Thursday morning headlines

Arrests in Bear Stearns case: Two former hedge fund managers for the soon-to-be-dissolved investment bank are suspected of misleading investors about the risky subprime mortgage market. Ralph Cioffi and Matthew Tannin were arrested at their homes this morning and will be charged later in the day. Here are stories from AP and the WSJ. From Bloomberg:

The charges would be the first from a federal investigation of possible fraud by banks and mortgage companies whose investments in subprime loans and securities plunged in value, causing losses that now total $396.6 billion. The U.S. Securities and Exchange Commission may sue the two men as early as today, claiming they committed fraud by telling investors the hedge funds they managed were in good condition when in fact they knew otherwise, people with knowledge of the case said.

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U.S. prosecutors are focusing on an e-mail allegedly sent by the two suggesting that their funds were headed for trouble, four days before they told investors they were comfortable with their holdings, the Wall Street Journal reported today, citing people familiar with the situation. Tannin allegedly e-mailed Cioffi saying that he was afraid that the market for bond securities they had invested in was ``toast,'' and suggested shutting the funds, the Journal said. The two have told colleagues that they quickly were convinced that Tannin's concerns were misplaced, according to the newspaper.

Americans driving less: A new report finds that U.S. gasoline demand is likely to decline in 2008 for the first time in 17 years. This is old news in California, where gas consumption has fallen for two straight years, but are most drivers just in a short-term holding pattern until prices fall (and they will fall) or is consumer behavior going through a fundamental shift? The last time consumption declined for a prolonged period was during the oil shocks in the late 1970s and early 1980s. (NYT)

No hearings on Countrywide: House Financial Services Chairman Barney Frank says there's no point looking into the Friends of Angelo (Mozilo) program because Countrywide Financial is in the process of being taken over by Bank of America (never mind that two of his fellow Democrats have been tied to preferential loans offered by the mortgage giant). "The best thing for all of us is for Countrywide to just disappear," Frank told reporters this morning. "I think Countrywide was unusually sleazy." (Dow Jones)

Mortgage bill watered down: Consumer groups are outraged - as well they should be. State Sen. Michael Machado, chairman of an influential committee, turned aside proposals aimed at protecting Californians from being stuck with loans they couldn't afford and didn't understand. Machado, a Democrat, says the measures would subject the mortgage industry to contradictory federal and state regulations. He also says that cracking down on mortgage bankers and brokers could dry up credit and "restrict the accessibility to home loans for the very people" lawmakers were trying to help. From the LAT:

During more than five hours of hearings, both Republicans and Democrats on the committee supported only one measure that had been high on consumer groups' agenda, a bill by Assemblyman Alberto Torrico (D-Newark), AB 529, that would require lenders to give homeowners more advance notice when their sub-prime adjustable-rate mortgages were about to reset to a higher interest rate. An Assembly centerpiece proposal by Assemblyman Ted Lieu (D-Torrance) to ban so-called stated-income loans died, as did a prohibition on less-than-interest-only loans, whose principal actually increases with each monthly payment.

Fremont files for bankruptcy: It's part of a previously announced plan to sell its retail banking assets to CapitalSource Inc. The filing has no effect on operations at the bank or its branches. Last year regulators forced Brea-based Fremont to cease originating mortgages, saying it did not have proper risk management oversight. Fremont later sold its mortgage assets. (AP)

Text message rights strengthened: Well, sort of. The Ninth U.S. Circuit Court of Appeals in SF ruled that the contents of text messages sent by company employees cannot be released without their permission. The ruling does not apply to emails that are stored on the employer's computer system - just text messages that are stored and transmitted by a wireless company. The case stems from a wireless company revealing messages that were sent by an Ontario police officer. (SF Chronicle)

Will Iger, Chernin return?: They played a role in jump-starting the Writers Guild contract talks with their informal get-togethers, and now there's speculation that the Disney CEO and the News Corp. President will try to break the logjam between the Screen Actors Guild and the media companies. They met with SAG leaders in early April to set an agenda for the contract talks, but the discussions were not especially fruitful. SAG officials are now spending much of their time campaigning against ratification of the AFTRA contract. (Variety)

Parsing DreamWorks reports: The NYT says that the Indian company Reliance will not be getting much for its $500 million to $600 million investment. “Why the Indians? It is all about terms,” an unnamed executive tells the Times. “These people are willing to pay a lot of money for little more than the right to go sit at a premiere with Steven Spielberg.” There's speculation that DreamWorks co-founder David Geffen might use the Reliance deal as a carrot to draw additional investor interest - and that could force Reliance to pony up some more bucks.

Kerkorian ups Ford stake: The Bev Hills billionaire is now up to 6.5 percent, and according to a regulatory filing he may help provide additional capital to give Ford "more flexibility in implementing its turnaround process." The move comes days after Ford CEO Alan Mulally met with Kerkorian to discuss the future of the auto maker, a meeting that apparently went well. (The Street.com)

Delta cuts LAX flights: Nonstop service to Boston, Hartford, Conn., and Columbus, Ohio are being axed, part of a hefty 13 percent reduction in flights going out of L.A. (Delta is the fourth-largest carrier at the airport). Up to now, LAX has not been hard hit by the service cuts impacting the airline industry. From the LAT:

With the cutbacks, passengers can expect higher fares and fewer travel options, particularly to Mexico and other Latin American destinations. In all, Delta plans to end service on nine routes from LAX, including to several cities in Mexico, starting in late August. For Delta, the cutbacks would in effect end the Atlanta-based carrier's plans to expand at LAX and make the largest airport in Southern California one of its major hubs. Other cities that Delta has already cut this year from its LAX schedule include Fort Lauderdale, Fla., and Ixtapa, Mexico. It has also suspended plans to launch a nonstop service to Washington's Dulles International Airport from LAX.