The Federal Reserve is feeling somewhat vulnerable lately, and has taken some unprecedented steps to convince the public and foreign investors that the central bank is not on the path of desecrating the US dollar. Treasury Secretary and former New York Fed president Timothy Geithner, has been traveling the world trying to salvage confidence in the dollar amongst increasing fears of runaway inflation.

Matters have become so serious the Fed felt they need additional firepower. The Fed is independent, but it still reports to Congress. American International Group (AIG), Fannie Mae (FNM) and Freddie Mac (FRE) are forbidden from lobbying the government, but the Fed is not. Yesterday Linda Robertson, who headed Enron’s lobbying office from 2000 until the energy company’s collapse from an accounting scandal in 2002, began her job as the Fed’s first lobbyist.

The stock market suddenly turned bullish on Monday after Meredith Whitney upped Goldman Sachs (GS) from “Neutral” to “Buy” with a twelve month price target of $186. Appearing on CNBC’s Squawk Box, the normally bearish financial analyst said the recommendation was “a bearish call but a bullish call on the stock.” Whitney said that as the number one underwriter of bonds now that Lehman is gone, Goldman has advantage in this “tsunami of debt issuance” economic environment.

Yesterday, Goldman reported record quarterly net revenues of $13.76 billion; second quarter net earnings were $3.44 billion, or $4.93 per share, which was more than Goldman earned in 2008. Goldman recorded record net revenues from FICC* ($6.80B), Equities ($3.18B), and equity underwriting ($736M). Commissions were up 5%, on higher customer volume. CFO David Viniar said during yesterday’s earnings call that now that the hedge fund redemption cycle “is pretty much through” you should “start seeing money flowing into hedge funds.”

As JPMorgan Chase (JPM) Chairman and CEO Jamie Dimon recently wrote in The Wall Street Journal (“A Unified Bank Regulator Is a Good Start”),

the gulf that grew between Wall Street and Main Street has hurt everyone.

Physicists have long attempted to figure out how to combine unrelated and incompatible theories into a single unified theory or message to understand the universe.

This is my response to a SA comment posted by Ken Johnson, Senior Vice President, Communications of PhRMA, the Pharmaceutical Research and Manufacturers of America, in response to my SA article, “Big Pharma Maintains Illusion of Innovation.”

While I am proactive about maintaining good health, I also consider myself to be very fortunate that I do not take any medications, and have only had to in the past on rare occasion. Regardless of whether or not an American consumer takes any medication, everyone is overpaying for big pharma’s illusions and budgets that rival Hollywood’s through higher health insurance premiums, and tax revenue subsidizing Medicare and Medicaid. Secondly, medications are not discretionary for real illnesses.

Eli Lilly (LLY) Chairman and CEO John Lechleiter’s op-ed piece on “Health-Care Reform and the ‘Innovation Test’” in yesterday’s Wall Street Journal is yet another anti-consumer big pharma industry rant. Mr. Lechleiter does not want Americans to have the ability to choose between a public or private option for health insurance. And he’s against the government conducting cost benefit comparisons of medications and medical treatments so consumers can save money by using the most effective treatment at the lowest price.

Lechleiter reiterates big pharma’s party line, threatening that any tampering by government to bring down the costs of pharmaceutical drugs in America means “innovation may be written out of the script.” “U.S.-based private industry is the heart and soul of this innovation drama, investing $58 billion in research and development for new medicines in 2007 alone.”

“The Federal Reserve remains committed to transparency and openness and, in particular, to keeping the Congress and the public informed about its lending programs and balance sheet.” –Ben Bernanke’s testimony before the Joint Economic Committee, May 5, 2009

Federal Reserve Chairman Ben Bernanke talks a lot about transparency at the Federal Reserve, yet Bloomberg News had to file a lawsuit against Bernanke’s Fed for details about its lending programs. Bernanke fought long and hard against revealing American International Group’s (AIG) counterparties and how much they received after the government took a 79.9% slice of the insurance giant last September.

Who forced Bank of America (BAC) to complete the merger with Merrill Lynch when Merrill’s fourth quarter earnings looked like a disaster? All fingers point to Federal Reserve Chairman Ben Bernanke.

New York Attorney General Cuomo deposed chief executive Ken Lewis and former Treasury Secretary Hank Paulson as part of an investigation into bonuses paid by Merrill shortly before its merger with BofA. Lewis admitted that Paulson and Bernanke threatened to oust him and Bank of America’s senior management along with its Board of Directors if BofA invoked a MAC (material adverse change) to back out of its deal to acquire Merrill. “Secretary Paulson has informed us that he made the threat at the request of Chairman Bernanke,” Cuomo wrote in a letter to Sen. Dodd, Rep. Frank, SEC Chairman Schapiro, and TARP Oversight Chair Warren that summarized his investigation into the secrets kept from shareholders and taxpayers about the deal.

“Missing time” refers to a person who has a memory gap covering a certain period of time. In recent years the term has been used to describe a gap in time that the person cannot account for that under hypnosis might be attributed to an extraterrestrial encounter.

While it’s unlikely that chief executive Lloyd Blankfein or any other members of the management team at Goldman Sachs (GS) have experienced a close encounter of the third kind, perhaps a hypnotherapy session would help Goldman to have better recall of the events of the last six months so it can be grateful rather than disdainful that the government rescued it from its near death experience.

“It is inevitable the banks will be nationalized. The longer we dawdle, the more expensive it’s going to be. Let’s just rip the Band-Aid off and get it over with.” – Barry Ritholtz, CEO and Director of Equity Research at FusionIQ, quoted in Barron’s 2/23/09

Ritholtz is probably best known to readers for his popular financial blog, “The Big Picture.” As much as I admire and respect his success in the blogosphere, Ritholtz and others who are clamoring for bank nationalization (see his list), fail to see the bigger picture.

One of the key components of the Treasury’s Financial Stability Plan is for banks with $100 billion plus in assets to take a “comprehensive stress test.” Since the Financial Stability Plan was short on details, we can’t completely rule out the possibility of putting qualifying bank chief executives on a treadmill. Two banks that will need to get an exemption from taking the stress test are Goldman Sachs (GS) and Morgan Stanley (MS) as they were given a period of time to gather deposits and bring their leverage and risk profiles down to that of a traditional bank. This is just the start of a trail of inconsistencies that will begin to surface as stress testing commences.

Far more interesting is what the underlying motivation for the stress test is given that the Federal Reserve and other regulators are already supposed to be performing this function. As the former president of the Federal Reserve Bank of New York, Treasury Secretary Geithner should have carefully “stress tested” Citigroup (C) and the other original TARP recipients. It appears that the Obama Administration wants to use the nation’s largest financial institutions to carry out its social-financial agenda. Most of these banks (with the exception of Bank of America (BAC) and Citigroup), have publicly stated they no longer want to play ball with the Treasury or be constrained by its new rules. The Treasury gave Fannie Mae (FNM) and Freddie Mac (FRE) the 79.9% solution to carry out its mortgage agenda, but we have yet to see 4.5% mortgage rates.

Bank of America (BAC) chief executive Ken Lewis had coveted Merrill Lynch for quite some time. So when Merrill CEO John Thain contacted Lewis to ask if his bank was interested in buying Merrill, Lewis jumped at the chance.

John Thain sensed that Lehman Brothers (LEHMQ.PK) was about to fall, and if he didn’t act quickly, Merrill would be next. On September 15, 2008, Lehman filed for bankruptcy and Bank of America announced it was acquiring Merrill Lynch. Despite the financial tsunami that immediately ensued worldwide, Lewis proudly announced Bank of America would acquire Merrill in an all stock deal valued at $50 billion, or $29 a share.

There’s going to be an unfamiliar face controlling the nation’s money on January 20. Stuart Levey, the Treasury undersecretary for terrorism and financial intelligence, will be filling in as Treasury Secretary until a successor to Hank Paulson has been confirmed by the Senate. For the second time this week, the Senate Finance Committee’s confirmation hearing for Timothy Geithner, President-Elect Obama’s nominee for Treasury Secretary and the former president of the Federal Reserve Bank of New York, has been rescheduled for January 21 at 10:00 AM.

The Treasury Secretary oversees the Internal Revenue Service, and some politicians began to grumble after news reports surfaced that Geithner had failed to pay Social Security and Medicare taxes on his income from 2001 to 2004 when he worked for the International Monetary Fund (IMF). Geithner admits he received IMF instruction and literature, and signed an annual tax allowance request worksheet to the IMF acknowledging he was responsible for paying the taxes. Geithner paid back taxes with interest on his 2003 and 2004 tax returns after being audited by the IRS in 2006.

This could turn into the mother of all interest rate margin squeezes for the banks now that the Federal Reserve has announced that for the first time in its history, it has a established a “target range” for the fed funds rate of “0 to 0.25%.” And the FOMC “anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.”

How can banks make money with an anticipated lowering of the prime rate to 3.25% when their cost of funds with any kind of intermediate term duration will likely be equal to or greater than that amount? And how will money market funds remain afloat? Once again, the Fed has demonstrated its failure to factor in all the repercussions of its actions that only cause further economic harm.

A new study by Good Jobs First, a Washington DC nonprofit research group, estimates* Wal-Mart (WMT) kept about $60 million in retail sales tax last year from state vendor compensation programs that allow Wal-Mart and other retailers to keep a portion of the sales tax revenue they collect.

While state governments are seeking money from the federal government to make up for budget shortfalls caused by lower tax revenue and other problems related to the financial crisis, 26 states still have laws on their books dating back to the era before computerized cash registers allowing retailers to be compensated for collecting sales tax. Illinois ($126.1 million), Texas ($89.6 million), and Pennsylvania ($72.0 million) are the top three of 13 states that have no cap on the amount of sales tax retailers can keep, according to an article in today's Wall Street Journal. The amounts listed represent the annual revenue these states forfeited to retailers in 2007, out of an estimated total $1 billion per year revenue loss in all 26 states.

All this hype about the preventative aspects of AstraZeneca’s (AZN) Crestor study published in Sunday’s New England Journal of Medicine. Looking at Table 3 (“Outcomes”) shows only 49 fewer people died on Crestor than taking a placebo in a population of 17,802 study participants. Even less impressive, there were only 109 fewer participants who had a first time cardiac event taking Crestor versus the placebo.

It’s easy to tout percentage differences such as the endlessly reiterated 44% benefit of Crestor versus placebo, but that statistic is meaningless considering the infinitesimal number of actual events. Less than 400 cardiac events (2.2%) and under 450 total deaths (2.5%) were experienced in this extremely large study group. Given the side effects caused by statins which can necessitate additional medical treatment, it’s hard to justify the cost/benefit of medicating when the risks of this population are so low for cardiac events.

Pittsburgh based regional bank PNC (PNC) announced Friday morning it is acquiring Cleveland based regional National City Bank (NCC) for $5.5 billion. For each share of NatCity common stock, NatCity shareholders will receive 0.0392 per share (about $2.23 a share) of PNC common stock. The merger will make PNC the fifth largest bank by deposits, with a $180 billion core deposit base.

PNC is selling $7.7 billion equity to the Treasury as part of the TARP that has allocated injecting $125 billion of government money into the nation’s largest banks. PNC’s acquisition of

A September 25, 2008 memo by Martin Mackay, Pfizer’s (PFE) president for Global Research and Development, confirms that Pfizer will not develop any more drugs that target cholesterol as the culprit in causing heart disease. In fact, Pfizer will exit drug development for cardiovascular disease altogether.

Pfizer’s exit from statin development indicates the cholesterol craze has reached the end of its cycle trend. Profits have declined as more statins go off patent, and patients switch to much cheaper generics, or forgo statins altogether in order to take “essential” medications.

With every plan Treasury Secretary Paulson has come up with to instill confidence in financial markets, the costs climb higher and market confidence drops lower. Paulson originally believed he could instill market confidence by injecting selective moral hazard into companies that he believed needed to be marginally saved to stave off a greater collapse in financial markets. In the Paulson doctrine of moral hazard, certain company stakeholders have gotten severely punished while others have not (and have actually made money off of moral hazard).

In the Fed’s $29 billion loan to facilitate JPMorgan’s (JPM) purchase of Bear Stearns, common shareholders were virtually wiped out while preferreds and debt holders were protected. The government’s 79.9% equity stake in their conservatorship of Fannie Mae (FNM) and Freddie Mac (FRE), severely diluted common shareholders, preferred shareholders lost their dividend, yet bond and subordinated debt holders were protected. One of the most vocal lobbyists urging government takeover of Fannie and Freddie along with inflicting moral hazard on the shareholders was PIMCO, who made $1.7 billion on September 8 as a result of the government’s quasi-nationalization. Ironically, PIMCO’s call for moral hazard came back to bite them in the bankruptcy of Lehman Brothers.

After their stock dropped 45% to close at $7.79 Tuesday, Lehman Brothers (LEH) looked at their big pile of dirty laundry (distressed assets), and decided it was time to start loading it into the washer.

A hastily convened conference call was held Wednesday morning to discuss third quarter estimates that the investment bank is scheduled to report on September 18. Listening to the call, it appears that Lehman is still in the “pre-treat” stage of doing the laundry.