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President Barack Obama submitted a record $3.83 trillion federal budget on Monday, throwing unprecedented levels of funding in the fight against unemployment not waged in such intensity since FDR’s war on joblessness of the 30s.  The president’s budget also proposes higher tax levels on the “wealthy” and freezes discretionary spending on a wide range of programs.

This year’s budget includes another record deficit of $1.56 trillion, a gap that breaks last year’s then-unprecedented $1.41 trillion shortfall.  Next year’s deficit is expected to continue at a trillion-plus rate as well, even after a three-year budget freeze on an array of federal programs–excluding the military and homeland security–an increase in taxes on household earning north of $250,000, and taxes levied on the nation’s energy companies.

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Two distinct sides are forming among large investment banks over the Obama administration’s banking levy, with one side exploring the possibilities of legal action; at the same time, the other side is calling for the use of caution in the face of growing political backlash.

The Securities Industry and Financial Markets Association (SIFMA) confirmed rumors that it has hired Carter Phillips, a managing partner at the law firm Sidley Austin, who has argued 57 cases before the U.S Supreme Court, to study how best to respond to what it called a “very targeted and punitive tax.” Read more

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Many Americans can recall when they first realized the U.S was on the brink of economic disaster. They can also recall the pain of losing their jobs, taking big pay cuts, or finding themselves struggling to pay their mortgages and credit debts. These same Americans were also outraged and appalled after hearing that billions of dollars were handed out to the financial executives of the major banks, the very people who set the economic meltdown into motion!

JPMorgan Chase, Bank of America, and other big banks are again bracing for another political and public outcry against their massive compensation plans as they prepare to unveil their now infamous and widely despised multi-billion dollar bonus packages. Read more

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A change in how individual states’ regulators measure life insurers’ risks could potentially save the industry more than $5 billion, according to information obtained from New York insurance regulation officials. Life insurers will have to allocate about $8.75 billion to sure up the declining value of home-mortgage bonds (CMO’s) based on the preliminary value analysis provided to regulators by Pacific Investment Management Co.

That figure is significantly less than the $14.5 billion requirement the companies would have had to tackle if regulators still relied on only bond ratings, rather than on Pimco, the largest bond fund manager’s analysis. State insurance regulators discontinued use of the ratings firms last fall, saying they no longer had faith that the ratings firms’ were properly able to size up risk and associated default expectancies in insurers’ large holdings of residential-mortgage bonds. Read more

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Distressed debt, specifically defined as a bond trading at less than 50 cents on the dollar – is hurriedly disappearing from U.S. financial markets as investors looking for high yields push the prices of even the some of most down-trodden securities higher through fevered buying with each passing trading day. Bonds trading at less than 50 cents on the dollar now account for just over 1% of the high-yield market, roughly $8.9 billion USD, down significantly from 27.5%, or just over $200 billion USD in bonds, a year ago, according to data released by JPMorgan.

The huge demand for these below-par bonds (once called Junk Bonds) is raising debate about whether investors are acting wisely and using these investment vehicles to earn potentially market beating returns or flocking to junk bonds because of a lack of earning opportunities elsewhere in various fixed-income markets. With equities markets recovering slower than many had anticipated, fixed income investments start to draw equity players away from equity markets, with the hope of high returns for cheaper investments, this type of activity usually indicates a generally positive economic outlook by investors in terms of debt repayment and liquidity positions of the issuing parties.

With the Federal Reserve continuing to keep its overnight lending rates close zero, the return on a two-year Treasury continues to produce less than a 1 per cent yield. “The Fed’s zero interest rate policy has been a catalyst for billions and billions of dollars flowing into the high-yield market,” Tim Donohue, managing director for high-yield markets at JPMorgan said in a statement. Read more

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In today’s financial environment banks are facing annual losses in revenue amounting to tens of billions of dollars, as new derivatives rules designed to “clean up” the industry as a whole eliminate huge sources of cash in OTC transactions for large firms, according to estimates that came to light last week from JP Morgan.

Several members of the top management at the U.S. bank estimate that it alone could lose between $2 billion and $3 billion USD a year, resulting from proposed legislation to force more trades through exchanges and central clearing. Senior execs at a large European trading firm have come up with similar estimates of up to $2 billion USD in lost revenues annually. A drop on that scale would result is massive losses for U.S. banks as well as the industry as a whole.

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