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.

GM announced on Friday that the company will close 20 of its North American plants and is considering filing for Chapter 11. Chrysler LLC is slated to close 29 plants and lay off 53,000 workers effective immediately. And, though Ford Motor Company CEO Allan Mullaly told a Congressional committee that his company does not face what he called “near-term liquidity issues” which have slammed GM and Chrysler, he still has his cap in hand for $9 billion of Treasury-sponsored credit, should the industry worsen.

Detroit’s cognoscenti maintain that allowing the Big Three to fail could put more than half-a-million unemployed factory workers on the streets and disrupt other industries that supply or benefit from the auto industry. Nobody wants to see unemployment rates climb beyond 6.7 percent. But the automakers seriously overestimate their importance to the American economy.

The auto industry did not just get the stuffing kicked out of it overnight: it’s been unraveling for years. In an interview with the Wall Street Journal, Patrick Anderson, chief executive of East Lansing, MI-based Anderson Economic Group, said that “Michigan has been in a seven-straight year recession. The state’s unemployment rate for non-farm jobs is at 9.7 percent.  Even Michigan’s health care industry has begun to show signs of slowing.

And, amazingly enough, the sky has not caved in.

Detroit’s automakers say that it is unfair for Treasury to bail out the banks on one hand while it leaves the auto industry to suffer. And they have a point. But while it is true that many of the major players in the mortgage fallout did receive a Treasury-sponsored bailout through TARP, there was at least the possibility that, somewhere down the road, the toxic assets that have ruined their balance sheets would have been worth something one day. But Ford Motor Company and GM, which have long since been overshadowed by Japanese automakers such as Honda, at least in terms of popularity, have been poorly managed for decades. And there is no sign from Detroit that management will magically improve.

It would take something at least as revolutionary as the invention of the wheel to turn Detroit around. And, certainly any money that they receive will only be used to cover expenses such as payroll, not for research or development of new technology.

Detroit will suffer greatly if the Big Three do not get an immediate capital infusion. And, frankly, suppliers around the country will most likely go out of business if these companies are allowed to fail. But there’s an aspect of common sense that, so far, only Senator Mitch McConnell has touched on: Throwing money at a bad investment does not make it a good one.

“Very few of us had anything to do with the dilemma that they have created for themselves,” McConnell said of Detroit’s automakers. “We simply cannot ask the American taxpayer to subsidize failure.”

The government rescue of an entire industry felled by greed and poor leadership, however, becomes an expensive quagmire, which is what TARP is proving to be.

After LTCM’s rescue, the Cleveland Fed reviewed the Federal Reserve’s action.  The number one lesson learned:  Context matters.  Large losses at a financial firm do not by themselves create a need for Federal Reserve action; the losses must have a systemic component.

While one could argue that the failure of the big three would worsen the unemployment significantly and cause a spate of follow-on bankruptcies, the orderly unwinding of the auto manufacturers still does not pose the same kind of systemic risk that failure of the major U.S. commercial banks would have.

A bailout for the Big Three also would not force the kind of changes that domestic auto manufactures need but which a pre-packaged bankruptcy plan created outside a courtroom might.  More importantly, it would prevent the obvious scenario a few months from now when the auto industry comes back for an even bigger handout.

The financial services bailout is exhorbitant, messy and rife with moral hazard.   It was also necessary to avoid a meltdown of world financial markets.  Unpalatable as a bailout for financial services is for the country, replicating it for the automakers makes no sense.

It is getting harder lately for companies to reemerge from Chapter 11, true. For example, this year Circuit City and Linen N’ Things were forced to liquidate when they couldn’t find a white knight.  Such a Chapter 11-is-the-new-9-scenario could be especially disastrous if the autos went under, and would drag their suppliers under the bus too. We can and should avoid this.

But giving a company like GM a blank check just because its CEO Rick Wagoner has ditched his jet and gone to Quiznos, well that’s a recipe for disaster as well.

There is another way. The government could sponsor the automaker’s bankruptcy. This way they win more concessions than with a bailout. Andrew Ross Sorkin lays out the plan.

“Taxpayers shouldn’t fork over a cent until shareholders are wiped out, management is tossed out and the industry is completely reorganized,” he wrote.

What say you all?

The problem with Capitalism is that when it doesn’t work, everybody expects a quick fix.

My original thought in September was that the U.S. government should never bail out financial institutions, especially using taxpayer money.

But the Treasury can’t undo what’s been done, they can only consider what TARP is actually doing to relieve a one-year-old recession and a tumorous financial crisis.

If you ask me — and I’m sure if asked Adam Smith — Corporate America needs to lean from its mistakes and accept that a free-market economy has its pros and cons. The more we soften the collapse of embattled corporations, the less likely those business will ever make genuine changes in how they run their operations or how they cut corners to make a bigger profit.

And the more our government tries to clean up the mess, the more likely future generations of American consumers, businesses, banks and investors will make the same mistakes.

The intervention between JP Morgan and Bear Sterns was tolerable. It was less a bailout in my view than an aggressive push. But it also flipped open a Pandora’s Box.

TARP is becoming a well-recognized mistake and any similar initiatives given to the auto industry would show equally lame results. Yet the Big Three have their open palms out now.

Goldman is sinking. Citi is imploding. And U.S. taxpayers are out $700 billion. Why would Ford, GM and Chrysler prove any different?

Here’s a solution: Take all that bailout money, put it towards education and start teaching finance and economics to kids in elementary school. Make it part of the core curricculum in all public and private schools all the way up to high school.

As Greg wrote, the Mayor gets 9% of his revenue from Wall Street, and the Governor relies on financials for 20%. Not to mention, bonuses have helped sustain New York City’s housing market and the not-for-profit community.

But these days America is hungry for a bit-o-vengeance, and Rep. Henry Waxman and Rep. Barney Frank are happy to comply.

Goldman Sachs and UBS have curtailed executive bonuses for the year, and other financial firms are sure to follow.

In fact, the very concept of a bonus has come under attack.

Researchers at the Center for Financial Studies (CFS) at Frankfurt’s Goethe-University released a study accusing bonuses of playing a significant role in leading us off the cliff of the financial crisis.

And Dan Ariely, a professor of behavioral economics at Duke, recently outlined his anti-bonus research on the op-ed page of the Times. Ariely’s subjects, one group from India and one from MIT, were given monetary incentives to complete cognitive tasks. Those offered the biggest bonuses in both groups fared worse than those given medium or small bonuses.

Ariely concluded that money “motivates people, especially when the tasks at hand require only effort and no skill. But it can provide stress, too, and at some point that stress overwhelms the motivating influence.”

The professor presented his results to a group of banking executives but they weren’t interested in examining themselves.

So, Lloyd Blankfein has decided that Goldman Sachs’ top management will forgo their yearly bonuses this year, bringing the “will they or won’t they” argument to a close. Now the others are expected to follow suit.

Smooth move, Lloyd: Please Washington by taking a hit at the top; let the “little people” take home their bonuses; and Wall Street and Main Street are finally reconciled.

Goldman’s “goodwill” move has prompted executives at UK-based, Barclays, PLC, Germany’s Deutschbank AG and Switzerland’s UBS AG to abandon bonuses for senior managers. But executives at Morgan Stanley, Citigroup and AIG aren’t lining up to fall on their swords. In fact, John Mack and Brady Dougan are conspicuously silent on the matter while Vikram Pandit has decided to eliminate the bonus question altogether by slashing jobs.

Everybody should take home a bonus this year, even if I’m not. It’s kind of crazy for Americans in general to expect that, just because they’re hurting, everyone else should hurt too. Congress can mask their little witch hunt as an effort to curtail corporate excess but, seriously, no one went after hedge funds at the peak of their profitability. Nobody targeted Exxon when they announced that they made over $14 billion in the third quarter of this year. So, now, making money is a problem?

Absurd.

Yes, exposure to toxic mortgage-backed securities ruined the global economy. And Wall Street should take the blame. But what is the Street supposed to do: repay investors out of the money that would have gone to bonuses? That’s not free-market capitalism. Moreover, nobody on either side of the Atlantic has mentioned that as an option.

Every economy in the world will have to limp through this recession. And — I’ll admit — some people need to go down for this. But making everyone poor won’t do anyone any good. Besides, if Blankfein — who made more than $50 million in 2007 — is an appropriate model for the typical Wall Street manager, taking a haircut in a bad year won’t hurt those at the top anyway.

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.

If it were my decision, I wouldn’t give a dime to Wall Street to pay for CEO bonuses. But, as we all know, it’s not up to me.

I saw a segment on “The Early Show” this morning that posed this very controversial question to the experts, which made me decide that I really don’t care if these CEOs get their bonuses or how much the bonuses are–the thing I mostly care about is: Where is the money coming from?

Goldman Sachs and Morgan Stanley each have $6.8 billion and $6.4 billion, respectively, set aside for bonuses. However, U.S. taxpayers are saying that these bonuses should be eliminated.

“I may not understand everything, but I do understand common sense, and when you lend money to someone, you don’t want to see them at a new-car dealer the next day,” said Ken Karlson, a 61-year-old Vietnam veteran and freelance marketer in Wheaton, Illinois. “The bailout money shouldn’t have been given to them in the first place.”

On the other hand, Massachusetts Sen. Barney Frank says that none of the money from the bailout will be given to bonuses and that “all of the money is to go into new loans.”

While I don’t feel too strongly about either side on this issue, I think it’s a moot point. Losing a bonus is a much nicer gift than losing your house or losing your job.

Here’s the CBS piece I talked about earlier.

My favorite line in this piece is: “If firms don’t pay out the big bonuses, they’re afraid they might lose the top talent.”

Which leads me to ask: Would it be so bad to lose the people that got us into this mess in the first place?