..TWO FROM COLUMN "B"

Change of plans. We are not going to speak as advertised. Rather, let us take a quick look at the extraordinary statement put out by the Treasury today concerning our friends in Beijing. It was so extraordinary that Our Hero felt it necessary to call selected legislators up on the Hill to warn them that it was coming. What Treasury has decided--despite 2 years of The Leader's comments to the contrary and Our Hero's testimony of 2 months ago--is that the Chinese have not been manipulating their currency after all. Now one would think that a policy reversal such as this would cause a major ruffle in the halls of the popular press, but it seems to have snuck by--at this point at least--with barely an eyebrow raised. Remarkable.

Frankly, it was not an unexpected announcement but one might ask, for example, what did we get in return for giving the Chinese a Get Out of Jail card with not only ourselves but with the IMF who was about to "look into the matter"--no laughter please-- and our European allies with whom we are "entering a new era" of mutual trust and respect. As has been mentioned, uncomfortable is he with a demand note on his house and the prospect of raising God knows how much new debt to fund a massive deficit spending program. I suspect we received bupkus other than vague promises of cooperation in various areas. As with the results of the G20, we are getting rather good at that sort of thing. Make no mistake, this was not a decision reached independently of...ah...discussions with the subject in question. At some point the Chinese will raise the curtain a touch. I'm sure it is just too delicious for them to remain totally quiet. We shall wait and watch.

The other news of the day that gazumped yesterday's intentions was an extremely detailed earnings announcement from J.P Morgan. As suspected Morgan beat the street as did Goldman but with a broader achievement across the lines of their business. It appears to have been a rather good quarter and one should note the rather large addition to the loan loss reserve that resulted. This is of course good news/bad news; the troubles aren't over but this institution at least seems to be dealing aggressively with what is there. I think we will be seeing more of this sort of thing as the earning season progresses, but Our Hero, apparently, still intends to go forward with his plan for the sale of toxic assets perhaps as early as next week. How or why is beyond me, but the Treasury is still a very large creditor of all these banks (indeed, government guarantees or quasi-guarantees of bank debt allows for funding at very attractive levels) and I suspect will be used as a big stick in the negotiations. As we have noted, time tends to heal an awful lot of things if one just doesn't do anything stupid, and allowing banks to earn their way out of problems is a tried and true method of problem solving. We have done it before on multiple occasions. Sadly, I am not optimistic that this group will learn from the past, but hope springs eternal as the complexity and lack of disciplined thinking may doom the effort. Again, we shall wait and watch.

Finally, there seems to be a story a day concerning another rain-maker leaving an institution burdened with TARP money for greener (Yes, a pun) climes of a lesser regulated firm. Keep remembering gang, you pay peanuts, you get monkeys. In the end, it is always about people. This country has built a remarkable financial sector on the hard work , drive and, yes, greed of a number of individuals. Were there bad apples? Of course and I would be proud to pull the lever that opens the trap door. It would be a shame, however, if mindless politicians destroy all the good that has been built and allow it to migrate to far distant climes whose interests do not necessarily mesh with our. Like China, perhaps? Can't happen? Think again. We are about to enter one of the most dangerous and competitive periods we have faced, and...ah, the hell with it, I'm getting preachy. Back to business tomorrow and the Fed.