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9:00 AM EST, Friday, August 15, 2008: There's a major bank that forces its employees to take two weeks vacation each year. While on vacation they're not allowed to call, BlackBerry, email, fax or in any way contact the office. The "logic" -- I don't make this stuff up -- is that whatever naughtiness the employee has been doing all year long will unravel itself during the two weeks of vacation.

I've heard of Risk Management systems. But this is a total dozy.

How painful has it been? A hedgie wanted to check his miserable performance for the first half of this year versus his peers. The results:

Marty Whitman: Founder of Third Avenue Value Fund, generated 17% annualized returns since 1990.

6 month performance: -43.38%
12 month performance: -34.61%

Mohnish Pabrai: Warren Buffett was his mentor; generated nearly 30% annualized returns prior to 2007.

6 month performance: -41.20%
12 month performance: -36.88%

Bill Miller: Legendary portfolio manager for Legg Mason; established a 15 year streak of beating the S&P 500 until 2007.

6 month performance: -37.05%
12 month performance: -40.90%

Joel Greenblatt: Portfollio manager of well known and highly lauded hedge fund Gotham Capital:

6 month performance: -37.00%
12 month performance: -37.00%

Eddie Lampert: Widely acclaimed as the next Buffett when he took Kmart from the brink of bankruptcy:

6 month performance: -28.95%
12 month performance: -33.94%

Carl Icahn: The original Corporate Raider.

6 month performance: -21.00%
12 month performance: -3.98%

These people have to be in the market. You don't.

As my father once said, "The only sure way to make a small fortune is to start with a large one."

What bothers serious people about Wall Street: When your friendly broker "sells" you something, you don't know if he owns it or buys it on the market for you. He may sell you stuff because it's good stuff and good for you. Or he may sell you stuff that's bad stuff, but good for him to get rid of. Also, knowing that you wish to buy something, or you actually are buying something is also useful. It's like disclosing your poker hand to all the people sitting around the table.

Most big brokerage firms now include a bank, an investment bank and a brokerage firm. The potential for conflict of interest exists in virtually every transaction they do with you as a client. Here's a story from today's Wall Street Journal, which highlights conflict of interest.

State Names UBS In Auction Complaint
New Hampshire securities regulators accused a division of UBS AG of urging a nonprofit student lender to continue issuing auction-rate securities even though the Swiss bank knew the market for them was on the verge of collapse.

Auction-rate bonds are a kind of long-term debt used by many student lenders to raise money for loans. Since the collapse of the auction-rate market in February, a number of lenders, including the New Hampshire Higher Education Loan Corp., have had to suspend many college loans.

In an administrative complaint that was filed Thursday with the state Bureau of Securities Regulation, New Hampshire regulators alleged that as UBS saw investor demand for auction-rate securities drying up last fall, it sought to unload its own inventory and developed a fraudulent scheme to reduce its own position. The Swiss bank denies this.

To entice more investors, New Hampshire regulators and student-loan officials said UBS advised the lender to temporarily increase the monthly interest it pays -- in some cases to nearly 18% from about 3.4%.

The New Hampshire loan corporation estimates it paid an extra $25.5 million in interest, contributing to a liquidity crisis that has forced the nonprofit to suspend loans for 6,500 students. "We thought UBS was looking out for our own interest," said Stephen Weyl, the attorney for the loan corporation. "It's our understanding that UBS in fact had a separate agenda, undisclosed to us, of reducing its market exposure."

In a statement, UBS said "we will vigorously defend ourselves against this complaint as we believe we worked in the best interests of our investor and issuer clients."

The complaint highlights another alleged victim of the auction-rate crisis: issuers of the securities. Last week, following complaints by state and federal regulators over their auction-rate-securities sales practices, UBS, Citigroup Inc. and Merrill Lynch & Co. agreed to buy back a combined $36 billion in the investments.

But those buybacks offer relief to institutional and investor clients, not issuers such as student lenders, who pay the investment banks millions in annual fees for broker-dealer services and guidance on how to structure and market debt offerings.

"This complaint attempts to link a single client interaction with overall market conditions which affected all student loan issuers," UBS said.

While not part of the New Hampshire complaint, student-loan officials in Vermont and Illinois said in interviews Thursday that UBS had also persuaded them to raise interest rates temporarily as a way to bring in more buyers. Vermont and Illinois regulators haven't filed any related complaints.

The New Hampshire student lender said it still is paying UBS $2.5 million a year in broker fees. The Vermont lender said it is paying $3 million annually for investment-banking fees related to auction-rate securities. "It's hard to overstate our unhappiness with this," said Mike Stuart, chief financial officer at the Vermont Student Assistance Corp.

Mr. Stuart said other investment banks, including Citigroup, also encouraged his agency to raise interest rates. "They were all trying to increase demand," he said. "It made sense to us at the time."

Citigroup didn't directly address that claim but said in a statement it has "worked diligently with issuers, investors, and regulatory authority authorities to obtain liquidity for holders of illiquid ARS."

Auction-rate securities are designed to have short-term features. Their interest rates reset at weekly or monthly auctions run by financial firms.

The auctions depend, however, on there being enough buyers bidding on the products. During the fallout from the credit crunch, these buyers dwindled. When the $330 billion market for auction-rate securities failed in February, customers couldn't sell the investments, which plunged in value.

As auctions began to falter, UBS's own inventory of auction-rate securities began to pile up, according to New Hampshire's complaint. "Clearly, student loans are the problem pushing us over inventory limits," Ross Jackman, a UBS official wrote to colleagues Sept. 5 in an email the complaint included.

More fraudulent dangerous emails: This one came with an attachment.

Greetings,
Thank you for using our new service "Buy flight ticket Online" on our website.
Your account has been created:

Your login: XXXX@XXXX.com. Your password: passJ6RA

Your credit card has been charged for $484.96.
We would like to remind you that whenever you order tickets on our website you get a discount of 10%!
Attached to this message is the purchase Invoice and the airplane ticket.
To use your ticket, simply print it on a color printed, and you are set to take off for the journey!

Kind regards,
Frontier Airlines

I bet that had I opened the attachment, I would now be suffering from a whopping big, destructive virus.

Wunderground.com is a better Weather.com. For checking weather, my family likes Wunderground better.

Whatever happened to The Customer is Right? The perfect investment is your own business. You manage it. You control it. You fix it. You determine how you treat your customer. Item: I called LLBean to order some gear for tonight's trip. They couldn't (and wouldn't) ship it FedEx overnight, no matter how much I begged and how many supervisors I spoke with.

Non measureable ads versus measureable ads. The reason Google is booming and newspapers aren't is that Google's ads are measurable. Newspaper ads aren't.

I really like Stickies. Once i used millions of paper Post-It stickies. Now I use electronic ones. This is how my new 22 inch screen looks. On the left Bloomberg. On the right Stickies. I have them sorted into "To Do," "To Belgium," "Phone messages." "Shares to buy or short -- maybe." I can add more. I can kill old ones. I can have them always on my screen or have them disappear. You can pick up your own copy for free (I kid you not) at Zhorn Software.

Off to Belgium for a week with my son biking. My next column will be next Friday. Belgium is pretty small. But it's also pretty flat. That's good for alta kaka bike riders (like me).

I love looking at maps. Can you name the six countries which Yugoslavia got broken up into? They are Slovenia, Serbia, Croatia, Bosnia and Herzegovina, Montenegro and Macedonia and soon (I'm guessing) Kosovo will be the seventh. Yugoslavia no longer exists. Czechoslavkia also got broken up into two -- the Czech Republic and Slovakia. And soon Belgium, tiny that it is, will be broken into two.

Jury service
Did you hear about the Jewish mother?
Once, when she was on jury service, they sent her home. She kept insisting that SHE was guilty.

Logic -- Part 1
Abe is starting in business in Golders Green. He opens a lemonade stand. He puts up a sign which says, ALL YOU CAN DRINK FOR one dollar.

It’s a hot day and almost immediately some children arrive and pay him the dollar.

One boy quickly drinks the lemonade he’s given, goes over to Abe with the empty cup and says, "could you please refill my cup?"

Abe replies, "OK, but that will be another dollar."

"How come?" says the boy, "the sign says ‘All you can drink for a dollar."

"Nu?" says Abe, "you had a glass of lemonade, didn't you?"

"Yes."

"Well," says Abe, "that's all you can drink for a dollar."

Logic -- Part 2
Joe: "Susan, will you please close the window. It's cold outside."

Susan: "If I close the window, will it get warm outside?"

Confused about structured investments? So was the Fuhrer. Check this You Tube video out.

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.
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