Market Talk

- Obama unveiling the “Volcker Rule” last week was encouraging, but there are still reasons to be skeptical, Simon Johnson says. “There are very real indications that the conversation is either superficial (on the economic side of the White House) or entirely a marketing ploy (on the political side),” he says.

- A tablet may not be Apple’s (AAPL) only major announcement at Wednesday’s event. Reports are circulating that Apple could announce the end of its AT&T (T) iPhone exclusivity deal later this week.

- Speaking of Apple, the buzz surrounding Wednesday’s event and expected unveiling of the tablet is reaching epic proportions. WSJ’s Digits blog looks at some of the bizarre tablet rumors. NYT’s David Carr is amazed at how Apple can drum up so much buzz without saying anything. And David Pogue says “The only thing we know for sure about the Apple tablet is that we don’t know anything for sure.”

- Are stocks ignoring earnings? Or has the market already priced in a strong earnings season? Bespoke weighs in.

- Disappointing existing home sales data this morning, but new home sales is what really matters for the economy, Calculated Risk says.

- Journalists, economists, bloggers and others weigh in on the troubles facing Ben Bernanke’s confirmation as Fed chairman. WSJ’s Real Time Economics has the details.

- Insider buying falls to a new low for week ending Jan. 20, while insider selling remains high. Not surprising corporate insiders are expressing little faith in their own shares. “As of now, signs of a sustained rebound in earnings and revenues remain mixed,” the Pragmatic Capitalist blog says.

- Sun Micro (JAVA) CEO Jonathan Schwartz is set to resign, leaving JAVA in hands of new owner Oracle (ORCL), Digital Daily blogger John Paczkowski reports, citing sources close to Sun.

- Tishman gives up Stuyvesant Project to its creditors in the collapse of one of the most high-profile deals of the real-estate boom, WSJ reports.

- StockTwits acquires the financial news aggregator Abnormal Returns, which is great all-around for the econoblogosphere and one-man blogs in particular, Felix Salmon says.

If Paul Volcker is a winner for his role in influencing President Obama’s proposed bank plans, is Tim Geithner the biggest loser?

It’s certainly hard to ignore Geithner’s role (or lack thereof) in Obama’s press conference yesterday. The President began his speech by thanking Volcker and Bill Donaldson for their advice and influence regarding his new bank regulations, even calling the new policy “The Volcker Rule.”

“That in itself is shocking,” Henry Blodget writes at Clusterstock, as Volcker, a former Fed chairman, is now just an advisor to Obama whereas Geithner is Treasury Secretary.

Even the lineup on stage at yesterday’s press conference was astounding. Volcker stood right by Obama’s side, followed by Barney Frank and then a distant Geithner, who may as well have been caddy-cornered on the side of the stage.

“At the very least, yesterday’s press conference seemed designed to tell America that Tim Geithner has been marginalized, that Obama is now (finally) committed to change,” Blodget says.

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Of course, sir, you know this mean war.

Maybe he’s just searching for a popular cause to boost his approval ratings, after Tuesday’s stinging rebuke from the electorate, but President Obama dropped a bombshell on the banks today. And if it seems like the White House has declared war on the banks, well, it does seem like that, doesn’t it?

US stocks sell off sharply after President Obama unveils his bank plan, which smacks of Glass-Steagall — and smacks the banks between the eyes.

DJIA skids 213 (2%) to 10390, its worst one-day selloff since Oct. 30. S&P 500 loses 22 (1.9%) to 1116, Nasdaq Comp drops 26 (1.8%) to 2266. Treasurys surge, crude drops. Dollar’s flat, apparently over fears that the Obama proposal, which he dubbed the “Volcker Rule,” would squelch a nascent recovery.

We’re not exactly sure about that, what with Republicans already speaking out against it, and Barney Frank talking about delaying it for several years. But it does seem like the simmering resentment about the banks and their sweetheart bailouts, resentment the White House has been trying to keep a lid on, is suddenly getting a full venting. And Lord only knows where it goes from here.

The President’s proposal would prohibit banks from having both proprietary trading desks and commercial banking operations. And while it seemingly came out of left field — we’d love to have seen any of the 30 dozen spit-takes that erupted across Wall Street just before noon — it’s the President’s second major grenade lobbed at the banking sector in, what, a week?

Hell hath no fury like a President diving in the polls.

Like we said, the basic problem with the PPIP is it overpays for lousy assets. But that’s not the program’s only problem.

The real problem with the PPIP is banks are holding toxic assets way above market values, Yves Smith writes at naked capitalism.

“The problem is not the salability of said assets, it’s that they don’t like the prices,” she says, which helps explains why the two previous efforts to get toxic assets off of bank balance sheets have failed.

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The stress tests have thrown up more red flags than a Soviet military review.

The stress tests results of the nation’s largest banks were greeted on the Street somewhere between relief and euphoria. It seemed credible enough in that it found 10 banks wanting (not “failed,” remember, nobody “failed”), but it also indicated – despite the small, entirely manageable matter of a $75B capital hole – that the banking industry was sound.

Then we got to the part about Tier 1 common capital. That one stopped us in our “not as bad as expected” tracks.

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I'll say, we all look smart!

So, apparently, ten of the 19 banks that underwent the federal government’s stress tests passed, and the other nine passed with flying colors.

How else are we to square the latest report from the Wall Street Journal – that 10 of the banks will be required to raise additional capital – with the regulators’ insistence that none of the banks will “fail,” or will be allowed to fail, or should be considered insolvent.

We’ll find out on Thursday how many banks actually fai…didn’t pass so strongly, whether it’s 10, three or one, when the regulators release the stress test results. But one thing the tests didn’t measure, indeed can’t measure, but which means more than any capital ratio, is trust. Until it’s restored, there won’t be much of a recovery.

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May we suggest, with all due respect, that the so-called stress tests of the nations banks, administered by the federal government, are, to put it bluntly, a complete boondoggle. Unless the goal was to utterly confuse the public, wrack investors’ nerves, further Uncle Sam’s reputation for being unable to competently unscrew a bottle cap and buy the banks two months to further avoid solving their own problems.

In that case, the whole exercise was a smashing success.

“The financial crisis has gone enough rounds to have evolved from tragedy into farce,” Yves Smith writes at naked capitalism. “The stress tests are a prime example.”

The problem for the regulators – and the banks understand this already – is that no matter how they try to soft pedal the results, no matter what language they use to couch them, the public will perceive, and perceive correctly, that some banks have failed the test. Because in any real test, failure is a possible outcome.

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Why, I didn't even study for it. Thanks, Mr. Geithner!

Wait’ll Joan gets a load of this.

The New York Times reports all 19 banks that underwent the Treasury Department’s stress tests will pass, although “many” of them somehow still need to be bailed out again.

So, apparently, the test wasn’t pass-fail; it was pass-pass. From the Times:

Regulators say all 19 banks undergoing the exams will pass them. Indeed, they say this is a test that a bank simply will not fail: if the examiners determine that a bank needs “exceptional assistance,” the government, that is, taxpayers, will provide it.

We’re left in the dark as to how the boys in Washington concluded that constitutes a pass.

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Okay, everybody smile and say "TARP money"!

Market’s seeing a second day of selling pressure, with the DJIA down 140, and although the banks aren’t leading the losses, there seems to be more swirling around that sector than the others this week (and every week for the past 18 months, now that we think of it, but bear with us.)

To recap quickly: Treasury’s  Geithner suggested he’d give banks more money only at the expense of management jobs; Treasury’s also having trouble finding people willing to play along with its PPIP scheme; Calyon’s Mike Mayo suggested loan losses will rival those of the Great Depression; TARP watchdog Elizabeth Warren reportedly will recommend not just firing management, but wiping out shareholders.

On the other hand, mark-to-market rules were eased.

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Bulls come stampeding back onto Wall Street near the closing bell, as a late rally nearly wipes away equities’ losses. But stocks are done in by cross-currents swirling around the banks, and Sun Micro getting petulant in its courtship with IBM.

DJIA falls 42 (0.5%) to 7976, after falling as much as 156 earlier; S&P 500 loses 7 (0.8%) to 835, Nasdaq Comp drops 15 (0.9%) to 1607.

Financials fall after Calyon’s Mike Mayo suggests loan losses will eventually top those of the Great Depression, despite government assistance.

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