Market Talk

- Obama’s bailout fees on TARP recipients should become a “too-big-to-fail” tax.

- Netflix’s business model transformation continues.

- Recovery won’t happen in a vacuum, bulls, Miller Tabak’s Peter Boockvar says.

- One week later Nexus One is off to a slow start.

- Google’s pride stands out in China’s threats.

- Jamie Dimon previously didn’t even consider a stress test when housing prices fell. Unbelievable.

- More than 100,000 are feared dead after Haiti earthquake.

- Some questions for the banking chiefs.

- Beige book shows modest improvement.

- California’s debt rating cut again.

Ferdinand Pecora

The response to the financial crisis out of Washington has been such a disappointment, from blanket bailouts to funneling AIG’s counterparties 100 cents on the dollar to the so-called “stress tests,” that it’s hard to get too worked up about today’s Financial Crisis Inquiry Commission hearings (watch the hearing live here.) This Congressional panel is being sold as a modern-day Pecora Commission, the Depression Era inquiry that dug into the market crash and led to the creation of the SEC and the Glass-Steagall Act.

This morning the panel will hear from the heads of four big banks: Lloyd Blankfein, John Mack, Jamie Dimon and Brian Moynihan, the new CEO at BofA. It’s sure to produce the usual dog-and-pony show kind of fireworks Congressional panels are well know for. If there’s one thing Congress still does it, it’s play to the cameras.

The Journal is live-blogging the hearing, which is getting a little test already. Goldman’s Blankfein tried to compare the financial crisis to a hurricane, something the panel’s chairman, Phil Angelides, quickly shot down, saying hurricane’s are acts of God, whereas the financial crisis was created by men and women.

Without a doubt, we’d imagine the high point will be when panel-member Brooksley Born, who famously tried and failed to regulate derivatives in the ’90s as head of the CFTC, gets to ask a few questions.

The Commission is also soliciting questions from the public for the hearings, an unusual request to be sure. One of the panelists, Keith Hennessey, is soliciting questions on his website, and the commission itself has a homepage. The Times already collected the thoughts of a number of educated observers, who offer up their questions for the CEOs.

Here’s a pointed one from James Grant of Grant’s Interest Rate Observer:

“The Federal Reserve’s setting of its benchmark federal funds rate at nearly 1 percent in 2003 to 2004 was a primary cause of the housing and mortgage debacle. Yet, in an attempt to nurse the economy back to health, the Fed has set that rate at nearly zero percent. So what’s the next bubble, and how do you intend to profit by it?”

Good luck getting that one answered!

Just can't stay out of the spotlight...

Pity the poor Treasury Secretary.

As we and others previously detailed, Tim Geithner had a tough week last week dealing with yet another scandal. When the NY Fed was under his leadership, it reportedly told AIG to limit disclosures on CDS payments made to banks during the height of the financial crisis.

NY Fed claims Geithner had nothing to do with those decisions, which will make his congressional testimony on this subject later this month pretty interesting.

Anyway, that scandal created more Geithner bashing, prompting President Obama to once again declare he has confidence in the Treasury Secretary.  As John said last week, it can’t be a good sign that the president has publicly declared at least three times since March that he has confidence in Turbo Tim.

Now the latest Geithner bashing comes from MSNBC host Dylan Ratigan, who lists five reasons why Geithner needs to step down. (hat tip Tim Iacono)

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So NY Fed claims then-president Tim Geithner had nothing to do with decisions to limit AIG disclosures in 2008. Should make for an interesting congressional testimony later this month.

A dead-cat bounce for jobs? “It is likely that many companies cut back too much, particularly last winter, and are approaching a time when they will have to start hiring to meet even a low level of demand,” NYT’s Floyd Norris says.

Corporate insiders continue to heavily sell their own shares. “Much like Main Street, corporate insiders aren’t feeling or seeing the impacts of the recovery that have been so widely reported,” the Pragmatic Capitalist says. “This is one more sign that leaves us skeptical of the new secular bull market theory.”

Marginal new-high pattern for stocks may last for some time “followed by abrupt and often steep losses virtually out of nowhere,” John Hussman says. “Given this context, the next few months are likely to be extremely important.”

AOL’s “corporate slim-down” enters its next phase. MediaMemo blogger Peter Kafka says AOL is firing more than 1,000 employees.

Friday’s weak jobs report adds fuel to pessmists’ fire, Paul Krugman says.

Google’s lack of customer support for Nexus One needs to be addressed.

Hard to ignore rising commodity prices.

The never-ending Bank of America/Merrill Lynch drama continues. SEC’s seeking permission to add new charges against BofA for failing to disclose Merrill Lynch’s “extraordinary losses” in time for shareholder vote on its takeover.

Obama’s considering levying a fee on banks to recoup taxpayer funds spent to rescue the financial sector and auto companies.

Stress test? My whole life is a stress test.

In case you were a little unsure, President Obama still has “confidence” in Treasury Secretary Tim Geithner.

By our count, today marks at least the third occasion since last March that the White House has felt compelled to say Geithner still has the president’s confidence. Trouble is, the more we hear that, the less we believe it. And they sound less convincing with each affirmation.

Back in March, Tim took some heat for his part in allowing big bonuses to be paid at AIG. “I have complete confidence in Tim Geithner,” the president said at the time. He was making “all the right moves in terms of playing a bad hand.”

Forget that Geithner, at least in some ways, dealt that hand to himself.

Fast forward to October 8th, when Tim’s frequent contacts with a small cadre of Wall Street big shots (but mostly Goldman’s Lloyd Blankfein) caused another stir.

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The latest revelation surrounding Tim Geithner has generated a spirited debate among your humble Market Talk editors: if and/or when will the Treasury Secretary get the boot?

Before we answer that question, here are the details. The NY Fed, when under Geithner’s leadership, reportedly told AIG to limit disclosures on CDS payments made to banks during the height of the financial crisis. Bloomberg has the scoop, citing emails between the NY Fed and AIG:

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.”

Bloggers have been all over this story, ripping Geithner for his cagey, often-times evasive manuevering.

“This latest revelation confirms the Fed’s commitment to secrecy and, although troubling, at this point should come as no surprise,” Yves Smith writes at naked capitalism. “The clear intent was to hide the extent of the subsidies that flowed from the Fed and Treasury to the recipient banks. Charming.”

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Remember that thing we talked about - and for God's sake, man, don't let the press find out.

There are two conspiracy theories floating around getting a lot of attention: the assertion by Charles Biderman from TrimTabs that the government is propping up stock prices, and the notion put forth by Sprott Asset Management that the funding the federal budget has become one giant ponzi scheme.

Now, these aren’t just your usual tin-foil hat types talking here, and the fact that these claims are gaining traction shows that at the least, there’s a portion of the citizenry that just isn’t buying the official story line.

They are sort of reductio ad absurdum arguments, and one problem with them is that don’t actually make the case that would prove their point; rather, they draw their conclusions as the only possible explanation, given a lack of alternate conclusions.

Still, they raise troubling questions about the actual strength and durability of the economic recovery.

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- Google’s actually a fan of Apple’s Quattro Wireless deal. “Google’s logic here is straightforward: If other big companies are buying mobile ad networks, then Washington can’t possibly be upset with us for buying AdMob,” MediaMemo blogger Peter Kafka says.

- Palm Pre, Pixi to Verizon could finally become a reality. Announcement could come this week at CES.

- Demand for 3-D TVs seems questionable. “I’m not against 3-D televisions, I’m just wary of the actual viewer experience,” Nick Bilton writes at NYT’s Bits blog.

- IPhone and Nexus One “will appeal to different constituencies, to some degree, but Apple is going through the same experience it did in the early days of the PC industry,” Paul Kedrosky notes. “It legitimized a more elegant approach, and now looks set to stake out a somewhat marginalized position, if a highly profitable one.”

- UK’s trying to bully Iceland around, which upsets Reuters blogger Felix Salmon. But Mish says Iceland’s tough stance is the right move. “Congratulations to Iceland for figuring out that it is better to suffer a credit rating downgrade than to torture its citizens for a decade or longer.”

- Hard to believe, but securities fraud suits actually dropped 24% last year.

- Nexus One only unveiled 24 hours ago and its already creating winners and losers in the tech space, Barry Graubart says.

- Expect a “boring” year compared to 2009 if you’re looking to invest in financials.

- Fed officials disagree about withdrawing stimulus.

- AT&T’s adding cellphones running Google’s Android software to its lineup this year, including a smart phone from Dell, as well as Palm devices as it faces competition to carry the iPhone.

Not telling.

With the great stock market rally of 2009 now in the books, Charles Biderman at TrimTabs is wondering: Where’d all the money come from that drove US markets up more than $6 trillion since March?

His firm tracks stock-market liquidity, and as far as he can tell, the fresh cash didn’t come from “traditional players that provided money in the past,” such as corporate America, retail investors (which we’ve noted ourselves), foreign investors, hedge funds or pension funds.

So, if it wasn’t the usual suspects, maybe it was the US government, he suggests.

“We have no way of proving this,” Biderman says, “but what we do know is that it was neither the economy nor traditional sources of capital that created the boom in equities.”

Uncle Sam’s spent hundreds of billions to support autos, housing and banking. “Why not support the stock market as well?” Biderman says.

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Here’s the first linkfest of the new year, folks. Hope you enjoy, and please let us know in the comments what else you guys are reading.

- Historians and economists will remember 2009 as the year Wall Street roared back to prosperity while Main Street continued to languish, says former labor secretary Robert Reich. “If 2009 has proved anything, it’s that the bailout of Wall Street didn’t trickle down to Main Street,” he says.

- Newspaper stocks more than doubled last year, but Newsosaur blogger Alan Mutter says time will tell whether booming times are head for the batter industry, or if this is merely a dead-cat bounce.

- Financial stocks continue to lag, but don’t worry. Bespoke Investment Group says it’s better to focus on broader measures of the rally’s health rather than a specific sector.

- Stocks kick off the new year on a high note. Still, the market remains “overbought and tactically vulnerable,” Minyanville CEO Todd Harrison says. Keep an eye on the dollar, financial stocks and market breadth as “intuitive near-term tells.”

- Get ready Apple fanboys, something big is coming in the end of January. Is a tablet announcement in the offing? And will it overshadow CES?

- Corporate insiders continue to remain overly bearish on the market’s prospects.

- It’ll be tough for fixed income to top 2009’s gains.

- Mark Thoma wonders whether the Fed caused the recession?

- Taibbi’s at it again: Fannie, Freddie, and the new red and blue.

- World’s tallest skyscraper opens in Dubai. Could it mark a turning point for Dubai’s fortunes?