Bears, Bulls, Chickens and Pigs: wOw’s Wall Street Weekly with Liz Peek (Week of 1/12) 

Editor’s Note: Liz Peek is a financial columnist and the author of wOw’s SHEconomics. 

Remember the old-fashioned melodramas? You know — nubile young women tied to the railroad tracks by leering villains with 12-point mustaches? Well, I don’t either, but I imagine they reflected the nation’s all-consuming hatred of bankers during the  Depression. Get ready for an updated version, starring Citigroup’s Vikram Pandit as himself, and maybe Sally Field as the noble heroine struggling to pay her mortgage, though laid off by Starbucks. She may not be nubile but she’s certainly sympathetic.

Just as things began to look a little brighter, the banks have done it again. Bank of America is seeking another round of desperation financing — $15 billion of new capital on top of the $25 billion it has already absorbed, as well as $100 billion in new loan guarantees from the government, while Citigroup is coming apart at the seams. 

The drama reignited concerns about the solvency of the nation’s banking system, and reversed several weeks of progress in thawing credit markets. Mostly, the dire announcements and new round of capital raising stemmed from ghastly fourth-quarter losses. Bank of America, for instance, reported a greater-than-expected hit stemming mainly from its September purchase of Merrill Lynch. The giant brokerage turned out to have had — guess what — more problem assets than BofA reckoned on. You have to wonder – did BofA head Ken Lewis think CEO John Thain tumbled into his embrace because Merrill was in good shape?

In any case, Fed Chair Ben Bernanke drove the stake home by giving a speech in London in which he predicted that the banks would need more capital infusions. He cited the huge amount of bad assets still on bank balance sheets and said that more needed to be done to remove these underwater securities. His concern is that while banks are burdened with illiquid assets that may deteriorate further, they will be afraid to lend, thus continuing the credit crisis.

He’s undoubtedly right. The requirement that banks “mark to market” all kinds of holdings for which there is no ready buyer is going to be an ongoing issue until mortgage markets revive. This issue will also complicate life for the incoming new head of the SEC, Mary Schapiro, who will doubtless be pressed to reverse the requirement. My betting is that she will not do so and this overhang will be with us for another several quarters.

Meanwhile, President-elect Barack Obama was busy this week shepherding his stimulus package through a reluctant Congress. Unfortunately, Obama chose to make the case for the $800 billion program by presenting the economy in the worst possible light, scaring the daylights out of Americans and undoing some of the good feeling that attended the flipping of the calendar from 2008 (as in, thank heavens that one’s over) to 2009.

Consumer confidence is at an all-time low, and needs to be buttressed. Where did Obama’s hope go? I hope it wasn’t all used up in the campaign, because we need it now, to stimulate that 70% of the economy dependent on you and me buying new cars and homes. 

Meanwhile, Congress was treated to a stultifying stream of apologists for the increase in federal spending. As New York’s Representative Carolyn Maloney recounted when I spoke to her the other day, “Every single economist, liberal and conservative, is in favor of the bill.”

Here’s the small, niggling problem I have with this tidal wave of enthusiasm for the spending package, which will catapult the federal budget deficit into the stratosphere. I don’t think anyone really knows what should be done to get the economy growing again. Consider this: At the August 5 meeting of the Federal Reserve Open Market Committee – a month after the collapse of Fannie Mae and Freddie Mac, and months into the mortgage meltdown — the debate focused more on inflation worries than on a potential economic slowdown. So off-base was the committee – supposedly some of the best economic minds in the country – that the minutes reflect “members generally anticipate that the next policy move would likely be a tightening …”