|  Includes: BAC, C, GE, MS
by: Charles Payne

As investors brace for the week in a market that has seen four straight weekly declines and five out of six weeks of red ink, the nation waits for the White House to put its finger on a solution for all that ails our economy. I'm convinced there will be a big speech that will be more campaign directed than one filled with economic solutions that could actually gain traction. I'm sure the thinking is to flood the country with a bunch of spending and get money into the hands of union workers in the hopes of creating an artificial high that happens to peak in November 2012.

I'm tired of hearing that the focus should be on the now and not the long-term issues like our massive, and ever-growing, debt. The solutions for the long term are the same as those for the short-term, unlocking the greatness of America; it can be done, and must be done. I'm talking greatness at every level not just tax breaks for people that pay the fewest taxes and no federal income tax at all. Instead of punishing success with higher taxes, because it's obvious that's what it is, we should be getting those people smart enough and hard working enough to become wealthy to use their skills to unlock the economy.

Certainly it would be foolish to continue to attack their character and patriotism. If well-to-do people in Greece and Italy had paid their taxes the people of Germany wouldn't have to chip in billions of dollars to save them.

The fact is that President Obama is committed to unions and tree-huggers, and if it means ripping down the establishment of free markets and capitalism then so be it. I can only hope I'm wrong about what we'll hear in the next week or so. Not only is there greatness in pedigree and history, there is a ton of money cowering in fear that would rather go to work. It's not hard to seduce that cash off the sidelines, say sweet nothings that include lower taxes, fewer regulations, and sincere praise of free markets. Ironically, running on a duel track is a weakening economy that could already be officially in recession, although for too many that's just a word that reflects their lives no matter what any economist has to say.

I'm really worried about the banks. Bank of America (NYSE:BAC) and Citigroup (NYSE:C) exhibit signs there are serious problems beneath the surface. I get frustrated when the experts say the only problem with U.S. banks is exposure to Europe. All that toxic stuff they're holding has only become more problematic, not less. Sadly, in the process, the big banks are bigger now than when they were rescued with taxpayer funds in the TARP program. That bait-and-switch plan that became a direct bailout of banks and a slush fund for things like the mortgage reduction program has been an utter disaster.

I have always resisted the notion that TARP worked or somehow "we" made money from the program.

Of course the auto bailouts, AIG, and other programs are failures in reality and on paper. Then there is the important observation from Neil Barofsky, TARP Special Inspector General, that the program failed because it didn't meet its stated goals of consumer and business loans. Moreover, the moral hazard of too-big-to-fail is even larger now. In the meantime, there was something Jeff Immelt, CEO General Electric (NYSE:GE), said during a speech at Dartmouth last week.

Threading the thin line of businessman but also Job Czar, Immelt said the U.S. needs to reform its corporate tax code and should consider eliminating all loopholes that allow companies to pay less than the statutory rate. He added that those measures should go with lowering the statutory 35% rate. I guess he's answering to two masters, but it was comments in defense of GE paying no taxes last year that set off a light bulb in my mind. According to Citizens for Tax Justice, GE had an effective tax rate of negative 61.3%, and was one of eight big U.S. companies that had a tax benefit rather than tax bill in 2010.

Saying "GE has paid tens of billions of dollars in taxes over the last decade", Immelt admitted "our technique for paying low taxes in 2009 and 2010 was writing off $32.0 billion in losses at our financial service business." He added that he didn't "recommend it" as to say it was painful. Say what??? Painful is losing your job and/or watching the value of your house implode. Painful is watching your 401K burst into flames. Painful is wondering about the future of your children and their children. GE got $80.0 billion in taxpayer money and its executives didn't even have to take a pay cut like other recipients that were really banks in the first place.

GE had hundreds of billions in cash and receivables, but got two bites at the TARP apple. So, here's the rub; banks got to write off losses from financial services and loans, and also losses associated with TARP, and nobody ever adds that into the final equation. Morgan Stanley (NYSE:MS) wrote off $476 million associated with TARP and billions more for other losses. Bank of America wrote off $8.5 billion. That money was earmarked for the Treasury Department. Subtracting that money from the so-called profits probably completely negates the tally. TARP failed in every way imaginable, but beware as it was never folded up and there is a chance these banks will need to go back again.

Of course, it doesn't help banks that are told to keep more money in the vault by a government that thinks it should decide on risk. If banks were allowed to fail all the other artificial rules and regulations could be junked. Naturally, Immelt says it's "a lot of rubbish" that businesses aren't investing because of the uncertainty that comes with Dodd-Frank and the healthcare law. It must be hard, maybe painful, to serve two masters, on one hand customers, shareholders, and employees, and on the other hand, a decidedly anti-capitalism regime that needs your face to add legitimacy.

Quantitative Easing III

While there is little political appetite for TARP II (it just might be a necessity) there is a lot of anticipation for QE III. Of course there is political pressure against more creative accommodation by the Federal Reserve, but we must remember Ben Bernanke has always said he could more-or-less flip a switch to avoid inflationary pressures from too much accommodation. Although it wasn't discussed much last week, modestly increasing inflation readings may have given the Fed the green light to launch another round of quantitative easing. According to reports, Barclays says low yields point to a belief the Fed will buy up to $600 billion in Treasuries- because it worked so well last time.

Monday's Session

Not much impact from the fall of Qaddafi as oil was slightly higher but winding down that campaign to secure oil for Europe (France and Italy will fight for the spoils) was a slight distraction. We don't know much about the rebels, but that's a concern for later. The National Association for Business Economists NABE weighs in on how to reduce the deficit:

56.1% Spending Cuts Only
6.8% Tax Hikes Only
37.1% Spending Cuts and Tax Hikes equally

Technically this could be a spot for a tradable bounce. There seems to be firm support for the S&P above 1,120 and little resistance up to 1,200. Even at that level the index would be significantly below its key moving averages.

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