ATM Fees, SURGING

At Penn Station in NYC the other day I withdrew $340 from my account...

But it only dispensed $220!

I checked with the bank today and it did in fact confirm that I typed-in/requested $340 on Sunday. I had been doubting myself; and hadn't requested a receipt.

After a *first check* they haven't found any problems with the money count from that ATM. So I've had to file some sort of appeal.

Of course this is Bank of America we are talking about.

I've never had a problem with Capitol One. See an old receipt of mine above.

Believe It Or Not - Banks Walking On Air

Ignore that graphic's title because it doesn't even begin to broach the real story.

As you can see, over just the past 2 years, the banks have allowed the average foreclosure to become 500 days payment-delinquent up from what had been only a 250-300 day allowance.

But what MEANS is so much more important...

It means that there's a ton of invisible, yet eventual housing supply lurking out there waiting to crush home prices.

And it means that the banks are thoroughly bankrupt already! Why else would they be forestalling losses reality so aggressively?

BTW, I don't care what anyone says....homes in the Northeast cities: Boston, NYC, Philly, Washington DC and their tony suburbs HAVE NOT even begun to decline in price.

While that 5 or sub-5% mortgage rate might seem tempting or reassuring to today's first-time buyers I'm sorry to inform them that it most certainly is FOOL'S GOLD.

While technically their loan is fixed, for 30 years, I submit that it is still, for all intents and purposes, a *teaser rate*. Because once rates inevitably rise, their house will plummet in value, putting them in that massive negative-equity, strategic-default-considering position.

My BIL is looking to buy a house here on Long Island.

It's a nice house; and he can afford it.

But that's besides the point. Check out the real estate taxes on it over the past 5 years:

They've jumped from $7,325 to $11,003 a whopping 50% increase in a only a handful of years!

Happy home-buying, y'all.

Happy bank-stock-buying, y'all.

I couldn't embed the video.

Coerced Debt!

Went to look at a certified pre-owned minivan today...

That's it above. Before I got there, I was wondering about the line - *Must finance with dealer*.

Did it mean that IF you finance the car you have to go through them?

Or, that EVERY BUYER was required to finance the car (through them)?

Because the C-Nut family is a debt-free entity....we pay cash.

Guess what, the latter was the case. The low price was contingent on financing. The salesman told us that we'd have to pay MORE ("a few more points"???) if we paid cash.

So they essentially force people into car loan debt. The prices are thus higher because buyers are conditioned to look at *monthly payments* rather than total cost. It's a vicious self-perpetuating cycle.

Yet this is the tragic state of our economy - where one can't buy a house without entering into a minimum of 30 years of debt slavery (again, because rampant borrowing has nuked prices into the stratosphere), where a corporation can't compete unless it leverages long-term debt, and where one can't go to college without signing on for a mountain of debt and having their parents forfeit their home equity.

Jim Rogers Shorting Warren Buffett?

Old buddy Jim Rogers said recently:

"I'm short a large western financial institution that everybody thinks is terrific."

Hmmmm....

Any guesses as to which one?

I'll bet it's the one I'm heavily short - Wells Fargo - if only because of his *terrific* hint.

My Analysis = Money In The Bank

Last week, in reference to Wells Fargo's sham *trading* profits I wrote:

Bond markets have rallied in the past year. Most of these Big Bank earnings from the likes of JPM, BAC, WFC, are from simply marking up the paper value of their fixed income - much of which is still very toxic. They aren't dumping any of these securities, so the risks of these long-term instruments have not been eliminated or even mitigated. Note the banks deceptively refer to these unrealized, and unsustainable gains as *trading profits*...

And financial blogger Reggie Middleton confirmed that. He writes:

Other income was higher owing to fair value option impact on Merrill Lynch structured notes (the highly suspect, level 3 asset, non-market price based opinion of management) which resulted in 1Q10 gain of $226 million against loss of $1.6 billion in 4Q09 as well as minimal write downs on legacy assets (again, the highly suspect, formula driven opinion of management) against write-down of $1.0 billion in 4Q09. Although it shouldn’t be necessary, I will still state that gains in these areas during an era of highly suspect asset values should be viewed with a very jaded eye.

Why mention this?

To make a point. Realize that I didn't read Reggie's - or anyone else's - analysis before offering my own. Without even going near a news story or a balance sheet I KNOW what the banks are doing. They are playing games with the *mark-to-model* license granted them by Big Government incumbents. Again, Bank of America is not selling those Merrill Lynch *assets*; they are just marking them up. They aren't selling them for the same reason those overpriced McMansions are just sitting there on the market - because the sellers don't want to hit the *reality* bid.

I was at dinner a couple of weeks ago with some highly compensated *analyst*. He was singing the praises of the big banks, particularly Bank of America. I scoffed and told him it'd be trading at $5 a share yet again. He scoffed back; told me that it most certainly would not; that banks were *what he covered*.

What he *covered*? Was I supposed to bow in deference?

CaptiousNut - Did you short Bank of America at $40, like I did? Did you predict it was going to $2.50?

CaptiousNut - How leveraged are the banks? What happens to the value of their collateral with 7% mortgage rates?

The self-proclaimed expert had no answer to that. And we made a gentlemanly bet about the future path of the stock.

Look, just because the Federal government is bailing out the banks, that doesn't mean common shares of their stock will maintain value - no less appreciate. Consider Fannie Mae and Freddie Mac. The Feds have made their bondholders 100% whole and still their stocks essentially went to zero.

Obviously, the Feds have demonstrated that plutocrats people with money in the bank....their money is safe in the sense that Big Government will simply print (more) currency and hand it over to the banks should they suffer a *run* or become functionally insolvent.

So rest assured, your nominal wealth is safe. Just don't ask about its *purchasing power*.

Later in the evening, I hit the expert one more time:

CaptiousNut - Look, you can focus all you want BAC bouncing from last March....but the fact remains, the stock is at a 14 year low, has no dividend, and has enough unrecognized losses for the next decade.

Reality - Still Postponed Indefinitely

Wells Fargo reported its fantasy-land earnings today. Here's the money quote which is worth preserving for future reference:

"We believe quarterly provision expenses and quarterly total credit losses have peaked," Chief Credit and Risk Officer Mike Loughlin said in a press release.

Bond markets have rallied in the past year. Most of these Big Bank earnings from the likes of JPM, BAC, WFC, are from simply marking up the paper value of their fixed income - much of which is still very toxic. They aren't dumping any of these securities, so the risks of these long-term instruments have not been eliminated or even mitigated. Note the banks deceptively refer to these unrealized, and unsustainable gains as *trading profits* - as if they have a legitimate business operation, one that will consistently generate *profits*. Just wait and see. Once the bond market jitters return, all of a sudden their so-called traders will be wildly unprofitable, again.

Of course, that's not the extent of the financial legerdemain. ALL OF THESE BANKS have billions upon billions of loans held *off the books*. And guess what....those aren't exactly their *good loans*!

The banks are flat-out BANKRUPT. They misrepresent lie about profits and hide losses.

AND they are leveraged to the hilt! See prior post - Capitol Thievery - where Wells Fargo clearly admits they are levered 15 to 1 - meaning they only have $1 in the bank for every $15 of liabilities.

I don't know about y'all, but I'll take the OVER of that 15 multiple.

I bought more puts today. 2012 January 25-strikes for just under $2 apiece.

See also - Greek For Moronic Bankers.

Mortgage Fraud - All The Way Up, And All The Way Down

Just a quick note on *short sales* which are picking up steam in the wake of this housing market implosion.

My real estate buddy in Naples informs me...

Here's what's going on. People who are underwater are getting contacted by *investors* who tell the homeowners that they can get a bid on their home for them within a month. What homeowner wouldn't be interested in that? A month later, they come up with a bid that's *significantly below market value*.

Then, they take that bid to the bank and the lender mysteriously approves the sale.

But there are a couple of issues/problems here:

1) The way some of these transactions are set up, the homeowners are not absolved of the mortgage debt. They are free of the house, but the lender is still owed money. Fine Print can be a bitch!

2) There's a serious conflict of interest inserting itself into these transactions. Supposedly, these *investors* have hired people directly from the loss mitigation units of the foreclosing banks. So these FNGs become liaisons between the investors and the lenders, though, mind you, employed by the *vulture* investors. What exactly does that mean?

Well, personal relationships between buyer and seller invite all sorts of payoffs and side deals. The example my buddy gave was a house being acquired by investors for 100k that had a clear market value today of 150k. Institutionalized bank stupidity is always a suspect, but I'd like to see the money/approval trail for that one.

As my buddy told me, it is near impossible for distressed homeborrowers to even get a phone call from the lender returned - never mind wresting a *loan mod* or executing a *short sale*. But these *insiders* - who are now ostensibly outsiders - already have all the connections and know-how to help make things happen.

Some people refer to this type of fraud/cronyism as the *revolving door between industry and government*.

The best example I have concerns lawyers and the SEC. All these young law school grads know the plan - work for the SEC for ten years at 80k....then after you've made all the important connections there, you're a shoe-in for a plush 400k job in the compliance department of some Wall Street concern.

Short Those Canucks!

With the focus on the Winter Olympics in Vancouver at the moment, it's a good time to address Canada's economy - that is with every other economy in the world imploding.

But it turns out, that Canada's housing market is supposedly back to its peak!

From the WSJ:

Last Wednesday, a housing-price index for Canada's six biggest cities posted its seventh straight monthly gain, showing home prices in November are now back to their prerecession peak. Another broader measure shows the average home price in 2009 hitting a record.

From Bloomberg:

The average five-year mortgage rate was 5.39 percent on Feb. 10. In May it was 5.25 percent, the lowest since 1951, according to Bank of Canada figures.

Bank of Canada Adviser David Wolf said in a January speech that it’s "premature" to conclude there’s a bubble in the housing market, and a rate increase to slow it would "be dousing the entire Canadian economy with cold water, just as it emerges from recession."

Say what?

Prices are at an all-time high, BUT they are *just emerging* from a recesion???

So why the [bleep] are house prices skyrocketing, when *shelter* over the rest of the world is deflating?

Look no further than the *bubble blowers* of Big Government:

The Department of Finance in 2008 said Canada Mortgage and Housing Corp. would limit amortizations to 35 years and offer loan insurance on only 95 percent of the loan value. The government’s housing agency had offered mortgage insurance on loans worth as much as 100 percent of the home value and amortization periods of as many as 40 years since 2006.

Hah!

40 year mortgages, with no money-down, backed by the government!

No doubt when it inevitably collapses, the *free market* will be blamed...

Short candidates appear to be - BMO, CM, TD, RY, BNS:











Obviously, I'd rather short a *basket* of these financials. There appears to be a Canadian Financial ETF, but alas it doesn't trade here (I think).

More On Goldman's IndyMac Thievery

First, see - Goldman Jerks - Still Stealing Hand over Fist.

As I promised, that post/video got everyone's blood boiling.

But then Big Government came out and said it was *blatantly false*.

Calculated Risk agrees with the politicians.

But ZeroHedge does not.

Read them both, particularly the comments on ZeroHedge, and decide for yourselves.

My bias is to always look askance upon the self-serving BS emanating from Big Government - and upon those simpletons who parrot it.

Wall Street Scalping

The public desperately wants a Wall Street scalp, or twenty...

So an incumbent Big Government will eventually toss the plebs a bone.

And it looks like that bone, to start with, is Ken Lewis - the rube who was gullible and Moronic enough to do Hank Paulson and Ben Bernanke's (read: Goldman Sachs'!) dirty work.

I know Ken, probably better than he knows himself, and Ken probably thinks he's got the *goods* on those two shysters - that if he's going down, he'll bring them down as well. Or at least that he has enough to save his own a$$.

Except that's probably not going to happen. He's most certainly going down. He may seem like an unfortunate scapegoat, but he's more than sufficiently culpable.

Tyler Durden of Zerohedge nails it:

To be sure, he is guilty of not simply stepping down when he was put in the position of having to decide between his job and lying to shareholders, which is precisely what happened in those fateful days in December of 2008. For his choice to proceed with the government's plan and to betray his fiduciary responsibility, he should be punished...

I'd advise all would-be on-pilers to get a head start. Because once the market, and BAC stock, starts to collapse anew....everyone is going to jump on Ken - not only because it's warranted, but also because it'll serve as yet more timely smokescreen for the bigger criminals, i.e. Goldman Sachs and their government apparatchiks.



For my master Ken Lewis link - click here.

And thanks to West Coast Tom for sending me the link!

EVERYONE Should Quit Trading!

Obama Rips Banks, Proposes Ban On Proprietary Trading

President Obama stepped up the heat on big banks Thursday, saying he would fight to ensure that their "binge of irresponsibility" never happens again.

He proposed limits on banks' size and proprietary trading and said he would work to "rein in excessive abuse that brought down our system."

He said banks "backed by the American people" shouldn't be allowed to own or sponsor hedge funds and private equity funds for their own profit, while putting customers at risk.

About the new proposed rule that'd limit the proprietary trading of banks, the head of the New York Stock Exchange, Duncan Niederaurer said,

....implementation is challenging. As a student of the market I can tell you that it all blurs together...

But he's also a *Former Managing Director of Goldman Sachs*!!!

Supposedly, Goldman trades 20 times as many shares for their own account than they do for their customers.

I have no problem with Goldman gambling its own money; but they shouldn't be brokering trades as well. Doing both entails almost the biggest conflict of interest imaginable.

Look, I'm against most regulation of markets. The fund managers (and their investors) who willingly give their trades to Goldman and get ripped off....they deserve the bad fills and whatnot.

But within a regulated market, it's not hard at all to segregate trading and brokering. Any and all arguments against doing so are specious and fall flat.

I got sidetracked here.

Look, it's not *proprietary trading* that got all these banks in trouble.

It was the gambling implicit in no-money-down, high-priced mortgages in residential AND commercial real estate. And credit cards too!

So yes, FDIC-insured banks probably shouldn't be rolling the dice like Sol.

But selling 20 or 50-1 leveraged homes to José Sixpack has proven far riskier.

Getting back to Obama for a minute. He's right to be slamming the banks - even it he's clueless at the to extent of Big Government culpability in their behavior. They were born of leverage for crying out loud, with their fractional-reserve sanction, FDIC insurance, and whatnot.

You see while Obama inveighs against banker's "binge of irresponsibility"....

Not only will this anti-trading rhetoric do nothing to lower the risk profile of Bank of America, JP Morgan, Wells Fargo, Citigroup, et al,....we're still left with very little to combat the *binge of irresponsibility* from politicians. Consider the hypocritical irony of Barney Frank, serial apologist for Fannie, Freddie, and subprime lending, up there next to the podium. What a farce!

Capitol Thievery

It's well known among us few perspicacious minds that all of the banks are insolvent.

Their *earnings* reports are pure flights of fancy. They simply make up numbers that have no relation to economic reality - all condoned by an econo-illiterate, incumbent Big Goverment. Remember those empty-skulled pols *relaxed* mark-to-market accounting in 2009.

For quite some time now, the big banks have buried toxic loans in so-called off-balance sheet entities. But this crime is in the process of being reined in. These banks will soon be obligated to *consolidate* their books. Read how they are responding to that impending reality:

Citigroup, JPMorgan Urge Relief From Higher Capital Requirement

Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. asked U.S. regulators for a reprieve from meeting higher capital requirements taking effect next year, arguing that lending and the economic recovery would be harmed.

Banks should be given three years to raise capital for offsetting assets and liabilities that must be brought onto their balance sheets, Citigroup Chief Financial Officer John Gerspach said yesterday in a letter to regulators. Requiring banks to "assume the risk-based capital effects immediately, or even over one year, is an undeniably severe penalty," he wrote.

Regulators including the Federal Reserve and the Federal Deposit Insurance Corp. sought comments on whether to permit a "phase-in" of capital requirements rising under a change approved by the Financial Accounting Standards Board. The rule passed in May eliminates off-balance-sheet trusts known as Qualifying Special Purpose Entities, forcing banks to move billions of dollars of assets and liabilities onto their books.

The capital requirements "will have a significant and negative impact on the amount of consumer-conduit funding that will be made available by U.S. banks," said the letter from JPMorgan, the New York-based bank that this week reported its biggest quarterly profit since the subprime-mortgage market collapsed in 2007.

"We strongly support a phase-in period for the rule changes," according to JPMorgan’s letter, which was signed by Managing Director Adam Gilbert. The change would take effect for annual reports after Nov. 15.

‘Crowds Out’

The rule "could lead to the result that every $1 billion of additional capital held from newly consolidated assets ‘crowds out’ more than $15 billion in loans," Paul Ackerman, Wells Fargo’s treasurer, wrote in a letter yesterday to the Fed, FDIC, Office of the Comptroller of the Currency and Office of Thrift Supervision. The comment period ended yesterday.

"That sort of information will get the attention of politicians, if not the regulators," said Robert Willens, a former managing director at Lehman Brothers Holdings Inc., who now runs his own tax and accounting advisory firm in New York.

Citigroup, the New York-based bank that yesterday reported a third-quarter profit of $101 million, argued that bringing off-balance vehicles onto its books would lead the bank to cut financing for securitizations that fuel credit-card lending, residential mortgages and student loans. Additional consumer loans will be cut as well, Citigroup said.

"We do not plan to reduce lending in only those businesses specifically impacted by the incremental regulatory capital requirements," Gerspach wrote.

Citigroup spokesman Stephen Cohen and JPMorgan spokesman Brian Marchiony declined to comment beyond the content of the letters. Julia Tunis Bernard, a spokeswoman for San Francisco- based, also declined to comment.

Pooled Loans

Lenders recorded profits before the U.S. subprime mortgage market collapsed by selling pooled loans to off-balance-sheet trusts, which repackaged them into mortgage-backed securities. Banks sold those securities to other off-balance-sheet vehicles they sponsored, concealing from investors that the securities were backed by deteriorating home loans.

What's astounding about this, this news/reality, is that absolutely NO ONE really gets it.

THE BANKS ARE BANKRUPT. THEY'RE ADMITTING THAT IF THEY HAVE TO RECOGNIZE THEIR HIDDEN LOSSES....THEY'LL BE UNDERCAPITALIZED, i.e. BROKE!

They are going *urge relief from a higher capital requirement*???

That's just a dissembling way of saying they are levered out their wazoo.

So how levered are the largest banks of our fractional reserve, government-sponsored monopoly?

Well, it's right there in the article. Wells Fargo implicitly says that for every $1 billion loss they ADMIT, they will have to reduce loans by $15 billion.

In other words, these banks are LEVERED a whopping 15 to 1!

By that math, if a mere 7% or so of depositors try to take their cash out....Wells Fargo wouldn't have a nickel left for anyone else.

And note the disgusting politicking. Wells Fargo (management) is threatening legislators with *we'll cut our lending if you push enforcement of this new rule*.

This is complete bull$hit!

They absolutely can raise capital - a hundred billion if they want. They can float stock and/or zing bondholders with a haircut. They just don't want to.

Instead, they are going to continue to CAPITALIZE on the gullibility of Congress, the passivity of Moronic investors, and the pockets of disenfranchised taxpayers.

Welcome To Fantasy Land!

So, supposedly, JP Morgan Chase earned $12 billion in 2009.

Who in their right mind could possibly believe that?

Who could believe that ANY bank with home loans, car loans, commercial loans, credit card, commercial RE, etc. on their books was *making money*, no less such an enormous sum?

Now I'm wondering which is more of a joke - so-called GDP government propaganda OR Wall Street bank earnings!

I don't care if JPM has supposedly set aside $33 billion in total loan loss provisions....if they had to sell everything, OR mark-to-market all of their *assets*, they'd be completely insolvent.

So what's the stock price going to do?

Who knows? I'm betting lower and I feel outright compelled to do so.

Minimally, expect them to dilute equity holders within this year, yet again.

Remember, JP Morgan is really JP Morgan Chase WaMu.

That deadbeat landlord of mine has a JP Morgan notch in his belt.

One of his four soon-to-be-foreclosed properties has a $1.1 million lien on it that's now, courtesy of WaMu, on the books of JPM. See - Why WaMu Is Bankrupt.

But real estate has been strong here in Boston.

It's current market value, only two years from the loan origination, is probably around $550,000.

And JP Morgan, through a reduced auction price, is also going to be on the hook for the unpaid property taxes, any septic issues, and whatever damage the crumb does on his eventual way out.

How many of those type of *assets* is Dimon papering over when he glibly reports *...nearly $12 billion* in earnings for 2009?

One thing that's taken me aback this past week, is the deafening silence among analysts and bloggers about JPM's so-called earnings. Either I'm dead wrong, the bears have been extinguished,....or everyone has become content to play *pretend*.



Place your bets!

Was Bound To Happen

My MIL won't give her credit card number over the internet; instead I believe she *calls* and will only do so over the phone.

And I have a jurassic aunt who won't even give out her card info over the phone!

Why not? Well, for the fear of so-called *identity theft*.

Some time back I once mocked my aunt, telling her that she flatters herself, "...no one would ever really want TO BE YOU!"

So today I'm at Chipotle for lunch with my first wife and two children - when my credit card was declined.

Right away, I looked at Mrs. C-Nut with accusatory eyes and presumed that she had been late to pay the bill, yet again. Because that's what they're doing now, miss one payment and they shut you off. See my - Personal Credit Crisis - from this past summer.

But my wife insisted the bill was paid. Figuring this may be somewhat important, I put down my quarter-eaten burrito and endured the painful process of calling my credit card company (BoA/MBNA). Apparently, there was a fraud alert that was set off. The dude asked me if I charged $1 at Apple.com. I most certainly did not. And then he asked me about a $600 purchase at hocks.com or something (I couldn't make out the name of the website amidst the din of the restaurant). That sounded fishy to me - and my wife didn't know what it could possible be. But the customer service rep was pretty certain it represented foul play. The $1 charge at Apple.com was a test or something to see if the card worked, so he declared. Right away he said they were turning off the card, issuing me a new one, and mailing me some affidavit.

So what happens next? My wife thinks it's my landlord, but it most certainly is not. It's probably some waiter or bartender who ran the card some time ago. They wrote down the numbers and then later googled for my address. Or maybe not? I really don't know. I would like to know where they tried to ship the merchandise too. That would be telling, would it not? I mean, they could probably ship the stuff there and then handcuff whomever tries to take it home pretty easily, right?

But they won't do that and therein lies the problem. These clowns don't think it worth their time to chase down what they think are *small crooks*, so they just bake the fraud losses into higher prices for the rest of us.



It looks like hocks.com is some medical/pharmaceutical retailer. I just called them directly and left a message. I can understand why Bank of America/MBNA might not want to even help me track down the thief. After all, they just take back the funds they were going to wire over and wash their hands of the matter; but I'd presume that hocks.com would be more interested in nabbing the crook, a guy/gal who's just going to try the exact same scam again, and again.

I'd be really surprised if they actually did anything in the way of helping me or law enforcement, and that will either be confirmed or denied next week.

In the meantime, I guess I have to run a credit check or something to make sure no one has opened cards in my name. I don't really know. Have any of y'all been victimized thusly? Any advice?

So what exactly was *bound to happen*?

Well, that someone would officially want to steal MY IDENTITY and be me!

Lastly, my MIL, the one who's chauvinistic about *not giving out her credit card number* online...

She was boasting of her precaution a couple of weeks ago when my wife interrupted and retorted:

Mrs. C-Nut - Yeah Ma,...but you do other stuff like click on *SAVE THE CHILDREN* (spam)!

Whether it's driving too fast, eating poorly, fake-n-baking, mortgaging too much, clicking on pop-ups, or making ill-timed ETF purchases....we all have some risky habit or another!

Other pertinent reading I just came across:

Here is an interesting article about crooks stealing ATM cards and PINs.

And here is another on gift card scam artists.

Titanic Can't Find Willing Skipper

On the wire today:

Nov. 22 (Bloomberg) -- Bank of America Corp.’s board may extend its search for a new, permanent chief executive officer into 2010 if directors can’t settle on a candidate in the next four days, according to people familiar with the matter.

Some candidates are reluctant to wade into disagreement between board members and the government over the bank’s future strategy, said Rochdale Securities LLC analyst Richard Bove, citing large shareholders briefed on the matter.

“The government and perhaps some of the new directors want the bank cut back in size, while the old core Bank of America people don’t want to do that,” Bove said.

Dropping Out

O’Neill, a former chief financial officer of predecessor BankAmerica Corp., withdrew from consideration after talking with search-committee members because he felt they didn’t fully grasp how serious regulators are in their demands for change, the people said.

O’Neill told the committee members that the company needed to increase the size of its banking operations and shrink its trading business, one person briefed on the talks said. The committee members responded that such a shift would be unproductive because it would abandon the strategy set when Lewis bought Merrill Lynch & Co., the person said.

Compensation is another obstacle, because Bank of America’s $45 billion bailout puts the CEO under the purview of paymaster Kenneth Feinberg. Lewis agreed in October to forgo any pay for 2009 after being advised to do so by Feinberg.

At least four of those on the Finger list subsequently said they weren’t interested. They are O’Neill; former JPMorgan Chase & Co. investment-banking co-head William Winters; U.S. Bancorp CEO Richard Davis; and Eugene McQuade, a former Freddie Mac president who now oversees Citigroup’s largest banking subsidiary, according to people familiar with the matter.

Two executives not on the list, Bank of New York Mellon CEO Robert Kelly and BlackRock Inc. CEO Laurence Fink, have told colleagues and friends they’re not interested.

Aside from Moynihan, 50, other internal candidates include Chief Risk Officer Gregory Curl, 61. Lewis, 62, favors Curl, one person familiar with the matter said earlier this month.

Outside Candidates

Federal Reserve officials, who questioned Lewis’s judgment when he considered backing out of the bank’s $29 billion purchase of Merrill Lynch, are pressing for an outsider because they want more drastic change, a different person said.

Lewis has indicated to associates that he would remain as CEO on an interim basis if asked by the board, according to a person familiar with his thinking. Rochdale’s Bove wrote in a Nov. 20 note that several large investors support the idea.

Hah!

I find it hard to believe that NO ONE wants to eat the $hitpile that Ken Lewis has prepared.

It's unbelievable that Greg Curl's name is in the mix. He's nominally the *chief risk officer* for Bankrupt of America. But more than that, he was supposedly the *brains* behind all of BoA's mergers. How'd they work out again? Furthermore, topping out his uncredentials....as the article states - LEWIS FAVORS HIM!

I say go with Moynihan. I met the guy socially several years ago. He had the perfectly firm handshake!

ANYONE but extending Ken Lewis.

Although admittedly, Lewis hanging on because no one wants to inherit his job would have plenty of deeply ironic, entertainment value. A captain, by all rights, should go down with the ship, no?

The Cost Of Credit

Recently, someone I know got me on the phone and was picking my brain about their housing situation.

They want to move, far away, but they own mortgaged a house that has fallen to just below their debt load. I believe they owe around 200k and the house is worth that, if not a bit lower.

Of course, a real estate commission and other transaction costs quickly add up on an *exit*. So the dude will in all likelihood have to go in his pocket to leave the house with his credit intact.

So, say the total figure is $10,000. Would you tap your savings and ante it up?

What if it was $20,000?

In other words, at what point do you just keep your savings, walk away from the house, and imperil your precious *credit score*?

First of all, this is a multivariate imbroglio. How much savings does the potential walker have? Are they planning or hoping to tap the public mortgage market very soon, or not? What is their house really worth? Etc.

I thought about this question long and hard. I've concluded that about 10k is all that I'd put up, ever, to maintain my credit score.

Bad credit should be erased in 7 years time. Furthermore, I think that in the future banks won't be too harsh on borrowers with small black marks on their resumes from this recent period because....there'll simply be too many of them!

Plus, damaged credit has the positive side effect of returning people to reality, and renting.

As I wrote in Homeownership Sucks:

I know a guy who, unfortunately is amidst a divorce and has left his 3,700 square foot, 100 year-old Victorian house and moved into a 3 bedroom rental apartment. He insists that aside from all the other issues implicit in a divorce, he is loving renting now. He has nothing to worry about fixing or renovating. He no longer comes home to annoyances like leaky faucets; he no longer frets about peeling paint or creaky steps. Now he just comes home from work and can finally relax.

Getting back to the slightly underwater house....

I say, after negotiating a 4% real esate commission, put the house up for sale, keep dropping it till it sells. Then bring the sale to your lender - and when they decline, immediately stop making payments; and linger until law enforcement throws you out.

I do not think it immoral to walk away from a house even if you have the money to make the lender whole.

Check that. I don't think it's any more immoral than banks LENDING to people on terms that put them into abject, 30-year debt slavery.

Mark My Words - They'll Be Back At The Trough

And why the heck wouldn't they repay the Federal government the billions they borrowed?

This way, management can go back to compensating themselves *unencumbered*!

AND, if and when they get into financial trouble again, it's been proven that Big Government taxpayers will simply throw them another lifeline.

Is this a good development for equity shareholders?

Maybe. It may signify that these investment houses are a whole lot healthier.

Or perhaps not. If you're a shareholder of Goldman Sachs, Morgan Stanley, and JP Morgan, do you really want them to have carte blanche to continue to pay out-sized bonuses? Do you really want them to *not have to substantially change* the way they run their businesses?

Do you really want the banks' revenue producers to resume sky-is-the-limit incentive plans?

This is precisely the moral hazard of bailouts - that insuring risky behavior only encourages more of it.

Now, if indeed the banks are in better, sustainable shape....it begs the question of whether or not that's *priced-into* their stock prices.

I'm hoping, and betting that whatever glimmer of good news there is, has already been discounted and then some in share prices.

Meredith Whitney On The Banks

My Own Stress Test

Right now there's some sham propagated by our government where it's ostensibly *stress testing* the nation's banks - particularly the large ones - for financial integrity.

Let's put aside the silly notion that as highly regulated entities, this kind of auditing should have been going on all along by our elected officials.

Without even researching what these so-called stress tests are examining, I presume they are ignoring the most significant variable of them all - low interest rates which derive from sky-high Treasury prices. This, long-time readers know, I've been saying for a while now. And note that EVEN WITH nominally low mortgage rates, housing is still spiraling down the toilet!

I submit that if the Treasury market dumps, and mortgage rates scream past 7% and 8%, that all these banks will be roasted by their mortgage books - no matter what the *employment rate* - no matter what the level of *reserves* - no matter what the current *spread margin*.

So I just don't get the mad rush today for banks like Wells Fargo and Bank of America to go hog-wild selling *refi's* and effectively expanding their mortgage books. It doesn't well matter what home prices are - whatever home A is with 5% rates, its marginal cost of ownership and therefore its market price, can arguably go down another 19% with an uptick from 5% to 7% in mortgage rates.

You see, it's been proven that the number one cause of mortgage default is actually *negative equity*. Loan type, geography, demographics,....that's almost all irrelevant. This is a point that Mr. Mortgage, Mark Hanson, has been trying for a while to drive home.

These banks think that since their current borrowing costs are near zero, that they can write 5% loans with abandon to *those with good credit*. I think they are completely out of their minds.

The fact is, if the US Government could borrow money at 3% for 10 years - as it can today - then why hasn't it been doing so all along?

Because it can't. All the clowns are mistaking an anomaly for the new and permanent baseline.

Prepare yourselves for interest rate mean-reversion, even if your banks and Big Government aren't doing so.

Marginalizing Revenue

Recently a friend of mine, a proprietor of a small but highly lucrative consulting firm, told me:

"Business is good. My revenues are much higher this year but my profits are down."

My eyes rolled. Who gives a bleep about *revenues*?

His *revenues* are higher simply because he hired more consultants and billed more hours. His profits are down because he got lazy and did less of the work himself. Knowing his still lofty income and the toil of weekly travel I don't blame him for disengaging a bit.

As a trader, my *revenues*, my proceeds from broker and barter exchange transactions, were in the multi-million dollar range last year - as they always are. It's too bad I have those annoying multi-million dollar *cost bases* to account for!

But the misplaced obsession with revenue these days is rampant - especially in corporate America.

In the current witch-hunt against million dollar bonus recipients Wall Street has in unison defended its right to compensate - not profit producers - but *revenue producers*. Here's one exec:

I think there's a lot of emotion around bonuses, and legitimately so," said Robert P. Kelly, chairman and chief executive of Bank of New York Mellon Corp. "If you think about the average American, their house price is down, and they don't have the same level of job security that they had in the past, so people are angry."

But Kelly said increased scrutiny should be directed at top executives and policy makers at companies, not "revenue producers" like traders, who are effectively following the orders of higher-level managers.

Likewise, Citigroup only wants y'all to look at its revenue:

In a letter sent to employees Monday, Citi Chief Executive Vikram Pandit said the first-quarter performance so far has been the bank's best since the third quarter of 2007 -- the last time it recorded net income for a full period. Based on historical revenue and expense rates, Citi's projected earnings before taxes and one-time charges would be about $8.3 billion for the full quarter.

Pandit declined to say how large credit losses and other one-time items have been that would at least partially offset profit.

If only *credit losses* PARTIALLY offset profits!

And what does he mean by *one-time items*? Does he mean those that take a bite out of profits ONE TIME PER QUARTER - EVERY QUARTER?



Ken Lewis weighed in on *revenue producers*:

I don't feel good about the $500,000 cap. And it's not about me—I'll take $500,000. However, you will have talented individuals, particularly revenue producers, going to foreign banks and other asset management firms. That's a problem.

And he's weighed in on *revenue* for his entire bank:

Looking forward to this year, Bank of America should generate....close to $50 billion in pre-tax, pre-provision earnings( 2009).

There they are again with those nettlesome loan provisions.

So why the misplaced obsession with *revenue* from employees all the way up to upper management?

Because *net profits* are not their concern. That's the annoying, disjoint business of stake-holders. It's a problem for equity and debt holders.

We can also indict the revenue fetish this way - consider that Big Business has descended to the mindset Big Government with its single emphasis on top-line confiscation:



Also, there's this perverse obsession with mere revenue because that number, and that number alone, sets the parameters for SKIMMING.

For more on *skimming* visit:

Marginalizing Analysts

The Skim Biz Takes A Hit

Skim Biz Update - Fidelity Investments

Fidelity - A Mess