Exclusive: Obama budget likely to include (as yet undetermined) fee on banks to help taxpayers recoup cost of bailout -- Romer still sees recovery beginning in spring

EXCLUSIVE: Top administration officials tell Morning Money that President Obama’s budget, to be unveiled next month, is likely to include a fee on banks designed to recoup some of the cost taxpayers incurred in the bailout, which specified that the U.S. government should be made whole. This will stop short of a financial transactions tax, and the administration has decided that a tax on compensation packages would be too easily evaded. The officials said the final approach has not been locked down. The chief goal is a fee that is not easily passed along.

BREAKING: New York Fed general counsel Thomas C. Baxter writes in a letter to Rep. Darrell Issa (R-Calif.), ranking members of the House Oversight and Government Reform Committee: “I write to clarify that matters relating to AIG securities law disclosure were not brought to the attention of Mr. Geithner. … In my judgment as the New York Fed’s chief legal officer, disclosure matters of this nature did not warrant the attention of the president. Further, Mr. Geithner played no role in, and had no knowledge of, the disclosure deliberations and communications referenced in those e-mails.” We posted Baxter’s letters to Issa and Chairman Townes (misspelled on letter)


FROM ISSA’S RESPONSE LAST NIGHT: “Mr. Baxter statement’s provides a very short and narrow account that addresses specific e-mails and related deliberations but not larger questions about Secretary Geithner’s role in approving payments for AIG counterparties.”

WHITE HOUSE AND HILL HAVE GEITHNER’S BACK, Bloomberg’s James Rowley and Edward Chen: “Treasury Secretary Timothy Geithner retains the confidence of President Barack Obama as he faces questions … Aides to top congressional Democrats also said that Geithner has support on Capitol Hill as lawmakers prepare hearings into why the New York Fed in December 2008 asked [AIG] to scale back disclosures of the government’s $182.3 billion bailout of the New York-based insurer. … Asked yesterday for comment, White House Press Secretary Robert Gibbs said he stood by his earlier statements that the president had full confidence in Geithner. Jim Manley, a spokesman for Senate Majority Leader Harry Reid of Nevada, said ‘Secretary Geithner enjoys the strong support of the Senate Democratic caucus.’”

Good Monday morning. Hope everyone got to see the 96-point madness in Arizona. Redeemed a weekend’s worth of snooze-worthy football.

DRIVING THE WEEK: Bonus season kicks off as banks begin informing employees of their number while justifying the huge payouts to an angry public and an election year Congress … The awards just happen to coincide with the first hearings on Wednesday and Thursday of the Financial Crisis Inquiry Commission. Wednesday’s hearing will include CEOs Lloyd Blankfein of Goldman Sachs, Jamie Dimon of J.P. Morgan Chase, Brian Moynihan of Bank of America and John Mack, chairman and former CEO of Morgan Stanley. Also on Wednesday, the Fed releases its Beige Book of economic conditions based on anecdotal reports from its 12 districts. … On Thursday, the crisis commission hears from Attorney General Eric Holder, FDIC chairwoman Sheila Bair, SEC chairwoman Mary Schapiro and Lanny Breuer, assistant attorney general, criminal division. … Consumer Price Index is out Friday; it should offer a hint on whether the Fed will face more pressure to start tightening. Price rise of 0.2 percent expected, which is pretty tame. … Quarterly earnings flowing in all week. They will be WAY up but only compared to TERRIBLE prior year comparisons.

ROMER SAYS OBAMA UNHAPPY WITH JOBS NUMBER, POLITICO’s Mike Allen reports: “Christina Romer, chairwoman of the White House Council of Economic Advisers, said Sunday that President Barack Obama was ‘subdued’ and ‘disappointed’ upon learning of Friday’s jobless number and said the administration favors further government action. ‘The sense that we need to do more is overwhelming,’ Romer told George Stephanopoulos on ABC’s ‘This Week.’ ‘We know there are things that have been working in the Recovery Act that are expiring, like some of the provisions for longer unemployment benefits. Some of the state fiscal relief — I think that’s going to be critically important to making sure we keep making progress.’ … Asked about earlier administration estimates that job growth would begin by spring, Romer replied: ‘I think that’s still a very realistic estimate.’” Romer on CNN’s “State of the Union” called Wall Street bonuses “ridiculous” and “offensive.”

BANKS BRACING FOR A BACKLASH, FT’s Justin Baer, Francesco Guerrera and Daniel Dombey on pg. 1: “Goldman Sachs, JPMorgan Chase and other big banks are bracing for a renewed public and political backlash against their compensation plans as they prepare to unveil multibillion dollar bonus packages. Under pressure from government, banks are already saying they will devote the smallest percentage of annual revenues in years to their employees. But the raw numbers will still be big enough to provoke public anger, while also prompting internal dissent from traders and bankers who will see a larger share of their bonuses deferred. … Indeed, a political response by Washington to the U.K. government’s supertax on bonuses looms. The pay plans Wall Street will soon unveil are unlikely to dissuade the Obama administration from its own effort to curb compensation. … People close to Morgan Stanley said it would unveil its lowest compensation ratio in at least three years.”

BANKERS ARE NOT HAPPY; FACE “LIQUIDITY ISSUE”: WSJ’s Susanne Craig, David Enrich and Robin Sidel on pg. 1: “[Bankers are] complaining too much of the payout is coming in stock instead of cash. Banks and securities firms have told workers their bonuses will contain a bigger percentage of stock to demonstrate that Wall Street is sensitive to public anger over the big paychecks. … Some employees say the shift could leave them short of cash, since stock comes with restrictions on how quickly it can be sold. And since many people plan their household budgets around bonus expectations, they may need the cash to cover mortgages, school tuition and other expenses. "I don't think it's just whining," said one person at a Wall Street firm. "There are legitimate liquidity issues that people have."

FROM SUNDAY NYT FRONT ON BONUSES by Louise Story and Eric “Pittsburgh Flash” Dash: “Some bankers worry that the United States, like Britain, might create an extra tax on bank bonuses, and Representative Dennis J. Kucinich, Democrat of Ohio, is proposing legislation to do so. … Goldman Sachs is expected to pay its employees an average of about $595,000 apiece for 2009, one of the most profitable years in its 141-year history. Workers in the investment bank of JPMorgan Chase stand to collect about $463,000 on average. … At Citigroup … some managers were disappointed in recent weeks by the preliminary estimates of their bonus pools. … Citigroup’s overall 2009 bonus pool is expected to be about $5.3 billion, about the same as it was for 2008, although the bank has far fewer employees.”

GOLDMAN MAY REQUIRE MORE FROM EXECS, reports NYT’s Louise Story on today’s B1: “Goldman Sachs is considering expanding a program that would require executives and top managers to give a certain percentage of their earnings to charity. The move would be the latest in a series of initiatives by Goldman to soften criticism over the size of its bonuses, which are expected to be among the largest on Wall Street, bringing average pay to about $595,000 for each employee — with far higher amounts for top performers. … While the details of the latest charity initiative are still under discussion, the firm’s executives have been looking at expanding their current charitable requirements for months and trying to understand whether such gestures would damp public anger over pay.”

FEDS WIELD MORE POWER OVER BANK HIRES, report FT’s Brooke Masters and Francesco Guerrara: “U.S. banking supervisors are taking a much more active hand in shaping banks’ top personnel decisions, as regulators seek to prevent a recurrence of management failures that helped precipitate the financial crisis. … [S]upervisors at the [Fed and FDIC] are asking more questions about potential appointees than they did two years ago. … Federal involvement is strongest at the very largest banks that were among the last to repay billions of dollars in government loans, such as Citigroup and Bank of America.

FRANK RICH PREVIEWS THE CRISIS PANEL, in Sunday’s NYT: “Phil Angelides, the former California treasurer who is the inquiry’s chairman, told me in interviews late last year that he has been busy deploying a tough investigative staff and will not allow the proceedings to devolve into a typical blue-ribbon Beltway exercise in toothless bloviation. …He understands that if he fails to make news or to tell the story in a way that is comprehensible and compelling enough to arouse Americans to demand action, Wall Street and Washington will both keep moving on, unchallenged and unchastened.”

MORE DUMPING ON BERNANKE’S ATLANTA SPEECH: American Prospect’s Robert Kuttner: “Bernanke's high-profile speech to the American Economic Association in Atlanta, January 3, was his latest effort to redeem himself. But it provides ample evidence for why the Senate should deny him a second term. … It was easy money combined with the complete abdication of the Federal Reserve's role as a regulator that allowed Wall Street to go nuts, creating a financial house of cards. … Bernanke's speech passed up the opportunity to confess any error or personal learning curve.”

EARNINGS WILL BE BETTER, BUT IT’S ALL RELATIVE, WSJ’s Paul Glader: “While fourth-quarter earnings doubtless will be far above what they were a year earlier, that largely reflects the deep hole companies were in at the end of 2008, as well as heavy cost-cutting since. Indeed, one picture likely to emerge in the next few weeks is that companies remain too cautious and sales too weak to spur much new business investment or hiring. … Reports from producers of commodities like oil, lumber and metals also will give a read on underlying demand. Alcoa Inc. will post results after the market closes on Monday, and analysts believe it will show a return to profit.”

HOW GOOD WILL THEY BE? Bloomberg BusinessWeek’s David Bogoslaw: “The weekly outlook published by Thomson Reuters on Jan. 8 estimated a 184% increase in profits for the companies in the Standard & Poor's 500-stock index. The highest year-over-year growth rates are expected in financials (up to $2.4 billion, from -$81 billion a year ago), materials (up 163% to $3.0 billion) and consumer discretionary (up 114% to $15.5 billion), while the lowest anticipated growth is in energy (down 24% to $18.5 billion) and industrials (down 13% to $154.8 billion).

MORE TRANSACTION/BONUS TAX TALK, from NYPOST’s Josh Kosman and Mark DeCambre: “According to two people familiar with the matter, the White House has circulated a draft budget, and in it is a line under the revenue category that reads, ‘Wall Street and taxes.’ The vague reference to Wall Street offers no details about what kind of tax or an amount the administration hopes to collect, according to two sources, one a high-ranking executive at a bulge-bracket firm and the other a person close to the Treasury Department … [O]ne source said Treasury Secretary Timothy Geithner is disinclined to impose that kind of tax because it could be disruptive to the markets. ‘Treasury would never agree to a transaction tax,’ this person said.

What is more likely on the table, the sources said, is a tax on bonuses, though such a move could be disruptive to New York.”

A UNIT GROWS AT CITI, WITH GOV'T. HELP, reports WSJ’s David Enrich on pg. 1: “Citigroup's Global Transaction Services unit, or GTS, zaps more than $3 trillion around the world each day for hundreds of corporations and dozens of governments and agencies, including the Federal Reserve. … Executives told officials with the Treasury Department and the Fed that GTS's technology and presence in more than 100 countries made it too dangerous for the U.S. to let Citigroup collapse. The Treasury gave the bank a second big helping of $20 billion just six weeks after an initial $25 billion infusion from the Troubled Asset Relief Program, partly in recognition of GTS's importance to the financial system, according to government and company officials.”

IS CHINA THE NEXT REAL ESTATE BUBBLE? WaPo’s Steve Mufson in Beijing on pg. A1: “With property prices soaring in key cities, many investors and bankers worry that China has the next great real estate bubble waiting to be popped. ... On Sunday, the nation's cabinet, citing ‘excessively rising house prices’ in some cities, said it will monitor capital flows to ‘stop overseas speculative funds from jeopardizing China's property market.’ … For investors, many of the usual bubble warning signs are flashing. Fueled by low interest rates, prices in Shanghai and Beijing doubled in less than four years, then doubled again. Most Chinese home buyers expect that today's high prices will climb even higher tomorrow, so they are stretching to pay prices at the edge of their means or beyond.”

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