Comptroller Thomas DiNapoli said on Tuesday profit for all of Wall Street could top $55 billion for 2009, nearly triple the previous record year. Last year, the U.S. economy began to stabilize as lenders raced to repay federal bailout money they had come to view as a stigma.

Average taxable bonuses on Wall Street rose to $123,850 in 2009, DiNapoli said in a statement. Compensation at Goldman Sachs Group Inc, JPMorgan Chase & Co and Morgan Stanley, three of New York’s biggest banks, rose 31 percent, he added.

The comptroller’s annual report on Wall Street pay is closely watched not only by Wall Street, but also by politicians eager to rein in runaway pay in a still-weakened economy where unemployment remains high and tax revenue remains depressed.

While bonuses are well below the level set in 2007 and are now more closely tied to company performance, DiNapoli acknowledged that many may consider them out-sized given the lingering problems in the economy.

Analysis: The “Too Big to Fail” doctrine was a failure in itself, sure we averted financial disaster but at what cost?  We should of taken the pain and let those banks go bust so the next generation of banks do have the expectation that Governments will stand ready to save your bank if you make bad decisions even if it was the profitable and most popular one at the time.  We have set ourselves up for this to happen again and it will be much sooner than later.

Since the federal reserve was established in 1913, the U.S. dollar has experienced a continued de-valuation by the issuance of more currency than has been required over the last 97 years.  This solution may be a little extreme but with the amount of spending and unfunded liabilities, it may be time to send a message that something needs to be done.

South Carolina Rep. Mike Pitts has introduced legislation that would mandate that gold and silver coins replace federal currency as legal tender in his state.

As the Palmetto Scoop first reported, Pitts, a Republican, introduced legislation this month banning “the unconstitutional substitution of Federal Reserve Notes for silver and gold coin” in South Carolina.

In an interview, Pitts told Hotsheet that he believes that “if the federal government continues to spend money at the rate it’s spending money, and if it continues to print money at the rate it’s printing money, our economic system is going to collapse.”

“The Germans felt their system wouldn’t collapse, but it took a wheelbarrow of money to buy a loaf of bread in the 1930s,” he said. “The Soviet Union didn’t think their system would collapse, but it did. Ours is capable of collapsing also.”

Analysis: The winds are changing about our dollar system and if we want to have no real constraint in the about of currency being issued and if we are okay with constant inflation no matter what and never allowing deflation or real corrections in the economy without some knee-jerk reaction from the congress.

The arms giant BAE today agreed to pay out almost £300m in penalties as the company finally admitted guilt over its worldwide conduct in the face of long-running corruption investigations.

For 20 years, the firm had refused to accept any wrongdoing, despite mounting evidence of alleged bribes and kickbacks, much of it uncovered by the Guardian.

But BAE said it would plead guilty to charges of false accounting and making misleading statements in simultaneous settlement deals with the Serious Fraud Office in the UK, and the department of justice in Washington.

The admissions in the US covered BAE’s huge £43bn al-Yamamah fighter plane sales to Saudi Arabia, and smaller deals in the Czech Republic and elsewhere in central Europe.

Analysis: The world of Arms dealings is still a shadowy stigma about them with all the backroom dealings that the public never sees.

The Treasury Department has removed the $400 billion financial cap on how much money it will provide to the beleaguered mortgage giants Fannie Mae and Freddie Mac, a step taken to keep the companies from failing. So far, taxpayers have shelled out $111 billion to the pair.

Yesterday, Treasury officials said the cap would be replaced with a flexible formula. The goal is to ensure the two agencies can stand behind the billions of dollars in mortgage-backed securities they sell to investors.

Fannie Mae and Freddie Mac provide vital liquidity to the mortgage industry by purchasing home loans from lenders and selling them to investors. Together, they own or guarantee almost 31 million home loans worth about $5.5 trillion, or about half of all mortgages.

Without government aid, the firms would have gone broke, leaving millions of people unable to get a mortgage.

The biggest headwind facing the housing recovery has been the rise in foreclosures amid high unemployment. The Treasury’s latest move could allow Fannie and Freddie to play a bigger role in restructuring mortgages for troubled borrowers.

Analysis: This is going to cost the taxpayers dear.  It looks like economic headwinds are coming back and that could push more mortgages into default and that would make the GSE’s have to tap the Treasury to make good on their bond payments.

When you have to trade your currency in for U.S. dollars to transact an oil purchase, it creates demand for dollar no matter what.  If now you have a competing currency that 40% of the world’s oil can be traded in directly then you are opening a situation where the dollar is not in as much demand and that would mean with all these extra dollars being printed with our excessive federal spending, the value of the dollar with fall dramatically.

A Gulf monetary union pact took effect on Tuesday, the Kuwaiti finance minister said in a move that brings the energy rich region closer towards launching its own single currency.

“The Gulf monetary union pact has come into effect,” the finance minister, Mustafa al-Shamali, was quoted as saying by the official KUNA news agency.

“Accordingly, GCC central bank governors will work out a timetable for the establishment of the Gulf central bank to ultimately launch the single currency,” said Shamali.

Under the pact, a Gulf monetary council to be established early next year would develop into a central bank which would then take the required measures to issue a single currency.

Analysis: If this takes place into a single trading currency we will see further declines in the U.S. dollar and either major tax hikes or spending reduction we “have” to happen in the United States.

What is even more interesting is when they insure against AIG defaulting when they had such a large amount of risk with a single counter-party.  It makes one wonder if they knew that AIG was in over its head and that because of the amount of liabilities this is why the government bailed out AIG CDS bets with Goldman Sachs being the largest recipient.  So is it true the Goldman Sachs was actually insolvent until they got bailed out?

The trades yielded Goldman less than $50 million in profits, which were mostly booked from 2004 to 2006, according to a person familiar with the matter. But they piled risks onto AIG’s books, which later came to haunt the insurer and Goldman. The trades also gave Goldman a unique window into AIG’s exposure to losses on securities linked to mortgages.

When the federal government bailed out the insurer, Goldman avoided losses on its trades with AIG covering a total of $22 billion in assets.

A Goldman spokesman says that up until AIG was rescued by the government, the insurer “was viewed as one of the most sophisticated financial counterparties in the world. It wasn’t until the government intervened in September 2008 that the full extent of AIG’s problems became apparent.”

“What is lost in the discussion is that AIG assumed billions of dollars in risk it was unable to manage,” the Goldman spokesman added.

Analysis: This is more and more started to smell like a cover-up of a much larger fraud that needs to be investigated further.  The WSJ has taken it this far and now its time for the FBI and DOJ to take the ball in run.  It is very unlikely that our entire financial meltdown was caused entirely because of incompetence and lack of knowledge over the risks of these new “financial innovations”.

I have heard countless experts and official explain how this is not possible or feasible as a plan.  I wonder how we got along for 59 years with this in place?  The reason it was such an important piece of legislation is because it made the core of our banking system (commercial banks with deposits) the most risk adverse form of financial company so that even if our investment banks got in over their head and a few failed, it would not directly affect the commercial banks so that was to contain the need for people to feel their bank was insolvent and then that would create a panic or “run on the bank“.

On the other hand, our investment banks were encouraged to take as much risk as they wanted to make profits with the understanding that they were on their own as far as the government as concerned so they would have to rely on the markets for their support and along with that we allow them to be unregulated so they had as much financial freedom as we could give them to innovate.

This was a very fair trade in my opinion.  One thing to remember is that both forms of banking are very profitable in there own manner.  What I hear now is because these mega-banks are so ‘used” to these enormous profits because they can operate in both areas, that somehow would make them uncompetitive compared to their peers.   I disagree, first off, the U.S. is still the number one financial center of the world hands down and is a favorite place for capital to enter so that is can be deployed.  Second, if we do nothing then we are just setting ourselves up for another situation where these major banks get into trouble and then we will have another supposed “too big to fail” situation that the only answer is “bailout” because it seems to be politically unfeasible for us to let the markets do their jobs and let the bad players fail.

Five House Democrats will call this week for a return to a Depression-era law that separated Wall Street investment banking from Main Street commercial banking.

If adopted, the measure would give banks one year to choose between being commercial banks or investment banks. The nation’s biggest — those now commonly referred to as “too big to fail” — would be broken up. The Obama administration opposes the measure.

The amendment’s five co-sponsors — Maurice Hinchey of New York, John Conyers of Michigan, Peter DeFazio of Oregon, Jay Inslee of Washington, and John Tierney of Massachusetts – want to restore the Glass-Steagall Act of 1933, which prohibited commercial banks from underwriting stocks and bonds. The act was repealed in 1999 at the urging of, among others, Larry Summers, now President Barack Obama’s chief economic adviser.

The five congressman all voted against the repeal then — and now they want it back.

Analysis: I fully support this move and hope it gains more support.  We really need to structurally shore up our banking system and get rid of this “too big to fail” doctrine and this is a step in the right direction.  Please sound off with your comments

Recently, in the last couple days, we have seen the dollar strengthen quite a bit on some comments from the Federal Reserve Chairman about “strong headwinds” ahead of us and the threat of deflation is not behind us.  This is correct because we still have a massive amount of debt in the system that needs to be either serviced or defaulted and many institutions have this one their balance-sheets or off-balance-sheet and that makes these companies vulnerable.

Speculation that the Japanese government plans to sell $100 billion of U.S. Treasury debt to pay for domestic spending may impede the Obama administration’s borrowing plans.

Japan has been this year’s biggest buyer of Treasuries, which means it has done more to help finance the widening U.S. budget deficit than any other country. Its holdings have risen by $125.5 billion, according to data compiled by the Treasury. The comparable figure for China, which surpassed Japan last year as the largest international investor in the securities, is $71.5 billion — 43 percent lower.

Japan will inform the U.S. about the possible $100 billion sale, according to a Market News International report yesterday that cited “rumors” from unnamed sources.

“There’s absolutely no such proposal right now,” Chief Cabinet Secretary Hirofumi Hirano told reporters today in Tokyo. “That kind of talk often surfaces at this season.”

Analysis: 2010 will be a very tell-tale year for the U.S. and Global economy.  The risk of another recession is still a major threat and unless we get unemployment down by having private businesses to start hiring so we can get real income produced in the economy.

Chaos reportedly erupted in North Korea on Tuesday after the government of Kim Jong Il revalued the country’s currency, sharply restricting the amount of old bills that could be traded for new and wiping out personal savings.

The revaluation and exchange limits triggered panic and anger, particularly among market traders with substantial hoards of old North Korean won — much of which has apparently become worthless, according to news agency reports from South Korea and China and from groups with contacts in North Korea.

The sudden currency move appeared to be part of a continuing effort by the government to crack down on private markets, which have become an essential part of the food-supply system in chronically hungry North Korea.

In recent years, some market traders have stashed away substantial amounts of cash, while establishing themselves in profitable businesses that the government struggles to control.

Analysis: Could this be a preview on what could happen in other countries if inflation becomes a much larger threat?

At the time of this writing, the price of gold is at $1,191.00 per ounce.  At the same time, the U.S. Dollar weaken by 1.05% bring it to 74.249 on a currency weighted basis.  Today is a short trading week and light session so it is too soon to know if they is a real move.

India is open to buying more gold from the International Monetary Fund(IMF). It bought 200 tonnes for $6.7 billion on November 3. The Reserve Bank of India (RBI) may well buy IMF’s remaining hoard of 201.3 tonnes on acceptable terms, which are now under negotiation.

A government official said that the additional purchase would depend on the “successful pitching by RBI”. “RBI is an independent body, and the government does not interfere in its affairs. It will get the gold if its bid is successful and at the price it has offered,” said the official.

Analysis: Too soon to tell but it looks like gold is being “remonetized” as a international money and asset class.  If that is so then it does not bode well for the U.S. dollar as the “sole” reserve currency and if that is to be prevented then a major reform of the currency is needed.