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On the Hot Seat

|Includes: BAC, JPMorgan Chase & Co. (JPM), WFC

The recent sell off in the market has been blamed on the current Ben Bernanke saga. Recently he has been on the hot seat, as it is unsure if the current Federal Reserve Bank Chairman will get enough votes from Washington to get reappointed. Since the markets sharp three day decline many in Washington are changing their tune and will now vote to keep Chairman Bernanke on as the Federal Reserve Bank chief.

Chairman Bernanke has recently been praised for the Wall Street bailouts by many politicians, as well as Time Magazine who named him "Man of the Year." On the flip side of that, other major politicians have blamed the Fed Chairman for the global financial crisis. Senators John McCain (AZ-R), Barbara Boxer (CA-D), and Russ Feingold (WI-D) have all gone on record stating that they would not vote for the confirmation of Bernanke.

Will it really make a difference who is at the helm of the Federal Reserve Bank? One would expect the exact same policy to be applied either way. Recently the Federal Reserve Bank has keep their Fed funds rate at an historic low, zero percent. This rate is what the large banks pay the Federal Reserve to borrow money overnight. Therefore, the large major banks have been able to borrow money at zero and simply buy U.S. Treasuries, and they make money. They do not have to lend or make loans in order to make money, therefore, their risk is very low.

When you think about all the consolidation that has taken place in the banking industry the big banks have it pretty good right now. Remember with the failure of so many other banks and broker dealers being bought for pennies on the dollar by the major banks such as J.P. Morgan (NYSE:JPM), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC) have really narrowed the competition. Let us not forget the removal of the FASB "mark to market" accounting and some would say that the banks have made in the shade.

This week we will find out if the current Federal Reserve Bank Chairman gets confirmed for another four year term. However, does it really matter? Will policy change if he does not get reappointed? That is highly unlikely. The Fed funds rate is likely to remain at zero for the foreseeable future.

Nicholas Santiago,
Chief Market Strategist