Investments

The Obama administration's impending effort to buy about $1 trillion in toxic assets in partnership with private investors -- aimed at solving the most intractable part of the credit crisis -- is now generating widespread fear that it is vulnerable to manipulation and carries sharp risks for taxpayers.

Some angry investors -- both average Americans and giant pension funds -- are not taking their massive losses quietly. Holding portfolios that have imploded from a barrage of financial time bombs, they are turning to the courts for compensation. "Any time people lose money, expect litigation to pick up," said John Sandy Smith, a partner at law firm Morris, Manning & Martin in Atlanta.

Attempts to place blame for the great financial crisis that sent the economy into a nose dive last year have made household names of top executives such as Angelo R. Mozilo, Richard Fuld and Maurice "Hank" Greenberg. But the only major criminal case to emerge thus far from the global cataclysm involves two lesser-known hedge fund managers who will be thrust into the spotlight today when their trial begins with jury selection in a Brooklyn courtroom. Federal prosecutors allege that former Bear Stearns Cos. fund managers Ralph Cioffi and Matthew Tannin -- in a frantic, eventually unsuccessful scramble in mid-2007 to keep their mortgage bond funds from collapsing -- misled investors about the deepening woes in the portfolios.

Throughout history, men braved the odds to perform great feats. Outmatched generals snatched victory from the jaws of defeat. Titans of industry gambled on bold innovations to reap jackpots. Athletes tested the limits of human endurance in quests for glory. Riad Toufic Salame, the governor of Lebanon's central bank, is not one of those men. Instead, the silver-haired banker became a hero by playing it very, very safe.

Investors continued to bail out of Treasury securities Monday, particularly the shorter-term issues that Wall Street tends to regard as relatively safe plays. But they aren't safe when the market begins to believe that the Federal Reserve will start tightening credit -- which is the way more bond traders suddenly are leaning. The yield on the two-year T-note soared to 1.39%, up from 1.3% on Friday and 0.94% on Thursday. That's a massive move in the space of two trading sessions.

Sticking with stocks was a good idea this year. Sticking with junk corporate bonds was an even better idea. The junk, or high-yield, market has rallied powerfully since the stock market bottomed on March 9. Bond prices have surged, driving yields down sharply. The average annualized yield on an index of 100 junk issues tracked by KDP Investment Advisors has plunged to 10.53% as of Friday, down from an 18-year high of 17.7% in December.

Dania Leon's portfolio has surged 55% during the stock market's booming rally over the six last months -- and she couldn't be more nervous. After suffering deep losses last year, the 41-year-old Pasadena resident is grateful to recoup some of her money. But she fears that stock prices have shot up far more than is warranted given the country's still-weak economy and nearly double-digit unemployment rate. "I'm scared, I'm scared, I'm scared," Leon said. "Why are we up, especially with unemployment as high as it is?

The arrival of March is unlikely to bring much relief to a stock market battered by bad news throughout February. Trepidation is more like it after a month that saw the major indexes fall to their lowest levels in 12 years. The Dow Jones industrial average fell for the sixth straight month and is now worth less than half its record high of 14,164.53. All because no one has a clue about when the economy will begin to pull out of recession.

Rioting, political instability and a spiraling death toll after Kenya's disputed election is seen as drastically denting investor confidence in what had been seen as one of Africa's emerging success stories. Scores of people have been killed in turmoil since President Mwai Kibaki was declared the victor Sunday with a narrow majority. The opposition says the poll was stolen and European Union monitors say it lacked credibility.

The world's investors rethought the concept of risk in 2007, and the result was a vast divergence in performance among financial markets. Suddenly, to some people Indian stocks looked safer than the U.S. housing market, long considered a pillar of security. Speculators shied away from American junk bonds and small-company stocks but remained ravenous for commodities such as wheat, gold and cotton.