But on Sunday, 60 Minutes had a great story on the next mortgages that will become everyday words to Americans. And they’re called “Alt-A” or “Option Arm” mortgages. Check out the video story after the fold and more.

The gist is this: there are thousands of adjustable rate mortgages that will re-adjust upward in the next few years. This will increase monthly mortgage payments. Many will not be able to pay for a variety of reasons: job loss, bought the property for investment, etc. These properties will go into default and thus bring down the values of more mortgage-backed securities that are owned by financial firms around the world.

The thought process for these mortgages was much like subprime – that housing prices will continue to go up so it won’t matter.

Could more write-downs be in the future?

These mortgages fall back to the main overarching idea that we began our business journalism studies with: Americans have been keeping up their standard of living with debt for years with little saving. And now the bursting of this bubble will hit another group of mortgages – according to this story.

But the piece’s kicker does end on a positive note as the asset manager Whitney Tilson, who leads the dourness of the piece, says it’s a great time to invest in stocks?

“Does that mean that the stock market is gonna continue plunging as we’ve seen the last several months?” Pelley asks.

“Actually we’re the most bullish we’ve been in 10 years of managing money. And the reason is because the stock market, for the first time I can say this, in years, has finally figured out how bad things are going to be. And the stock market is forward looking. And with U.S. stocks down nearly 50 percent from their highs, we’re actually finding bargains galore. We think corporate America’s on sale,” Tilson says.

“That makes like 10 people we know who were caught up in this,” said one of the guys.

As I pretended to listen to what my wife was saying I focused on their conversation – hoping to hear a name I might know.

“This is crazy,” the other guy said. “We’re talking billions of dollars. I talked to my mother today and she said some more friends of ours are caught up in this.”

These guys looked wealthy – as did their female companions. But it made me think about that in the small world of the ultra rich this must be like one of those small-town scandals when the preacher cheats on his wife or something. All these high-income people must be gossiping about who got hit. Who was duped? And who won’t be able to recover.

Then I read the WSJ story on scam and found out that none other than Mets owner Fred Wilpon (pictured below).

New York Mets owner Fred Wilpon, GMAC LLC Chairman J. Ezra Merkin and former Philadelphia Eagles owner Norman Braman were among the dozens of seemingly sophisticated investors who placed money on what could prove to be history’s largest financial scam…

Mets owner Mr. Wilpon, who also owns real-estate investor Sterling Equities, often raved about Mr. Madoff’s investment prowess and invested tens of millions of dollars of both his own money and the team’s with his company, say financiers who have worked with him. Mr. Madoff handled investments for the Judy & Fred Wilpon Family Foundation, which distributed about $1 million a year in 2005 and 2006 to charities, according to its most recent federal tax returns..

Mets spokesman Jay Horowitz declined to comment Friday. Mr. Wilpon’s Sterling Equities said in a statement: “We are shocked by recent events and, like all investors, will continue to monitor the situation.”

Then I read the New York Times story on Wilpon and Madoff and find out that they grew up in the same Brooklyn neighborhood. And that even reinforced the small-town feel this must have to upper-crust of New Yorkers.

The Times’ story also looked at how Wilpon’s losses, which included some of the team’s money, might affect the Mets. Wilpon’s total investments with Madoff wasn’t known but a big loss could hurt the team’s ability to afford the second-largest payroll in baseball and the recent signing of reliever Franscisco Rodriguez to a $37 million contract over three years.

For Wilpon and the Mets, this could be a tough season. They are moving into a new ballpark, Citi Field, that bares the name of troubled financial firm, Citigroup, at a time when the New York economy is already in a recession. And their division rival, the Philadelphia Phillies, are World Series champs (this is especially for Damian).

The Yankees bagged 28-year-old Sabathia this week with a seven-year, $161 million deal that includes an opt-out clause after three years. Combined with the $82.5 million spent on Burnett, that’s $243.5 million in five days.

Actually it’s been spectacular.

Meriwether, now 61, resigned from Solomon Brothers in 1991 after a subordinate of his tried to corner the market in two-year U.S. Treasury notes. He informed superiors of the infraction, but it wasn’t reported to the Treasury until much later. An investigation found illeagalities at the firm and Meriwether agreed to a three-month suspension and a $50,000, but never declared his innocence or any wrongdoing as a superior.

After a few years pursuing golf and his love of horses, Meriwether returned in 1994 with the founding of the hedge fund Long-Term Capital Management. The high-profile fund attracted money from celebrities, top pension funds and Ivy League endowments. In the first few years, the fund made solid returns. But by 1997, the firm had made huge bets on Russian government bonds and when the Russian government defaulted on its bonds in 1998, Long-Term Capital’s losses were in the billions of dollars. The fund eventually lost more than $4 billion in four months had was bailed out by as group of investment banks and the Federal Reserve. The fund folded in 2000.

But with Long-Term Capital’s collapse still fresh in investors’ minds, Meriwether was able to start another hedge fund, JWM Partners LLC, in Greenwich, Connecticut, in 1999. The fund has done relatively well, growing from $400 million of initial capital to $2 billion today. But according to Bloomberg News one of the firm’s funds was down 24% earlier this year.

INTERESTING LIAR’S POKER FACT CHECK

In this 1998 piece by the NYT’s Gretchen Morgenson, she reports that the famous scene at the beginning of Liar’s Poker, in which Meriwether challenges John Gutfreund to a $10 million-game of liar’s poker is inaccurate.

People who have never met Meriwether may remember him as the man featured at the start of Michael Lewis’s book, “Liar’s Poker.” As recounted there, Meriwether supposedly challenged John H. Gutfreund, then the chairman of Salomon Brothers, to up the ante from $1 million to $10 million in a game of “I dare you” played with serial numbers on a dollar bill. Gutfreund, no pansy himself, walked away, according to the book.

This story almost certainly helped forge the romantic view of Meriwether as a Wall Street cowboy, willing to make a bet that even his rich boss shrank from. Only trouble is, it never happened. According to people who were there, it was not Meriwether who made the challenge. It was John O’Grady, a gregarious and blustery Salomon partner who ran technical support for the traders. O’Grady died in 1989. ( Lewis was traveling and not available for comment.)

According to those who know him well, the story is also out of character, because Meriwether only made the most calculated of bets, both personally and for the firm. He loved to bet on Chicago Cubs games, for example, but would not do so until he had first received the weather report to see which way and how hard the wind was blowing at Wrigley Field. That way he could better guess how the Cubs home-run hitters might do against the opposing pitchers. “These weren’t big bets,” said a person who had knowledge of them at the time. “He just liked to have a lot of things he could analyze.” More often than not, he came away a winner.

Note: This was an assignment to speak to Meriwether about the relevance of Liar’s Poker to today. Meriwether, through his assistant at JWM Partners, declined to comment.

Her research division had nothing to do with the high leverage that Morgan took on or its investments in mortgage-backed securities. Her division has continued to make solid, consistent profits for Morgan Stanley.

So if Rep. Barney Frank and Sen. Bernie Sanders are talking about cutting the bonuses of EVERY employee at every financial institution that has received part of the the bailout money I couldn’t be more opposed to the idea. Is it fair to penalize thousands of people for actions they had nothing to do with? And it is more than likely that these employees will be penalized in some way (either by losing their job or receiving less compensation) by their employer without the hand of government getting involved (I get into this later).

Check out this interview Bernie Sanders (I-VT) recently did with CNBC. At the 1:56 mark a host chimes in:

“Senator your proposal looks rather punitive and mean spirited…It’s one thing to say to take bonuses away, when you’re getting federal money, from the big brass, that got us into this mess, but you want bonuses deprived of every Wall Street employee…You want the secretary at Goldman Sachs not to get a $30,000 bonus that she could put back into the economy. And she did nothing wrong.”

The comments made by Barney Frank (D-Mass) have been kind of vague as to whether they would go after executive pay or the pay of every Wall Street employee. The one below calls incentive structure on Wall Street “perverse.”

“The incentive structure of the finance industry should be looked at closely,” says Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee. He plans to hold hearings on Nov. 12 and Nov. 18 and says he will raise the subject of bonuses. “It’s a perverse structure if it’s heads I win and tails I break even.”

WTF? What is he talking about? I’ll admit that I’m not a big fan of Frank. It’s kind of scary to me that he’s the chairman of such a powerful House committee. But he’s also a total hypocrite. In the past election cycle, he received more political contributions from the securities industry ($192,000) than any other industry. He is doing the typical play we see in Washington all the time – denounce something in public, but support it behind the scenes.

But in the end, I think all of this is a moot point because these firms are already going through major cost cutting by laying off thousands of workers (Morgan Stanley announced job cuts today) and bonus payouts will likely follow. When Morgan had a couple of terrible years a few years ago, they erased bonuses for thousands of employees.

I agree with Greg that the negative economic impact on New York would be huge if bonuses were frozen for all Wall Street employees. But I think the companies will be cutting, or reducing, bonuses on their own. And all this talk by Frank, Sanders and other Democrats is nothing but populist bloviating.

This wouldn’t be as much of a problem if state governments didn’t have state laws or constitutional amendments that demand a balanced budget. They just can’t run a deficit and be done with it (what would the federal government do if that was the case in D.C.?). Many states were in a precarious position with the slowdown in the economy and the credit crisis has only exacerbated their woes.

But what is bad for state governments could be good for investors.

Just like any huge enterprise, state governments need to borrow money to keep running smoothly. Many of the largest states in the United States fund a lot of their garbage collecting and street cleaners by issuing short-term bonds of less than a year. And with the credit markets clogged up the amount of interest (or the coupon) they have to offer on their bonds is going up. It’s a necessary step because a state like California just can’t stop paying the 340,000 people it employees in its public schools, so it’s going to have pay more to borrow.

So this means those doing the borrowing are going to make more coin. And while New York and other states have put off doing a huge bond issue, California started one today in which the state hoped to sell $4 billion worth of bonds. Bloomberg reported earlier today that investors had bought half of the bonds.

And why wouldn’t they?

The yield on sixth-month treasuries are at 0.93%. For California bonds maturing in May the coupon rates were between between 3.75 and 4.0 percent and for ones maturing in June the rate was 4.25 to 4.5 percent. Last year the state sold these kinds of bonds at 3.37 percent. So lets say that that California’s coupon rate is an average of 1 percent more than last year. That means the state is paying about $25 million (hard to figure because I don’t know how many of each kind of bond was sold) more in interest to borrow $4 billion now than it would have paid last year. And the state is only borrowing the money for less than a year.

One investor didn’t hesitate to take advantage of California’s financial woes. Gov. Schwarzenegger bought $100,000 worth of bonds today. For a guy who is worth a reported $100 million, the bond buy isn’t a bold move, but it looks good politically and when he collects his coupons in the next few months he probably won’t mind either.

And just for a good laugh, here is the youtube clip of the Governator at the 2004 Republican convention.