The mortgage mess has claimed another well-heeled victim. Merrill Lynch (MER) said Monday that its co-president and chief operating officer, Ahmass L. Fakahany, will step down Friday. The move comes just weeks after Merrill posted a fourth-quarter loss of $9.8 billion, due mostly to writedowns on mortgage-related securities whose value plunged after defaults on subprime mortgages soared. The firm has raised more than $12 billion in two months under new chief John Thain in a bid to restore its financial health.

Fakahany joins former Merrill chief Stan O’Neal, ex-Citi (C) CEO Chuck Prince and the onetime heir apparent to the CEO post at Morgan Stanley (MS), Zoe Cruz, in having been sidelined by the bad debt fiasco. None of them is leaving empty-handed, of course. Fakahany took $30 million in cash and stock in 2006, according to Merrill’s most recent proxy statement. “I have fulfilled my commitments to John and the board,” Fakahany said in Monday’s press release. “I leave knowing that the firm’s financial condition is significantly enhanced and the new team is in place and moving forward.” Or so Merrill Lynch hopes.

McDonald’s (MCD) sank 8 percent in heavy trading Monday after the burger chain became the latest company to warn that sales slowed sharply in December. McDonald’s posted a strong fourth quarter, as operating income rose 22 percent from a year ago to $1.35 billion and sales climbed 6 percent to $5.75 billion. But sales in established U.S. stores were flat with year-earlier levels in December - in keeping with slowing trends reported at retailers such as Williams-Sonoma (WSM) and Macy’s (M). McDonald’s chief Jim Skinner said he is “optimistic about McDonald’s outlook for 2008,” but with recession talk in the air the remark is falling on deaf ears.

Looks like the skeptics were right to doubt Alliance Data’s (ADS) private equity buyout. The Dallas-based computer services company said Monday morning that its prospective buyer, Blackstone (BX), won’t complete the $6.4 billion deal. Blackstone agreed in May to buy Alliance Data for $81.75 a share in cash. But in recent months, as tight debt markets and a slowing economy scuttled a number of private equity buyouts, Alliance Data shares fell as much as 33 percent below the agreed-upon price - a sign that investors didn’t expect the deal to close. Alliance Data certainly fought the good fight, putting out at least three statements over the last two months reaffirming its belief that the deal would be completed. But on Monday, Alliance Data said it received word that Blackstone won’t close the buyout because it believes satisfying certain regulatory conditions would be onerous. Alliance Data replied it is “evaluating the company’s possible courses of action and will pursue those that best protect the interests of the company and its stockholders,” but stockholders don’t appear to be hopeful. Alliance Data shares plunged 41 percent in pre-market trading to $36.

Countrywide (CFC) chief Angelo Mozilo is giving something back. The embattled executive said early Monday he will waive his right to $37.5 million in payments tied to the agreement Countrywide signed this month to sell itself for $4 billion to Bank of America (BAC). The decision comes after Democratic politicians ranging from U.S. Sen. Hillary Clinton to U.S. Rep. Barney Frank criticized Mozilo’s lush pay package, given the distress being felt by many homeowners amid a surge in mortgage defaults. Mozilo has reaped hundreds of millions of dollars in recent years by selling Countrywide shares - a fact that began to rankle over the past year, as Countrywide shares lost more than 80 percent of their value and the company endured two brushes with bankruptcy amid worries about possible losses in its loan portfolio.

Beyond showing that he’s not just in it for the money, Mozilo has a bone to pick with the press. He stressed in Monday’s press release that media estimates of his severance package have been overstated. Under the merger agreement, Countrywide says, “Mr. Mozilo would be entitled to $36.4 million in cash severance pay and $400,000 per year in consulting fees, as well as private airplane use and other perquisites. These are the amounts and benefits he will be forfeiting.” Well, it’s a start.

 Sears (SHLD) made a change at the top. The struggling department store chain named the head of its supply chain and operations, Bruce Johnson, interim CEO while the company searches for a full-time leader. Johnson will replace Aylwin Lewis, who had been Sears’ chief for more than three years but who has overseen a sharp decline in the company’s performance. Sears has serially disappointed Wall Street with its profit performance in recent quarters, as shoppers have been put off by the company’s poor merchandise, high prices and dingy stores. Hedge fund manager and Sears chairman Ed Lampert, whose firm owns nearly half of Sears’ shares, has begun shuffling names and titles on his whiteboard without giving any indication that he plans to do what everyone knows Sears needs to do - invest more in the business. “We are entering a new phase in Sears’ evolution as a multi-channel retailer, as reflected by the new operational structure we recently announced,” Lampert said Monday, “and the board has determined that now is the right time to put in place new leadership to take the company forward.” A new CEO probably can’t do any worse than Lewis did, but it’s far from certain that an executive change alone will be enough to pull Sears out of its nosedive.

A day after French bank blamed a $7.2 billion loss on the rogue actions of one 31-year-old trader, the bank’s explanation was still raising some eyebrows. Even as badly as risk management has gone lately for big financial institutions, the claim that the dismissed trader - identified as Jerome Kevriel - managed to lose that much money making plain vanilla trades all by himself struck some readers as far-fetched.

“It is simply not believable that one person, sitting on a trading desk, rang the bell for $7.2 billion trading futures,” wrote a poster on this web site. “It seems impossible to believe this could have been accomplished without a massive internal conspiracy, or the true details of the losses have yet to be released.”

Meanwhile, others are wondering whether SocGen’s realization that it was sitting on billions of dollars in bad trades led to the sharp decline in European stock markets Monday. To take this thesis a step further, it was Kevriel’s freelancing that prompted Fed chief Ben Bernanke to slash interest rates Tuesday morning. That line of thinking got Jeff Matthews to musing about what might happen the next time Bernanke learns that a trader is on  the hook for some losses. “In order to be prepared for that eventuality,” he writes, “we here at NotMakingThisUp are happy to provide a handy set of headlines designed to make it easier for newspaper editors and fellow bloggers to respond to whatever move the Fed makes next.” As an added bonus, almost half of the handy dandy headlines refer to Alan Greenspan - the true villain in this and all other financial stories of the age.

Longtime eBay (EBAY) chief Meg Whitman may have a future in politics. The Los Angeles Times reports that Whitman, who said Wednesday she’ll leave the online auction giant at the end of March after a 10-year run as CEO, is considering a run for California’s governorship in 2010. The paper reports that Republican political operatives have been sounding out Whitman about a possible run and that she has begun weighing the possibility. Whitman last year registered as a Republican so she can vote for her former Bain & Co. colleague Mitt Romney in next month’s primary election. Like Romney, Whitman has a considerable personal fortune to tap should she decide in favor of a run. Her holdings in eBay stock alone are worth $600 million at recent prices, and that doesn’t count the tens of millions of dollars she has reaped cashing in options in recent months.

Of course, it takes more than money to run a successful campaign, and hard-charging corporate types don’t always manage to connect with voters. Fortune’s Todd Woody notes that another onetime tech CEO, Carly Fiorina of Hewlett-Packard (HPQ), nurtured political ambitions that came to naught. But whatever might come of Whitman’s political dabbling, her long record of success at eBay should keep her from star from falling as sharply as Fiorina’s has.

Caterpillar (CAT) says overseas economies are still growing fast enough to enable the company to overcome “recessionary” conditions in the U.S. The Peoria, Ill., tractor maker posted a fourth-quarter profit of $975 million, or $1.50 a share, up from the year-ago $882 million, or $1.32 a share. Sales rose 10 percent from a year ago to $12.1 billion. CEO Jim Owens said the company continues to grow according to its plan despite a sharp drop in demand domestically. For 2007, for instance, Caterpillar said engine sales increased 6 percent - despite a 59 percent decline in North American on-highway truck engine sales. Because of solid overseas demand, Owens said Caterpillar continues to expect to post profit growth of 5 percent to 15 percent for 2008, on sales growth of 5 percent to 10 percent. “While we expect anemic growth in the U.S. economy,” Owens said, “we continue to see positive conditions for our sales in most of the rest of the world.” That’s optimistic enough to drive the stock, which has dropped around 10 percent so far this year, up modestly in pre-market trading Friday.

The U.S. consumer pullback has Harley-Davidson (HOG) hitting the brakes. The Milwaukee-based motorcycle maker posted a bigger-than-expected drop in fourth-quarter earnings, as the company trimmed its production schedule to help dealers clear out inventory. Harley made $186 million, or 78 cents a share, for the quarter ended Dec. 31, down from the year-ago $254 million, or 97 cents a share. Revenue fell 8 percent from a year ago to $1.39 billion. Analysts on Wall Street were looking for an 82-cent profit on sales of $1.34 billion. Profit margins fell from year-ago levels, continuing a trend noted by Rich Smith at the Motley Fool.

Harley pledged to continue to monitor demand and possibly trim back the production schedule even further. Still, the company offered a modestly hopeful forecast, predicting a 4 percent to 7 percent gain in 2008 earnings where analysts were looking for no gain. “While these are challenging times in the U.S.,” CEO Jim Ziemer said, “our international dealer network delivered double digit retail sales growth in the fourth quarter and for the full year of 2007.” Investors will be hoping for a repeat of that performance if Harley is to hit its modest targets in 2008.

E*Trade (ETFC) swung to a huge loss for the fourth quarter, and the struggling online brokerage set plans to cut costs and sell more assets in its latest bid to bolster its balance sheet. The New York-based company lost $1.7 billion, or $3.98 a share, for the quarter ended Dec. 31, reversing the year-ago profit of $177 million, or 40 cents a share. The latest quarter included a $2.2 billion loss on the sale of E*Trade’s asset-backed securities portfolio. “Our 2007 earnings performance was clearly disappointing, with the overall results masking a very strong year of growth for the retail franchise,” said interim chief Jarrett Lilien. Indeed, daily average revenue trades rose 10 percent from a year ago in the latest quarter, even as customers briefly worried about the firm’s liquidity.

Now E*Trade - which just last November lined up a big capital infusion from Citadel - is pledging to return to health by raising more money, cutting costs “through a combination of direct expense cutting and elimination of non-recurring expenses,” and raising bank capital. E*Trade said the turnaround plan “aims to restore customer and shareholder confidence and return the company to growth.” Showing quick progress on that front is crucial, because the latest quarter’s numbers show that while E*Trade is no longer hemorrhaging customers, it’s not adding very many, either: Net new account additions in the latest quarter fell 89 percent from a year ago to a measly 7,035. Meanwhile, rival Ameritrade (AMTD) seems to be fattening up at E*Trade’s expense. E*Trade will have to do considerably better to get its shares out of penny stock territory.