Guess what America? Citigroup CEO Vikram Pandit just gave us a $45 billion dollar Thank You card.

“This investment built a bridge over the crisis to a sound footing on the other side, and it came from the American people … I want to thank our government,” Pandit said in prepared remarks for his Congressional testimony.

Looks like Pandit HEARTS socialism for corporations. Despite all the savvy lobbying to help banks “free” themselves from onerous government regulation, Pandit et al get gooey-eyed for government when the former Big Bad regulator reaches into the pockets of taxpayers to support a “free market” business freely on the way to the grave.

“Citi owes a debt of gratitude to American taxpayers,” Pandit said. “We look forward to helping them realize value on that investment.” Aw shucks. Pandit wants to help us do well with an investment we were forced to purchase with tax dollars no longer available for more important things than investing in the risky private market. Last time I checked, playing the market was not what anyone considers a good use of hard earned tax dollars.

Since complaining about the Wall Street bailout is crying over spilled milk, let’s just revel in awe over the cosmic hypocrisy of corporate socialism in a country which prides itself on exporting free market policy while demonizing socialism like Orwell’s Eurasia and Eastasia.

Update: Here is what Pandit had to say to Bloomberg after taking his lashings from Congress:

What do you think of Pandit’s Thank You? Let us know in the comments below or click here to chat in our new Forum.

Here are direct links to our favorite articles which we think you should highly consider reading.

Without further ado, jump on board the Bullet Train …

Wall Street’s Bailout Hustle by Matt Taibbi at Rolling Stone

Management Secrets of The Grateful Dead by Joshua Green at The Atlantic

U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion at The Onion

Investing Local: Can the City of Angels Move Its Money? by Dennis Santiago at Huffington Post

Discounting the Discount Window by Todd Harrison at Minyanville

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Here are direct links to our favorite articles which we think you should highly consider reading.

Without further ado, jump on board the Bullet Train …

GDP Minus Inventory Restocking is Flat by Prieur du Plessis at Investment Postcards

Market Sentiment Overview for the Week by Babak at Trader’s Narrative

The Sick Men Of Europe: The Definitive Guide To The European Crisis by at Zero Hedge

How Politics Caused Fiscal Disaster by David Stockman at Minyanville

Long/Short Hedge Funds: Lowest Net Long Exposure Since May 2009 by Jay at Market Folly

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Trading Skills Overpowering Knowledge: Learn to Be Patient

Only this morning we wrote:

…[W]e have a quiet news week and the markets are sensitive to unscheduled news. Overnight, equities are up on some bullish rumors regarding a Greek bailout. Some have compared the situation to the Dubai events in late November that led to a quick selloff and rebound in world equities. However, this situation is not to be taken lightly, as a Greek default would be three times as large as the Lehman bankruptcy, and could quickly devolve into another global crisis of confidence. Accordingly, the markets are at the whim of the ECB. If it bails out Greece, there will probably be a large short covering rally. If it lets Greece default, there will probably be another selloff. And, if it does nothing and Greece muddles through for the time being, there will probably be a series of minor rallies that lead to larger selloffs. The moves generated by the first two scenarios will be very swift, so swing traders will need to be prepared to react just as quickly…

When news broke at about 11:30 am EDT that there was an agreement in principal for a bailout, equities rallied and the US Dollar fell, as expected. However, a mere hour later, after the ES had rallied 19 points to 1077, Germany countered by saying it was not a done deal and there would be significant strings attached. Accordingly, there is still much uncertainty in the markets. For now, what likely would have devolved into a return to the 1040’s has been averted. In the end, we believe a bailout with nominal strings attached (to save face) is very likely, but the intervening journey in the markets will be volatile as the details are filled in over the coming days and weeks.

The 1080 to 1083 is the first critical resistance level that swing shorts will need to defend. There is a historical tendency to clear important resistance levels overnight, evidenced by the fact that the gap accounted for fully 32% of the rally in the S&P 500 that began in March 2009. Combined with the current news being generated overseas, if this area is to be exceeded, US traders should be prepared to wake up to a market that has already cleared it rather than experience it intraday.

There will be plenty of opportunities during trading hours, however, and a savvy daytrader can capitalize on these movements by correctly reading market signals, regardless of knowing the actual news that’s driving the markets. A simple five minute candle chart with volume of the ES warned that the rumor would lead to a sustained rally when it closed nearly at its highs (within a tick) on high volume. Ideally, volume would have been at least 100,000 (actual about 91,000), but the 8 point range that convincingly broke the downward trendline was sufficient to generate follow through short covering. Also important was that the ES looked like it was headed for trouble and sentiment was very negative following the failure just above the previous day’s high. The entry can be made on a stop basis one tick beyond the big range bar, with a two point stop loss.

In general, the larger the wick or shadow of a big range candle, the less likely a continuation of the move is. This so-called indecision area is just that–it conveys doubt and will encourage profit taking and counter trend traders, which will tend to halt the move. This is why a short based on the big-down 12:45 pm candle was not a good candidate for a continuation move (besides the fact that the stop sell entry signal was not triggered). The two point shadow at the bottom was enough to make a material retracement to the 50%-61.8% fib box likely.

The flipside to potential entries is that, in this environment, exit stops placed on day trades are crucial because it is easy to get caught on the wrong side when surprise news is announced. Indeed, a long entered on the above basis would have given up 100% profits on the 12:45 pm bar. Accordingly, on steep moves, a simple trendline break can be a profit taking cue, as can a move that exceeds an interim pivot bar on the 5 minute chart.

Moves like today do not occur frequently, but when they do, often follow a predictable pattern. We should see more in the coming weeks, so be prepared.

For a daily battle plan and intraday updates, register free at our site.

This is the start of a new series Outrageous But Legal. I encourage you to join in the fun and email me the link to anything you consider “Outrageous But Legal”.

Outrageous …

Social Security is simply one big Ponzi Scheme. So long as the population is shaped like a triangle, the worker bees send money up the pyramid to the retired bees. Unfortunately, the age of populations does not always look like a perfect triangle where there are more young people to take care of the elders. Such is the case in the US with the Boomers reaching retirement age.

The Congressional Budget Office has released a report showing that Social Security is spending more than it is taking in. Rather than deal with this inevitable issue years ago, lawmakers have chosen to kick the can down the road — and today is where that road ends.

So, like every other Ponzi Scheme, Social Security is beginning to submerge underwater like the Titanic. Get ready for another bailout of government ineptitude.

… But Legal!

This Wednesday, President Obama will broadcast his message from the most visible area of the bully pulpit: the State of the Union address. The AP reports President Obama will unveil a new economic aid package including:

“[A] doubling of the child care tax credit for families earning under $85,000; a $1.6 billion increase in federal funding for child care programs and a program to cap student loan payments at 10 percent of income above “a basic living allowance.” The initiatives will be part of the president’s proposed budget for fiscal year 2011.

His initiatives also include expanding tax credits to match retirement savings and increasing aid for families taking care of elderly relatives. That program would also require many employers to provide the option of a workplace-based retirement savings plan.”

Are these new packages aimed at helping the struggling underemployed, or are they simply political bait to ward off a Republican surge in the upcoming midterm elections? Either way, these new programs represent a new wave of subsidies to continue propping up the economy in the short term.

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Yesterday’s Financial Crisis Commission brought some fun moments as bank execs had to spin their way out of knowingly monetizing a few per se disastrous financial scams.

Today, the Commission is asking financial regulators whether they were playing on Facebook or LinkedIn while mortgage brokers, uncollateralized default swappers, and bankers were engaging in very harmful behavior. You can watch the reality show du jour free here at CSPAN 2 : Click to watch history in the making.

Kevin Depew from Minyanville has a nice recap of yesterday’s hearings:

Everything You Need to Know About the Financial Crisis Inquiry Commission

“All the money and all the banks in Christendom cannot control credit.”
– John Pierpont Morgan, Epigrams from his testimony before the Bank and Currency Committee of the US House of Representatives, appointed for the purpose of investigating an alleged Money Trust on Wall Street.

Seventy-seven years ago, a big-bodied, imposing figure with dark fuzzy eyebrows stitched to his ruddy face as if to keep a permanent scowl attached, sat to one side of a US Senate caucus room, an immense cut-glass chandelier dangling overhead, blazing fire in the afternoon, as he listened to his partners testify before the Senate Banking & Currency Committee. The proceedings were safeguarded by heavy baronial doors, a thick carpet covered the stone floors, and high, placid windows overlooked a courtyard fountain with indifference. Inside the room, politicians and lawyers mopped sweat from their necks and took turns peppering financiers with hard questions born of deep-rooted fear; fear of the dark, fear of the light, fear of the truth.

John Pierpont Morgan, the man with the permanent scowl stitched to his forehead, sat through the testimony of his partners with a curious mix of detachment and consideration. Occasionally, he fiddled with a heavy gold watch chain, causing a ring on his hand to spray shards of light around the room. His own testimony already completed, Morgan the private banker had already admitted, among other things, to paying a grand sum total of exactly zero dollars in income taxes in 1930. He followed that with another non-payment of zero in 1931. And again in 1932. Indeed, the rich are different.

Among the other Morgan-specific findings to emerge from that room were the following:

1. JP Morgan and partners paid a total income tax of $51,538,074 during the years spanning 1917-29.

2. Lists of JP Morgan “friends” cut into stock deals below the market included a New Jersey Senator, Massachusetts’ Lieutenant Governor, and a business associate of Herbert Hoover.

3. The partnership papers of the House of Morgan were “so arcane that even Lawyer Davis had never seen them.”

4. “Partner Morgan was the firm’s supreme arbiter.”

Where Is Our Pecora?

Those juicy nuggets of heavy-handed wheeling and dealing were only a fraction of the dirt teased out of JP Morgan and his partners by the man who would go on to become the real star of the hearings — the man with the name they’d eventually come to be known by — the man Time Magazine called a “kinky-haired, olive-skinned, jut-jawed lawyer from Manhattan”: Ferdinand “Pick” Pecora.

It would be a hell of a thing to call a man kinky-haired in the press these days, and to layer the nickname “Pick” on top of it is almost too much for a decent person to bear, let alone a pie-eyed editor staggering in under deadline. Remember, this was, after all, the Great Depression.

“Banker Morgan’s inquisitor was swarthy Lawyer Ferdinand Pecora, counsel for the Committee. At his side, prompting him continuously, was his own chief counsel, courtly, white-crowned John William Davis, onetime Democratic nominee for President.”
– Time Magazine, May 29, 1933, “Business & Finance: Biggest Show”

Yes, it’s tempting to chalk it up to a “different age,” but make no mistake: 2010 is still a white man’s banking world. In the 1930s, in spite of it all — the crushing unemployment, the financial ruin, the hunger and the fear — the American press drew sharp lines between courtly, white-crowned “Banksters” and their “swarthy” opponents, even as they cheered the drama. Then, as today, they… we… demanded revenge, punishment — but just a little bit of it; just enough to hurt. Remember, we’ve always known which side our bread is buttered on.

And the crowd in the Senate room loved every minute of it; the tension, the drama, the sound and fury of a swarthy immigrant lawyer daring to badger the principal of a white shoe firm, the man some considered to be the Face of Capitalism itself. Virginia Senator Carter Glass — yes, the Glass of Glass-Steagall — like a carnival barker overstating the obvious, frequently pounded the heavy mahogany Senate room table demanding Mr. Pecora stop badgering Mr. Morgan. Just in case anyone had missed it.

Now, 77 years later, many are wondering who will become the Pick Pecora for a new generation. We already know who’s playing the role of John Pierpont Morgan.

Repent! Repent! The Beginning Is Nigh!

In 1933, JP Morgan, both the firm and the man himself, much like Goldman Sachs (GS) today, straddled the queer expanse between Wall Street and Main Street in an awkward pose. If one shoe was planted squarely in the middle of Wall Street, the other was perched precariously above Main Street, casting an omnipresent shadow over every bit of commerce to crawl beneath its hand-sewn leather sole.

Today, the gross national product of that awkward pose, its legacy, is a simmering fear & loathing that churns deep in the belly of anyone involved in its transactional demands. Like the dull pain of a rotting tooth, it lingers through the good and the bad, perseverative, its only release provided by sheer financial tragedy and ruin. Which is why the recently bankrupt frequently talk in terms of euphoric relief. Repent, sinner, repent! The beginning is nigh!

Easy to Overrun, Hard to Subdue

“…It is certainly well that Wall Street now professes repentance. But it would be most unwise, nevertheless, to underestimate the strength of hostile elements. When open mass resistance fails, there is still the opportunity for traps, stratagems, intrigues, undermining-all the resources of guerrilla warfare. These laws are no panacea; nor are they self-executing. More than ever, we must maintain our vigilance. If we do not, Wall Street may yet prove to be not unlike that land, of which it has been said that no country is easier to overrun, or harder to subdue.”
– Ferdinand Pecora, “Wall Street Under Oath: The Story of Our Modern Money Changers”

Today in Washington DC, a new show begins, the Financial Crisis Inquiry Commission — a third-order simulacra of the image of a courtroom circus act. Created last May by Section 5 of the Fraud Enforcement and Recovery Act of 2009, the FCIC consists of a 10-person panel filled top to bottom with the typical random assortment of Washington freaks, fruitcakes, and wingnuts.

The commissioner is a lawyer, a veteran of securities litigation. Naturally, he lives in Las Vegas. There’s also the former Treasurer of the failed state of California. Next, the Republican hothead who summoned Capitol Police to remove protesting Democrats from a meeting room back in 2003. (A few days later he broke down in tears while apologizing for it, a lesson that doubtless won’t be lost or forgotten by bankers or their counsel.) You have the modest and humble National Hero of Derivatives Destruction who reportedly saw the whole thing coming as far back as 1996 but couldn’t get anything done about it. There’s a millionaire former governor whose supporters once proudly dubbed themselves “Graham crackers.” There’s a blogger. An economist. A former managing director at  Merrill Lynch who’s now married to the Chairman and CEO of MGM Mirage (MGM) casino. You have a part-owner of an NBA basketball team, just for good measure. And last, but not least, one of the chief architects of Reagan’s proposals for deregulation in the financial services industry.

Not that any of it matters. Easy to overrun, hard to subdue. Ho ho. Yes indeed, friends. Yes, indeed.

Among the Wall Street titans testifying before the commission today are Goldman Sachs, CEO Lloyd Blankfein, Jamie Dimon of JPMorgan Chase (JPM), John Mack of Morgan Stanley (MS), and Brian Moynihan of Bank of America (BAC).

This weird bi-partisan panel is barely hours into their inquisition and already my heart is full of hate over the awful recognition that almost 11 full months of this lies ahead. After that, on December 12, 2010, a little more than 300 days from now, a final report will be submitted to the President of the United States by the commission. It will be at least a thousand pages long.

It will examine, specifically, the role of:

(A) fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector,

(B) Federal and State financial regulators, including the extent to which they enforced, or failed to enforce statutory, regulatory, or supervisory requirements;

(C) the global imbalance of savings, international capital flows, and fiscal imbalances of various governments;

(D) monetary policy and the availability and terms of credit;

(E) accounting practices, including, mark-to-market and fair value rules, and treatment of off-balance sheet vehicles;

(F) tax treatment of financial products and investments;

(G) capital requirements and regulations on leverage and liquidity, including the capital structures of regulated and non-regulated financial entities;

(H) credit rating agencies in the financial system, including, reliance on credit ratings by financial institutions and Federal financial regulators, the use of credit ratings in financial regulation, and the use of credit ratings in the securitization markets;

(I) lending practices and securitization, including the originate-to-distribute model for extending credit and transferring risk;

(J) affiliations between insured depository institutions and securities, insurance, and other types of nonbanking companies;

(K) the concept that certain institutions are ‘too-big-to-fail’ and its impact on market expectations;

(L) corporate governance, including the impact of company conversions from partnerships to corporations;

(M) compensation structures;

(N) changes in compensation for employees of financial companies, as compared to compensation for others with similar skill sets in the labor market;

(O) the legal and regulatory structure of the United States housing market;

(P) derivatives and unregulated financial products and practices, including credit default swaps;

(Q) short-selling;

(R) financial institution reliance on numerical models, including risk models and credit ratings;

(S) the legal and regulatory structure governing financial institutions, including the extent to which the structure creates the opportunity for financial institutions to engage in regulatory arbitrage;

(T) the legal and regulatory structure governing investor and mortgagor protection;

(U) financial institutions and government-sponsored enterprises; and

(V) the quality of due diligence undertaken by financial institutions.

Click to read Page 2 …

Forget American Idol, The Bachelor, and The Biggest Loser. This week’s most entertaining reality show is the Financial Crisis Inquiry Commission’s Socratic embarrassment of top bank executives. It’s public politicians versus private politicians.

The public flogging should last a long time, and you can watch it free here at CSPAN 2 : Watch Lambasting Now.

We will update this post with commentary after the fireworks and spinning conclude.

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John Thain’s publicists are now out branding him as a problem solver. Surely, Ken Sunshine and his crew of professional spin doctors must have watched 1984 on Showtime over the holiday break. How else can we explain one of the biggest corporate criminals offering us, the screwed taxpayers, advice on how to fix the problem he participated in causing?

John, I will save you the $500 an hour you’re paying Ken. There are two models for you: Oliver North and Eliot Spitzer. Oliver committed treason and sold arms to the Iranians yet has a cult-like following at FOX News (I would list that as one of the Top 5 Ironies in media), while Eliot was out shagging college-aged girls behind his wife’s back yet he is now in the media as a commentator on corporate ethics.

Given the success of Oliver and Eliot, it may not be long before John’s agents sign him to a great deal with a media outlet which will let him have carte blanche regarding the interior design of his dressing room …

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Yesterday, Bloomberg continued to shine a light on the back room dealings during the height of the financial crisis. Congressman Darrell Issa obtained emails showing former head of the Federal Reserve Bank of NY Tim Geithner telling AIG to withhold details about paying counter-parties a bewildering “100 cents on the dollar for credit-default swaps they bought from the firm.”

Why did Geithner tell AIG to remove this material information from their regulatory filings? Because the Federal Reserve “decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps” on which they gambled. This is per se unconscionable behavior in a capitalist system. Goldman and the other banks knew very well that AIG did not have the collateral to pay the claims in the event of a default scenario. If AIG were legally obligated to have the collateral, the swaps would have been called “insurance”. Therefore, Goldman et al assumed a risk, and they failed. However, Geithner abated the other cronies to give his gambling buddies a full payment courtesy of our hard earned tax dollars.

In this case, Tim Geithner wasn’t acting to save the system (as he claims) because a 100 cents on the dollar repayment was not required. In what alternative dimension do gamblers get paid 100 cents on the dollar for bets gone awry? In the dimension regulated by Tim Geithner and the other cronies at the Federal Reserve and US Treasury.

“Federal Reserve officials provided AIG’s counterparties with tens of billions of dollars they likely would have not otherwise received,” Barofsky wrote in a Nov. 17 report. “The default position, whenever government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with government funds.”

For capitalism to work, rewards must flow to those who bet correctly, and punishments must flow to those who are wrong. We do not need cronies shuttling taxpayer monies to their former firms and colleagues. We do not need US Treasury Department officials lying to us (See The Treasury Department Endorses Lying to the Public). At this point, it’s time for the Justice Department to investigate whether we are witnessing one of the greatest insider heists in the history of the world.

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