From Clusterstock……

The news that Merrill Lynch paid out $15 billion in bonuses is sure to ignite new questions about the wisdom of bailing out Wall Street. Merrill Lynch took $10 billion from the TARP, allegedly to fill holes in its balance sheet. But instead of using that to repair its financial health, it simply put the money into the pockets of its employees. There is no way to defend this disgusting payout.

The media made a big deal about Republicans attempts to make the tax system less progressive. But they have been largely silent about the fact that Democrats and Republicans have united to give taxpayer money to people who are filthy rich. Personally, I would have just preferred that we make the tax system less progressive.

I would prefer rich people who are taxed at the same rate as I am to rich people who are on welfare.

From Market Watch…..

The bank probably needs to maintain a tangible equity ratio of 6% to 9%, he said. “It would take over $80 billion of new common equity to reach even the low end of the range, and we believe Bank of America simply is not generating sufficient capital internally in this environment to put a dent in this size capital hole.”

This is on top of all the other money already given to the Bank of America. And this is only the tip of the iceberg. Bank after bank has been posting horrendous losses. As this Calculated Risk post shows, bank stocks are getting killed. And they were already worth almost nothing. Wall Street is waking up to the fact that the banking system is insolvent and there is panic on the street.

What is really scaring people is that prime mortgage defaults have started to shoot up just when banks had thought they had worked through their sub prime losses. As more and more people lose their jobs it is only going to get worse. And if prime defaults are going up, the Agencies are really going to start needing cash. People are just beginning to see how much this is going to cost.

Edit: I forgot to add in this from the New York Times….

Stock markets had one of their worst Inauguration Day losses in more than a century, skidding more than 4 percent. Financial companies plunged more than 15 percent, their biggest one-day drop in nearly two decades, as investors worried that the troubles facing the country’s biggest banks might be larger and deeper than anyone had thought.

Even after record corporate write-downs and a $700 billion bailout to shore up the financial system, banks are still reporting huge losses, lining up for new government lifelines and cutting their profit outlooks.

The stock market drooped so much that the Dow is now below 8,000 if anyone cares about such meaningless number anymore.

From later on in the same New York Times article comes the money quote….

“At the end of the year, we saw some light at the end of the tunnel,” said Art Hogan, chief market strategist at Jefferies & Company. “Unfortunately, we found out that the light at the end of the tunnel was a train.”

From the Telegraph….

The taxpayer will be forced to underwrite up to £200 billion of bad banking debt under a government plan to take control of assets belonging to Britain’s major high street lenders, The Daily Telegraph can disclose.

Calculated Risk notes that if the the US handed out as big as a bailout in proportion to its GDP it would have to be almost 10 trillion dollars. Markets are not reacting well to this news. Unlike Macro Man, I personally feel that an Iceland like collapse is coming for Great Britain in the near future.

From Brad Setser….

The same story applies to the official sector as a whole. Central banks sold $26.2b of long-term Treasuries, but added $66.6b to their short-term Treasury holdings. Net central bank holdings of Treasuries — judging from the TIC data — rose by $40.4b. That is consistent with the $49.1b rise in the Fed’s custodial holdings of Treasuries. Central banks by contrast are reducing their holdings of short-term and long-term Agencies. They sold $14.3b of long-term Agencies, and their short-term holdings likely fell by a comparable amount.**

Selling long dated treasuries in exchange for short dated Treasuries is a sign that they think interest rates will rise in the near future. Otherwise the move does not make any sense at all in this environment. What do they know that we do not?

From Felix Salmon…..

Both Citigroup and Bank of America are down more than 20% in early trade today, and I imagine that Hank Paulson and Tim Geithner are starting work on yet another weekend deal of some description, since at this rate it seems that neither institution is capable of surviving in its present form much longer. They should embrace the inevitable and just nationalize the two banks.

The Economics of contempt has more. But I am not sure he is right that only Bank of America has problems. But recent news stories do make it seem that Bank of America is the most desperate right now.

But all the banks seem to be in big trouble right now. Look at this from Calculated Risk.