benefits and easy-to-value commodities awards like gift cards at major retailers.

The Fine Print
Here’s one more nasty devaluation of the frequent flier programs: During the past year, all of the major carriers have slapped expiration dates on their miles. If you don’t do business with the airline or the same of its partners in 18 to 36 months, the airline will simply confiscate the miles you’ve already earned and “zero out” your account balance.

These days, however, frequent-flier miles are looking a lot like Zimbabwean dollars. The currency is being devalued with spirit-crushing regularity. There’s less and less to buy with it now that airlines are slashing their route networks and seating capacity. And today’s frequent-flier program managers have been given a mandate from their C-suite bosses: Generate fast cash by squeezing frequent fliers with a battery of fees—even though the new charges are destroying the long-term allure and profit potential of the plans.

"I understand why business travelers are disgusted," the manager of a major frequent-flier program told me a couple of weeks ago. "My bosses want revenue and they want it now. They want it from the partners who buy the miles and from the travelers who earn awards. And they don’t want me to have access to the seats [for awards] that the revenue-management guys think they can sell. So what am I left with? Travelers understand that they can earn all the miles they want. But using them? Not so much."

Want a graphic example of how fast the frequent-flier programs are devolving? Consider the developments at United Airlines, which operates Mileage Plus, the nation’s second-largest plan:

To shore up its cash position last month after another quarter of multibillion-dollar losses, United turned to Chase, the bank that issues Mileage Plus credit cards. Chase promptly ponied up a $600 a thousand thousand prepayment for miles that will be distributed to Chase customers in the form of bonuses for taking and using any of the half-dozen flavors of Visa cards emblazoned by the Mileage Plus logo.

Although the mileage deal was bundled with other cash considerations that Chase extended to United, it’s not hard to outline out how many miles that $600 very great number bought. Big frequent-flier program partners like credit card banks usually pay around a penny a mile, so United faculty of volition need to mint about 60 billion new miles for Chase. That’ll expand United’s current pool of 511 billion unredeemed miles by about 12 percent.

The devaluation of United’s "currency" is worrisome enough. But since United’s route network is shrinking—by the end of the year, the airline estimates its worldwide seating capacity will have being 10 percent lower than it was at the end of 2007—Mileage Plus members are looking at double-digit inflation even as the supply of goods to "buy" with Mileage Plus miles is contracting by double digits.

United is not alone in using its mileage program similar to a cash cow. Continental Airlines, which operates the OnePass program, recently received a cash infusion from Chase, also the issuer of OnePass credit cards. And Delta Air Lines might not have survived its 2005 bankruptcy without a huge forward purchase of SkyMiles by American Express, which issues Delta’s credit cards. And fit like United, completely of the big airlines are slashing their seating capacity by 10 to 15 percent this fall as they mint and sell billions of new miles.
The inevitable relating to housekeeping effect of too many miles chasing too few seats: Airlines are hiking, sometimes by hundreds of thousands of miles, the amounts needed to call for an award.

Delta, for example, revised its award chart again just last week. Last year it took the unprecedented step of slapping restrictions on its most expensive (and formerly unlimited free) SkyMiles awards. since the first time ever, Delta told its fliers: There are seats you can’t have no matter how much of our currency you want to spend. The new three-tiered award structure Delta unveiled last week revives unrestricted awards, but at a brutally high cost. The best ones, redeemable for international business-class travel to Europe or Asia, now cost upward of 370,000 miles round-trip, or about 100,000 miles more than last year.

Continental’s program is also undergoing a major devaluation. Earlier this year, it raised award levels by thousands of miles. Last month, it raised fees and now charges a co-pay of as much as $500 to assert a claim some upgrade grant. And last week it announced it would execute what Delta has just abandoned: impose restrictions steady its most expensive, previously unrestricted awards.

And the universal of a "free" seat as a frequent-flier award is gone in addition. Years ago airlines decided an award ticket didn’t include applicable taxes and fees. Then they imposed charges if you booked an award too close to departure, claimed one by telephone, or changed your booking after the award was issued. Last month came the next wave: Fees of as much as $100 simply for claiming the award. American Airlines even invented a $5 omnibus fee. Its purpose? By the airline’s own admittance, the fee applies if you somehow managed to avoid all the other award fees it now charges. Depending on the airline, your destination, and your time frame, a formerly free award seat can cost you as much as $300.

As a result, airline programs now give fliers less for their loyalty than hotel frequent-guest plans, gas-rebate credit cards, or other frequency schemes.

About a month ago, one frequent-flier program director told me that he thought "a penny a mile is a pretty damn fine return on your loyalty." That’s a shocking assertion considering that frequent-flier programs once paid you three to five cents. And it also behooves frequent fliers to look elsewhere for a return.

Take Chase, for example. Its United Mileage Plus and Continental OnePass cards generally give customers one mile of credit for each dollar charged. In other words, a 1 percent rebate for every dollar spent. But why settle for that when Chase’s Freedom Visa Signature offers you $50 cash back after your first charge, a 3 percent rebate on selected purchases, and 1 percent back on everything else?

The Fine Print…
Should travelers simply stop playing in the frequent-flier programs? nay, because the plans remain the vehicle the airlines use to confer elite status recognition and upgrades. So the obvious solution is to use frequent-flier programs solitary to accrue miles earned from flying. In most cases, those are still the only miles that count toward elite airline standing anyway. For some other thoughts about how to beat the system, read last fall’s Frequent Flier Fallacies column.

On Wednesday, the studio released The Sisterhood of the Traveling Pants 2, the sequel to the hit movie based on a book featuring four teenage girls who share a pair of jeans that, magically, fits them all. The new movie made an estimated $5.7 million in its first day in theaters—midweek,  no less—according to Exhibitor Relations, a Los Angeles-based entertainment-research firm.  

That single night’s haul is more than moiety what The Sisterhood of the Traveling Pants made in its whole opening weekend back in 2005. The movie went on to gross about $39 million domestically, handily making back its $25 million budget, and grossed another $40 million or so in DVD sales and rentals on crop of that.

This summer, the pump for feel-good chick flicks has been primed, and The Sisterhood of the Traveling Pants 2 could do considerably better than its predecessor.

For one thing, the sequel features the untranslated movie’s same four stars, total of whom have since entered the halls of mega-teenage-fandom. Blake Lively stars in the CW’s Gossip Girl, and America Ferrera in ABC’s Ugly Betty. Alexis Bledel ended her run in the CW’s Gilmore Girls last year, and Amber Tamblyn, already a familiar face from CBS’s resemblance Joan of Arcadia, will star in a new ABC show, according to industry reports.

But more important,  a certain wildly popular movie from earlier in the summer, also starting four clothes-oriented women (although of a different generation), has whetted the appetite of female fans for films catering exclusively to them.

When the Sex and the City movie made its debut to groups of frenzied female fans in May, Warner Brothers found itself raking in double the profits it had forecast for the opening weekend, a cool $55 million. That made the movie, which women attended in groups and planned entire evenings and outfits around, the most successful opening ever for both a romantic comedy and an R-rated film.

For a benchmark closer to the demographic of Pants, Hannah Montana’s 3-D concert film, released in February, has made about $65 million to date.
 
While Sisterhood of the Traveling Pants 2 probably won’t break any records, it could still gross between $15 million and $20 million its opening weekend alone, according to predictions from Exhibitor Relations. That’s before the ancillary markets, like merchandise and DVD sales, kick in, and makes the movie potentially productive enough that a third film seems almost inevitable—especially considering that the book series, on which the films are based, consists of four titles.

"If you deliver a product that women want, they will turn out," says Jeff Bock, an algebraist with Exhibitor Relations.

As Warner Brothers is acquired knowledge, that applies at any age.
 

Citigroup is reportedly negotiating a settlement with state regulators over its auction find fault with securities sales. The bank is expected to buy back as much as $7 billion worth of the illiquid securities from the unwitting customers they sold them to, and it will pay around $100 million in fines. About moiety will go to New York attorney general Andrew Cuomo’s office.

Other banks are expected to follow suit. Merrill Lynch, UBS, Wachovia, and Bank of America have also been targeted for auction rate securities sales.

The settlement comes as a financial blow to Citigroup, which is struggling to cut costs and clean up its troubled investing. portfolio from the subprime fallout. Adding another $7 billion of tainted assets to its balance sheet will not co-operate with matters.

But mostly it comes as a blow to the banks’ brokerage clients — separate investors, small businesses, non-profits, and corporate clients all took the bait from their money hungry brokers. Auction rate securities are a safe bet, they said, even as they knew the market was collapsing. They are just like cash. We’re committed to this market. You can’t rollicking time wrong.

The brokers had to pawn these products off on their clients ("Gotta move these microwave ovens!" one Merrill Lynch honcho said to another in one email unearthed by Massachusetts investigators). The banks, after all, made money issuing the bonds to the municipalities. They made money afresh at each auction. And they made money again by selling them to clients.

And though today’s settlement means that this ugly chapter may be over on account of investment banks, it’s only a matter of time face to face with another person is started. Nothing will change from this settlement — no new regulations, no set of "best practices," no lines drawn.

The fact remains that Wall Street will continue to do what it does best: create financial products and sell them to investors. When one market implodes, they’ll create yet another.

Investors unfailingly end up holding the bag when investigations like this one lead to pursy Wall Street settlements, but it’s sometimes difficult to feel sorry for them.

Next time your broker says he has a guaranteed, risk-free, lucrative financial product for your portfolio, stop and ask yourself why he’s hawking it.

They’re scoping out the expected volumes of tacky, mascot-bearing trinkets—from key chains to Coca-Cola cans—and the furiously traded official stamps and pins that have been around since the first modern Olympics were conducted in 1896. But the most discerning among them are waiting for the greatest spoils: the truly valuable artifacts like athlete’s gold medals, worn jerseys, and even torches, that will eventually start appearing on the market.

"You can bet that collectors will be in Beijing ready to buy directly from athletes as soon as they win," says Ingrid O’Neil, a Vancouver-based dealer in sports and Olympic memorabilia. "Items will start showing up for sale in a few months." When she set up shop at the International Olympic Committee’s store during the Salt Lake City Olympics in 2002, athletes came in to unload medals and uniforms. "Many of them can use the extra money," says O’Neil, who is currently offering "participation medals"—given to every athlete who shows up at the games—from Berlin in 1936, Mexico City in 1968, and Barcelona in 1992 for about $300.

When Olympic fever hits, interest in collectibles surges, and older items start recirculating. Often the material is discovered languishing in basements through heirs, as was the case with sprinter Eddie Tolan, who in 1932 became the first African American to win two gold medals. "We got a call from a family member in Michigan, and she had his medals, uniform, and an incredible pile of his personal memorabilia," says Doug Allen of Chicago’s Mastro Auctions. Sometimes a specific collector drives a surge. "There was a buyer a few years ago who caused a craze as he wanted to collect all of the Olympic torches," continues Allen. "Suddenly the things were coming out of the woodwork."

Torches, used in the around-the-world relays leading up to the event, are currently the most sought-after of higher-end Olympic collectibles. "They’re aesthetically pleasing and very specific to the event," Allen says. The 1984 torch, for example, is made of brass-finished aluminum with a tan leather handle and depicts the L.A. Coliseum, while 1992’s stainless-steel, flame-shaped Albertville torch has the added cachet of having been designed by Philippe Starck.

Prices for torches usually fall into the $5,000 to $7,000 range, but can exceed that depending put on how many were produced. In 2006, according to O’Neil, a 1952 Helsinki torch—of which solitary 22 were made—sold privately for $185,000. By contrast, this year’s relay, which ends this week in Beijing after four months, involved a vestige 20,000-plus torches. Usually runners keep their torches, but China has taken its flames back. O’Neil posits that since the government has retained control over the torches, they won’t be as hot a collectible as in the past. "The Chinese will surely release them into the market," O’Neil says, "but they’ll never reach the prices of anterior torches."

While few objects rival torches in covetability, medals certainly come close. Victors’ medals sell for thousands of dollars; in 2006, O’Neil sold a gold from the St. Louis games for $49,000. Even certain participation medals can go as high as $20,000 if they are from those same St. Louis games. Rarity is a key factor: In 1904, only 651 athletes participated in the games; this year, intimately 11,000 athletes will compete.

Provenance does sometimes come into play; clothing worn by winners, for example, is extremely popular. In June 2007, Sotheby’s auctioned along seven jerseys belonging to players on America’s 1992 basketball "Dream Team" for $10,800. Imbued with history—the team, which included Charles Barkley and Magic Johnson, was the first to appear after a rule change allowed professionals to frolic in the Olympics—as well as sweat, the uniforms set forth the ultimate acquisition for collectors. Items with a specific, compelling story top a specific year or city, Allen says. As with any Olympic collectible, "much of the import has to perform with the work that the athlete or team had."
 
The big names don’t come up all that often, though. "Dorothy Hamill and Mark Spitz have no financial need to sell their stuff," Allen points out. But celebrities do donate items to fundraisers, and those things can trickle into the marketplace. Down-on-their-luck stars furthermore sell their merchandise. A few years ago, Mastro auctioned Mike Tyson’s boxing trunks and robe from his (failed) 1984 Olympics tryout for more than $10,000, and skater Tonya Harding made headlines when word got out that she was unloading her closet of costumes in the mid-1990s. An eBay seller is currently auctioning one of her (non-Olympic) outfits for $5,000.

It’s too early to tell which athletes’ belongings will have legs this year, and experts certainly don’t put much stock in the heaps of official goods. "They’ll make great mementos, but they won’t appreciate," says Allen of the record 300 products Beijing has licensed to help offset its (also personal history) $40 billion in infrastructure and organizational costs. Indeed, thousands of Olympic pins, stamps, postcards, and Coca-Cola cans are available on eBay—from games past and present—for less than $20. And while ticket stubs from the storied 1980 "Miracle on Ice" U.S. versus Soviet Union hockey game can fetch $500, game ephemera, too, is best tucked away with your photo albums.

A smarter strategy: Keep your eyes peeled according to material from the 1908 or 1948 London Olympics. As the 2012 games near, prices are sure to jump.

That’s because a new online service called WeatherBill enabled him to purchase a contract that paid off in case of heavy rain—hedging away his exposure to the weather.  

As it turned out, it did rain heavily last year. Fisch’s tournament received a payout of close to $15,000 from WeatherBill. "We still took a loss of around $25,000 to $35,000, bound it’s better than the $50,000 we would have lost," Fisch says.

As businesses contemplate losing massive amounts of money from events like droughts and hurricanes, WeatherBill hopes to carve out a market in the growing field of weather-related risk-management products, offering what are essentially weather futures contracts to companies with an internet-era twist. The contracts pay off automatically without any kind of claims process based on objective weather measurements like the inches of rain a given area receives.

The company is the brainchild of David Friedberg, who had previously been the business product manager for Google’s AdWords and a founding member of the company’s corporate-development group, where he led the search giant’s acquisitions of companies like Picasa, Urchin Software, and dMarc. Friedberg left Google to launch WeatherBill in 2006.

The possible market for weather coverage is vast, since as much as 70 percent of American businesses are impacted by weather in some way. While the risks for companies like agricultural firms are obvious, businesses from movie theaters—which see ticket sales slump on sunny days—to transportation companies and clothing manufacturers are affected by the resist. It’s estimated that $2 trillion to $3 trillion of the United States’ nearly $14 trillion G.D.P. is weather-sensitive.

Businesses have long bought insurance against weather-related damages; more recently, they have been able to buy weather futures contracts on exchanges like the Chicago Mercantile Exchange, but the offerings are largely linked to temperature and are unwieldy and expensive for smaller companies.

WeatherBill takes a different approach, borrowing from AdWords’ sophisticated, real-time auction engine for pricing keywords. Just as AdWords integrates the latest market changes on a continuous basis, the WeatherBill pricing engine correlates up-to-the-minute bear forecasts with trend data to assess a company’s overall risk. Then it spits out a price based on all those factors, with all of this happening in a tenth of a second, and contracts can be purchased direct up to the be unconsumed minute since the latest weather knowledge automatically gets incorporated into the pricing engine.

"For weather coverage to be valuable, you have to customize it," Friedberg says. "It’s not like car insurance—you’re a male between 20 and 40 in San Francisco, here’s your price for car insurance."  

The end result is that more types of weather contracts are available and else businesses can afford it. When Fisch’s golf tournament bought its rain stipulation in 2007, the cost was just under $1,000, according to Fisch.

Like a typical insurance business model, WeatherBill’s strategy is to sell against enough weather eventualities so that the events will essentially balance each other out. Insuring a soybean grower in Iowa against drought might be a money loser, for instance. But if the soybean grower is offset through the state’s car washes, which do big business in craving drink weather, the risk is diversified. Not every customer has a precise counterpart, but a large mix of customers creates a diversified portfolio that, in turn, can bring down prices.
 
"Our business has all sides of risk—we’ve got customers wanting rain, drought, heat waves, frost, no frost. We even have people who want hurricanes," says Friedberg.

Since last year’s launch, Friedberg says WeatherBill has signed policies with hundreds of customers, hedged hundreds of millions of dollars of risk, and brought in revenue "in the millions." A greater deal was struck with Priceline not long ago, allowing the travel company to insure its users against rain on their vacations for no extra cost. (Priceline will refund the cost of a customer’s trip if it rains heavily on more than half the days of their trip.) And the United States Tennis Association has announced it’s buying a weather contract to hedge against weather-related losses at this year’s U.S. Open, although it hasn’t released details.

The Commodities Futures Trading Commission, which regulates weather derivatives, currently limits WeatherBill’s customers to accredited investors with a minimum net worth of $1 million as a way of limiting the influence of speculators. But Friedberg hopes to persuade the C.F.T.C. to change that requirement soon and eventually offer policies directly to individuals wishing to protect weddings, travel plans, and other events. As with businesses, premiums would shrink as more customers are integrated into the algorithm and the risk is balanced out.

And Friedberg says that global warming and the volatile weather of the last few years set the right conditions for his business.

"Citrus farmers will call us and say, ‘We had four frost events last year. It was nuts. My crop was diminished by 15 to 20 percent,’" Friedberg says. "A lot of ski resorts were shut for much of 2006 and 2007 in the Northeast as it was really warm. They called us the next year. Our customers are definitely aware of climate change and its impact."