Cityfile: New York's Most Notable and Influential

• Bank of America went ahead with the purchase of Merrill Lynch—even after having last-minute doubts—because Washington pushed it to do so. [WSJ]
• Yesterday's testimony by Harry Markopolos before a House subcommittee looking into the Madoff affair was eye-opening, to say the least. [NYT, Reuters]
• One damning accusation by Markopolos: Walter Noel's Fairfield Greenwich Group went on a "three-year auditing shopping spree." [Fortune]
• Another Markopolos revelation: The Wall Street Journal missed numerous chances to break the Madoff story open. [Clusterstock]
• Reaction to Obama's plan to cap Wall Street pay—and opinions as to whether it could even work or not—has been all over the map. [WSJ, BN, NYT] 
• Erin Callan took a leave from Credit Suisse because she's been summoned to testify before a grand jury about the collapse of Lehman Brothers. [NYP]
• The number of new claims for jobless benefits reached its highest level since the 1982 recession last week. [WSJ]

Erin Callan Takes Leave | Erin Callan, the rising Wall Street star who became the chief financial officer of Lehman Brothers only to be ousted a few months before the firm filed for bankruptcy, is leaving the new job she started just five months ago. Callan is taking a "personal leave" from her job as head of Credit Suisse's hedge fund division; Dealbreaker is now suggesting she could have had a nervous breakdown this morning. [Bloomberg]

Happy Birthday | Erin Callan has had a tumultuous year, hasn't she? The former star at Lehman Bros can sit back and relax today. Not only has she landed on her feet (unlike so many of her former colleagues), it's also her 43rd birthday. Others celebrating: Stone Phillips is 54. Senate Majority Leader Harry Reid is turning 69. Real estate marketing queen Louise Sunshine is 68. Nelly Furtado is 30. Nate Mendel of the Foo Fighters is 40. Monica Seles is turning 35. Lucy Liu is 40. And Ms. Britney Spears—you've heard of her, haven't you?—is celebrating her 27th birthday today.

♦  Former Lehman CFO Erin Callan has gone into contract on an apartment at 40 East 66th Street, one month after cashing out at 15 CPW. The Credit Suisse exec is reportedly paying between $7.5 and $8 million for the three-bedroom condo. [NYP]
♦  Tommy Hilfiger has found a new apartment to rent. (His Plaza apartment remains on the market for $50 million.) The fashion mogul is reportedly paying $50,000 a month for a five-bedroom spread at 807 Park Avenue, inside the converted townhouse that was owned by Diddy until 2004. [NYP]
♦  A week ago, we reported Bella Sapir had closed on a new penthouse at 250 East 53rd Street for $8.895 million. Now the Post reports she's already trying to flip the place for a profit. She's relisted the 4,500-square-foot spread for $13.5 million with Corcoran's Angela Rapoport. [NYP, Corcoran]  More

Erin Callan, who served as Lehman's chief financial officer until she was ousted in June, is saying goodbye to 15 Central Park West. According to the WSJ, she's selling her condo for $11.8 million, just below the asking price of $12 million. Callan made a tidy profit: She agreed to pay $6.48 million for the apartment three years ago—back when the building was under construction—although she only closed on the purchase in April, which is when she first put it on the market for $14 million. One unusual footnote to the story: The 2,400-square-foot apartment is located on the 31st floor, the same floor she occupied when she worked at Lehman.

Callan Speaks | Fortune snagged an interview with Erin Callan, who served as second-in-command at Lehman Brothers until she was ousted in June. What does she have to say about the whole debacle? Callan says she's lucky she got when she did (duh!) and probably overdid it a wee bit with the press. She also mentions that Dick Fuld broke into tears when he fired her. [Fortune via Dealbreaker]

• Did Goldman Sachs have a hand in the downfall of Bear Stearns? London-based traders at the firm are now under investigation for spreading negative rumors [WSJ]
• Time Warner chief Jeff Bewkes has stepped up talks with Yahoo and Microsoft over merging or selling AOL to one of the companies. [Reuters] 
  
• The SEC took dramatic steps to curb the short selling of major financial stocks. [Reuters]
• Lehman's former CFO, Erin Callan, is moving to Credit Suisse where she'll head up the global hedge fund business. [Forbes]
• Congressional opposition may complicate the government's plan to bail out Fannie Mae and Freddie Mac. [NYT]
• Asking rents for Manhattan office space are climbing despite the tanking economy. [NYT]

The most powerful woman on Wall Street—at least according to Portfolio—is out of a job. Erin Callan, the chief financial officer of Lehman Brothers and the woman who has been on the firing line since Lehman accounced a series of unexpectedly large write-downs (and a disastrous quarterly loss), has been demoted. She'll stay at the bank, albeit not as CFO. And she's not the only one. Joe Gregory, the firm's president and chief operating officer, has been demoted, too. More

• Lehman Brothers is reportedly looking to raise capital (yet again) to shore up its balance sheet. The grim news sent the stock down 8% this morning, and likely ruined Dickie Fuld and Erin Callan's day. [WSJ, AP]
• Ken Thompson will have plenty of time to hit the links with Stan O'Neal and Chuck Prince. The Wachovia chief has been ousted amid the mortgage meltdown. [WSJ]
• Dick Grasso's case will be heard before an appeals court today, and he may get his massive payout after all. Perseverance pays off! [NYT]
• Wall Street compensation is on the decline. Porsche dealers quietly weep. [Dealbreaker]