Now Barbara Boxer and James Webb are taking their turn having a whack at the banks:   

Feb. 5 (Bloomberg) -- Senate Democrats Barbara Boxer and James Webb proposed a 50 percent tax on bonuses of more than $400,000 at financial firms including Goldman Sachs Group Inc. and Bank of America Corp. that received U.S. bailout money.

Boxer of California and Webb of Virginia introduced legislation to put a one-time levy on the bonuses of employees at banks that took at least $5 billion from the Troubled Asset Relief Program, the senators said yesterday at a Washington news conference. The bill would affect 13 firms and could raise $10 billion to help cut the federal deficit, Boxer said.  

“It’s outrageous that many of these companies are doling out millions of dollars in bonuses while the rest of America feels the pain of reckless decisions,” said Boxer, who is seeking re-election in November. American International Group Inc., Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley are among the companies that would be affected, Boxer said. [Emph. added]

Idiotic and pointless. . . . So the tax will apply only to people who work at those 13 big banks, and only those who got a bonus of $400,000 or more. Why not just list their names in the legislation and be done with it? . . . The sooner Washington escapes the grip of populist fever, the better. . . .

I knew history sometimes repeats itself, but had no idea it can happen this fast:

U.S. TO HELP BANKS IN DISTRESSED AREAS

WASHINGTON — The Treasury Department will invest up to $1 billion from the federal bank bailout fund in small banks and credit unions that make loans to small businesses in some of the communities most ravaged by the economic downturn, officials announced on Wednesday. 

About 210 institutions will be eligible for low-cost capital under the Troubled Asset Relief Program, created in 2008 to buy assets from troubled banks, Treasury officials said. The eligible institutions are 60 banks and thrifts with a total of $21 billion in assets and 150 credit unions with a combined $5 billion in assets.

They are among 834 certified by the Treasury as community development financial institutions, meaning that they make at least 60 percent of their small-business lending in low- and moderate-income areas. Many of the institutions are nonprofits.  

The Obama administration first announced the program on Oct. 21. Banks will have to pay only 2 percent on the Treasury’s capital investments, compared with the 5 percent rate for large banks in the bailout program. . . . [Emph. added]

So the federal government is subsidizing lenders, and urging them lend money to borrowers of uncertain credit quality. Didn’t we just try this? It didn’t end well. . .

The New York Times chronicles the rise in jingle mail , and seems to think there will be more of it:

The difference between letting your house go to foreclosure because you are out of money and purposefully defaulting on a mortgage to save money can be murky. But a growing body of research indicates that significant numbers of borrowers are declining to live under what some waggishly call “house arrest.” 

Using credit bureau data, consultants at Oliver Wyman calculated how many borrowers went straight from being current on their mortgage to default, rather than making spotty payments. They also weeded out owners having trouble paying other bills. Their estimate was that about 17 percent of owners defaulting in 2008, or 588,000 people, chose that option as a strategic calculation. [Emph. added]

Not so fast! Surely a large portion of those surprise defaults were speculators who—regardless of what they told their lenders—didn’t live in their properties and only bought them in hopes the properties’ values would rise. When they fell instead, the borrowers were gone in a heartbeat. That’s still a loss for the lender, but it’s a totally different dynamic than an owner-occupant throwing up his hands. The borrower still has to live somewhere, remember, and he likely wants to keep his kids in the same school. He may even have some lingering affection for the place. Then there’s the packing, and the moving expense. Also, he's basically taking himself out of the home-ownership market for seven years or so. Where do you think prices will be then? In all, walking away from a mortgage has got to be a huge hassle, I don’t care what the professors say. . . . Keister-covering proviso: I’m not saying thousands of underwater borrowers aren’t, perfectly rationally, mailing the keys in. I’m just saying it’s not always as straightforward a decision as academics and the media make it out to be. . . .

Talk about being upside-down:

As the economy climbs out of the worst recession in decades and unemployment remains high, financial strains have forced consumers to prioritize monthly debt payments in order to maximize cash flow. 

The percentage of consumers delinquent on mortgages, but current on credit cards rose to 6.6 percent in the third quarter of 2009 from 6.3 percent in the previous quarter and 4.9 percent in the same quarter a year earlier, a new study developed by TransUnion showed.

The trend first emerged in the first quarter of 2008 when it was at 4.3 percent, Chicago-based TransUnion said. . . . 

Conversely, the percentage of consumers who were delinquent on their credit cards and current on their mortgages decreased to 3.6 percent in the third quarter of 2009 from 4.1 percent in the first quarter of 2008. [Emph. added]

You won’t be surprised to learn that for subprime, and in Florida and California, the rise in current-on-cards-but-late-on-mortgage borrowers is even more pronounced. “You cannot buy groceries with your house," the man from TransUnion tells Reuters. Not in Florida or California, you can’t. . . . I await the pronouncement that this is some permanent, watershed change in borrower behavior. . . . It’s not. I say borrowers get back with the program once home prices start rising again and employment improves. . . .

President Obama’s latest attempted smackdown of  the banking industry—that would be his proposed restrictions on proprietary trading and the wacky liabilities tax—seem to have given rise to some serious blowback:

[I]ndustry representatives and Democratic Congressional aides say the president’s new proposals have already provoked a sharp increase in the volume and energy of the lobbying on regulatory reform, with more chief executives stepping over their government relations staff to request personal meetings with lawmakers. . . .  

Chief executives of big banks have been in Washington for meetings with White House and Treasury officials and lawmakers on Capitol Hill. Jamie Dimon, chief executive of JPMorgan Chase, had lunch with Mr. Obama last Tuesday, and then met separately on Friday with the Federal Reserve chairman, Ben S. Bernanke, and the Treasury secretary, Timothy F. Geithner.

And industry lobbyists and chief executives have been lining up outside the doors of senators. [Emph. added] 

I suppose this is good or bad for the President, depending which CEO it is who suddenly decides to start personally lobbying. If it’s Jamie Dimon getting in Congress’s grill, it’s bad. . . .

Here’s an irony. The most significant roadblock to the enactment of the Consumer Financial Protection Agency might be the very woman who dreamed up the misbegotten idea in the first place: Elizabeth Warren.

Friends and allies say Warren would love to be the first director of a CFPA. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, has endorsed her publicly for the job. Others won't hear of it. "If she were running a consumer agency," Sen. Judd Gregg (R-N.H.) said in a recent interview, "you've got someone running the agency who doesn't believe in a market, in my opinion." [Emph. added]

From H.C. Wainright’s David Ranson, some change to believe in:

The most accurate market predictors of U.S. growth I've identified are yield spreads among investment grades in the industrial bond market. They are a widely accepted measure of "risk tolerance" in capital markets—that is, the willingness of capital to undertake risk. Five quarters ago, the sudden widening of these spreads signaled a collapse in risk tolerance, and predicted the downturn with respect to both magnitude and timing.

The Baa-Aaa spread has now dropped to 93 from a peak of 350 basis points at the end of 2008. Such a dramatic narrowing implies exceptional rates of growth—7% or more—for two or more quarters. Since World War II it's been rare for the quarter-to-quarter spread to change more than 40 basis points in either direction, but when it does, dramatic economic results follow. This year could be one of the fastest growing in living memory. [Emph. added]

I approve of that message! It’s fair to say 7% GDP growth (or even half that) isn’t in a whole lot of models. You might, very reasonably, object to Ranson’s back-of-the-envelope approach to macroeconomic forecasting. Then again, more workstation-intensive methods don’t do much better. Nouriel Roubini, for example, is said to crunch every number he can get his hands on, hasn’t been right about much of anything for the past year. . . . Regardless, 7%-ish growth, if it happens, would presumably cause S&P 500 earnings estimates to zoom. That would be good. . .

Not from The Onion, believe it or not:

The Securities and Exchange Commission said on Wednesday for the first time that public companies should warn investors of any serious risks that global warming might pose to their businesses. 

Although the agency has long required companies to reveal possible financial or legal impacts from a variety of environmental challenges, it has never specifically cited climate change as bringing potentially significant business risks or rewards.

The S.E.C., on a party-line 3-2 vote, issued “interpretive guidance” to help companies decide when and whether to disclose matters related to climate change. The commission said that companies could be helped or hurt by climate-related lawsuits, business opportunities or legislation and should promptly disclose such potential impacts. Banks or insurance companies that invest in coastal property that could be affected by storms or rising seas, for example, should disclose such risks, the agency said.

But not a word about unexpected asteroid impacts or surprise zombie attacks. The agency continues to fall short in its job of protecting investors. . . .  . If anyone has ever heard a company get asked a question about the effect of global warming on its business, please e-mail ASAP. Otherwise, I will continue to assume that climate change is the last thing investors are concerned about. I’ll also continue to assume that their lack of concern is well-placed. . . .

Sylvia’s, the Harlem soul-food restaurant, has begun residential delivery. From Crain’s:

The eatery will fulfill orders north to 145th Street and south to 110th Street, though deep-pocketed corporate clients get special treatment. Last week, Citigroup Chief Executive Vikram Pandit ordered lunch for four people at his midtown offices, says Ms. Woods-Black. “He's a new Sylvia's fan,” she adds.

That’s 73 blocks! For lunch! Wait until Neil Barofsky hears about this. . . . P.S.: When was the last time you heard Citigroup referred to as “deep-pocketed”? . . .

It turns out Michael Lewis, Wall Street's newest professional scold, didn’t always think the global financial system was an accident waiting to happen:   

[T]he most striking thing about the growing derivatives markets is the stability that has come with them. More than eight years ago, after Long-Term Capital Management blew up and lost a few billion dollars, the Federal Reserve had to be wheeled in to save capitalism as we know it.

Last year Amaranth Advisors blew up, lost more than LTCM, and the financial markets hardly batted an eyelash. . . .

The Sarbanes-Oxley Act sticks a wrench in the American market for initial public offerings, and the capital-raising business simply removes itself to London and Hong Kong. Thailand installs capital controls and the markets force it to reverse its policy, virtually overnight -- again with nary a ripple. The Brazilian real is now less volatile than the Swiss franc; Botswana's debt is now more highly rated than Italy's. Oil prices double, the U.S. housing market tanks -- no matter what happens, financial markets adjust quickly and without hysteria.

There are obviously a few things to worry about just now in the world, but the inability of traders to find a sensible price for the spread between European junk and European Treasuries isn't one of them.

Then, just year and one massive global financial explosion later, Lewis had nothing but contempt for those very same traders:  

The world once rewarded you for selling the CDOs; now the world might reward you for saying how much you regret having done so. The odds are pretty good that it’s the incentives, and not you, that have changed. The time to display your sincere disapproval of your own financially idiotic or destructive behavior was back before they fired you, or canceled your next three bonuses.

The guy's dander is up, I tell you. I just have one question: where can I sign up for Michael Lewis weathervane lessons?
 

Bill Miller says he likes regionals:

[S]o-called “low quality” recovery names are still quite attractive, with many of them trading below book value. Regional banks, for example, were among the worst stocks in an otherwise good year in 2009, but have begun 2010 strongly. Many of them have ample capital, will see loan and credit losses peak this year, yet trade below tangible book value and therefore with a negative deposit premium. This year should also see a merger boom, as corporate balance sheets are mostly flush with cash, and profits are again headed higher. [Emph. added] 

No arguments here. . . .

Say what?

More than half of the 4,383 U.S.-based funds in the 2009 [Morningstar] study had no manager investment; 413 had investments of over $1 million. "It can be hard for younger managers who've just been promoted to invest more than $1 million in their funds," says Laura Lutton, Morningstar's editorial director of fund research. "But I have a hard time understanding why so many managers would not invest anything at all."  [Emph. added]

That’s a little like buying a copy of Playboy and only reading the articles, isn’t it? . . . I’m all for the challenge of purely intellectual engagement, but the theoretical consideration of what, say, JPMorgan’s normalized ROE ought to be won’t cause most mortals to spring from their beds in the morning and race to the office—let along keep their minds focused even through lunchtime. You’d think mangers would buy their own funds for the same reason they enter the office football pool. . . . One wonders why all fund companies don’t require managers to own the funds they run. That would at least weed out the idlers. . . .

AQR’s Cliff Asness, the Sage of Greenwich, isn’t crazy about President Obama’s banking reform plan, either:

So the government, upset about banker bonuses, is penalizing bank shareholders who will bear the brunt of this tax (not bankers) for these same shareholders not getting paid enough of the 2009 profits, which the shareholders were fine with. If that sentence is confusing, do not worry, you are following as well as the government. 

Well said! Elsewhere, Asness’s comparison of Barney Frank to Fonzie is jarring but credible. . . .

Signs of life in Florida housing market?

The median sale price of an existing home in Florida fell by just 10% last month, Florida Realtors reports. That may seem like a steep drop to you, but it’s half the rate home prices were falling just three months ago, and is as nothing compared to what was going on when prices were in full-plummet in Florida at this time last year. At this rate, the market could actually start to turn higher by March. Take a look:

Florida isn’t the only hurting market that may be starting to perk up. In Southern California last month, recall, home prices rose by 4% from a year ago, their first year-on-year rise in two-and-a-half years. In Orange County, the market has been rising for months:

Hmm. . . Sometimes the Cassandras are as full of it as the rest of us. . .

So this is what it’s come to:

The United States is rapidly becoming an unpredictable place for banks to do business, and Canada stands to benefit. 

Some international financial institutions are weighing the possibility of moving certain people or businesses from the U.S. to Canada, or locating new operations in Toronto rather than New York, industry sources say. . . .

Toronto-Dominion Bank chief economist Don Drummond characterized the Obama [banking-reform] proposal as “an added incentive for large U.S. banks, or those who wish to conduct certain operations restricted by the proposal, to expand outside the United States in order to preserve their size and range of operations.” 

The relatively stable and predictable environment in Canada and its close proximity to the U.S. put it in a position to attract business. [Emph. added]

Added plus: the Canadians wouldn’t put the kibosh on boondoggles. Banff must be beautiful this time of year. . . President Obama understands that financial services is a highly mobile business, right? Right?

Can you imagine a more partisan hypothetical choice for Fed chairman than Paul Krugman ? I can’t. That should automatically disqualify him, right? Central bankers are supposed to be independent and above politics. That’s nobody’s idea of PK. You may agree with what he’s has had to say in his Times columns and elsewhere over the past ten years, but you can’t deny that they have a certain . . . er . . . point of view . Plus, he's amazingly consistent! If Krugman ran the Fed, it’s impossible to believe Republicans would give him a pass whenever he tried to do the politically unpopular but necessary things that central bankers routinely have to do. Theoretical example that will almost surely happen: Suppose, as the economy recovered, a Krugman Fed drastically raised rates to bat down incipient inflation. Do you think Republicans would cheer him for giving the economy distasteful but much needed medicine? No need to answer that. This is not a recipe for stable enlightened economic stewardship. . . Felix Salmon needs a new hobbyhorse. P.S.: I can’t quite figure out what his objections to Bernanke are, in the first place. . . . P.P.S.: Intrade rates Bernanke reconfirmation at 95%. Happily, this is almost certainly a theoretical discussion. . . .
 

Meredith Whitney, in full panic mode (sorry, no link):

This morning, the Obama administration announced a proposal which could potentially change the entire face of the financial industry by limiting leverage, banning proprietary trading within banks, and breaking up concentrated market shares. . . While details are slight with respect to the White House’s proposal for potentially game-changing regulatory overhaul, it is clear to us that the market is not overreacting to what directionally could be a decidedly lower move for capital markets profits for the banks. . . . [Emph. added] 

Someone pour the woman a scotch! In fact, for all the clucking and arm-waving they’ve caused, the President’s proposals won’t likely affect too many banks at all. The regionals, even the big superregionals, don’t do much in the way of proprietary trading, as it is. Goldman and Morgan Stanley can get around the rules by dumping their bank charters. Wells Fargo and BofA have historically viewed the capital markets business with ambivalence, anyway. So Citigroup and JPMorgan Chase are the only two that have much to worry about. Citi has enough other things on its plate.

That leaves JPMorgan. I’m just not going to spend a lot of time worrying whether Jamie Dimon can fend for himself. . . . . Meredith also says she believes “the possibility of this proposal going the distance is high.” Why she thinks that, I don’t know. The rest of the administrations’ financial reform package seems to have gotten stuck, and Obama himself isn’t exactly on a roll. . . .

What's this? Home prices in Southern California are actually going up:

The median price paid for a Southland home rose 4% to $289,000 last month from December 2008, the first time the closely watched figure has posted a year-over-year gain since the region's real estate market took a nose dive 2 1/2 years ago, according to data released Tuesday by MDA DataQuick, a San Diego real estate research firm. 

But I thought the housing market wasn’t even going to bottom until the middle of this year. . . . The people at SeekingAlpha are going to have to develop a new act. . .