There’s breaking news this morning out of Europe: big subprime write-downs at Credit Suisse, which, unlike its Swiss competitor—and let’s face it, seemingly every other big bank—UBS had been relatively untouched by the credit bust.

Just a week ago, Credit Suisse reported that it had emerged scot-free in the fourth quarter from all the turmoil. But, uh oh, the company now says “mismarkings and pricing errors by a small number of traders” will lead to a nearly $3-billion write-off, according to Bloomberg News. We’re sure those “mismarkings” and “errors” were entirely innocent.

The FT quotes one analyst saying, “This is a disaster. This could be the tip of the iceberg.” It’s been a disaster for shareholders so far today. The stock is down more than 8 percent.

This story should get nice and juicy over the next few days.

In related news, The Wall Street Journal says Lehman Brothers, another bank that so far has been fairly untroubled by subprime events, is about to get hit by a big write-down. It says Lehman’s huge stack of commercial real-estate loans is deteriorating.

Lehman has some $90 billion worth of assets that are vulnerable to write-downs. The company is worth $29 billion on the stock market.

New York Governor Eliot Spitzer’s threats to the monoline bond-insurance industry appear to be hastening the denouement of that dismal story. The Wall Street Journal leads its Money and Investing section with a report that Ambac, the second-largest bond insurer is seeking to raise $2 billion to facilitate dividing itself into two companies, something Spitzer and his insurance chief have suggested needs to happen this week.

Ambac, whose shares are worth 11 cents on last year’s dollar, is the second bond insurer to prepare to split itself into two businesses with very different prospects: municipal-bond insurance (good, pretty safe) and corporate structured finance (bad, maybe insolvent). FGIC Corp., a smaller bond insurer, late last week said it would consider a similar step.

This has Wall Street howling “No fair!” and threatening big-time lawsuits, according to Bloomberg.

“This is one of the worst possible outcomes for the market,” Gregory Peters, head of credit strategy at Morgan Stanley in New York, said in a telephone interview. Lower ratings would force banks that own the mortgage-backed debt to write down the value of the securities by as much as $35 billion, he estimated.

But it’s too late. The big boys aren’t going to be able to keep stalling this next huge wave of write-downs. The bond-insurance business is fatally flawed, everyone knows it and dancing around the issue for weeks just gives markets the unfortunately not entirely wrong idea that the fix is in. The downside for taxpayers in hundreds of municipalities across the country who would have to pay significantly more interest on their debt is too severe to let this charade go on. The key structural issue here, as the FT’s Lex column points out, is getting the bond insurers back to “what they should be: dull, slow growing insurers of safe municipal debt.”

There’s certainly no possible clean break here. The FT
and the Journal smartly point out that splitting up the bond insurers will raise serious questions about the value of an unknown amount (but certainly in the many billion of dollars) of derivatives—bets against the companies’ survival, in large part made by banks looking to hedge their exposure to an implosion by those companies.

That’s an angle that bears paying close attention to over the next days and weeks. Not that this is a new thing these days, but somebody’s going to lose a lot of money there.

The Wall Street Journal leads its page one with a three-column second-day piece on the nationalization of UK lender Northern Rock. The paper sees the government bailout ball beginning to pick up speed as it rolls down the hill. Where are the market fetishists now?

In the U.S., the government’s role has so far been limited to orchestrating private-sector rescues, pressuring mortgage lenders to cut deals with borrowers and cushioning the blows to the economy with fiscal stimulus and interest-rate cutting. But proposals to use federal money to ease the pain are getting serious scrutiny in Washington.

The U.K. government’s decision could also mark the beginning of a new and more acrimonious stage of the financial crisis, in which the moves of governments and regulators inevitably impinge upon the interests of powerful groups.

The FT and The New York Times reports that rival banks are ticked off, saying the now government-run-and-backed bank puts them at a competitive disadvantage.

The Journal reports that the Bush administration is playing it both ways when it comes to free trade and national security. Just weeks before the U.S. started raising hackles about industrial espionage, the administration loosened standards for trade of goods that can have dual military and consumer uses, even fast-tracking two Chinese companies with extensive ties to the Chinese military.

The WSJ says an ex-employee of Lichtenstein bank LGT Group handed the German government data that prompted its ongoing massive roundup of tax evaders, including the CEO of Deutsche Post AG, who has resigned. While rogue traders have been in the region’s news lately, this resurfaces the more problematic rogue-nation issue.

The problem is so bad that the German government paid more than four million euros to the ex-employee to hand it confidential data from the bank. That sounds darn near like governmental overreach until you consider that Lichtenstein is one of those places that protects your friendly neighborhood criminal who needs a safe place to park his ill-gotten money.

Why is this still going on in this day and age?

Liechtenstein has long been a destination for the undeclared funds of wealthy Europeans. Often, money is driven across the border and delivered in cash to local banks… Liechtenstein, alongside Andorra and Monaco, remain on a shrinking list of so-called uncooperative tax havens drawn up in 2002 by the Paris-based Organization for Economic Cooperation and Development. Liechtenstein still makes a distinction between money laundering and international tax evasion when it offers to help with international investigations…

Far be it for us to suggest Germany squash a smaller, incorrigible neighbor, but it seems like its time to end Liechtenstein’s piratical run.

Wrong answer: GE spokesman Russell Wilkerson on why its chief accounting officer is resigning in the midst of an accounting scandal that just won’t quite go away: “Mr. Ameen’s decision to retire had nothing to do with this probe. It was his personal decision and he had been planning to retire.” The Journal disagrees, citing multiple sources as saying the to-do contributed to the CAO’s decision to quit.

In a big win for consumers and for Sony, Blu-ray has won the battle over the next-generation video format. Several publications are reporting that Toshiba is pulling the plug on its HD-DVD format, enabling consumers to move without trepidation into the post-DVD era.

Still, the win means less than it would have, say, a year ago. As with music, video consumers seem to be moving away from hard-copy multimedia in favor of instant-gratification, high-definition downloads, now available from the likes of Netflix and Apple.

The Los Angeles Times pays needed attention to the housing bust under way in Britain on its business front page. In many ways similar to the crisis in the U.S., the UK is having similar impacts on homeowners and is another stressor on the global banking system.

Quote of the Day:

“Financial institutions have been pretty good at taking governments hostage,” said Charles Wyplosz, an economics professor at the Graduate Institute in Geneva. “The taxpayer is likely to face a huge bill.”

The Breakingviews column in the WSJ is nice today with a step-back look at what it calls the “great deleveraging” we’re experiencing and likely to experience for a long while to come.

The San Francisco Chronicle reports that high-end housing is still a buy in the City by the Bay, anyway. A buyer just paid $2,300 a square foot for a penthouse in an unfinished building. One question we had—what housing in San Fran is not high end?

Finally, as if advertisers weren’t already trespassing in your headspace, the Atlanta Journal-Constitution has a disturbing report on something you’ll be hearing soon: “directed sound.”
The ad folks have already helped turn us into a nation of attention-deficit suffering, anorexic (or oddly enough, obese) consumption addicts, it appears now they think we need to add a little more schizophrenia to the mix.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.