A Reality Check on Mortgage Modification - by GRETCHEN MORGENSON - … Unfortunately, the bill would … also create opportunities for mortgage servicers to profit at the expense of investors who own the loans. … Mortgage securities have covenants — known as pooling and servicing agreements — that define their terms. They require loan servicers to act in the best interests of investors when they make decisions about how much forbearance to give troubled borrowers. … “Main Street investors need to know that banks who received their tax money through government bailouts are going to profit again from the safe-harbor loan modification provisions at the expense of their mutual funds, 401(k)’s and pension investments,” said Thomas C. Priore, chief executive of ICP Capital … - NY Times

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1.  Obama Overthrows Reagan’s Government-Bad Dogma to Rescue Market - By Rich Miller and Matthew Benjamin - Ronald Reagan used to joke that the nine most terrifying words in the English language were “I’m from the government and I’m here to help.” Barack Obama is making those words welcome. - Bloomberg

2.  Stress Tests May Force Banks to Convert TARP Stock - By Linda Shen - U.S. banks that received results of their federal stress tests last week were given three options if they need additional capital to withstand the recession. The reality is they may only have one.  Getting federal aid or selling shares — two of the choices offered to the 19 lenders being tested — aren’t practical politically or financially … That leaves the third option presented by Treasury Secretary Timothy Geithner: changing the preferred stock held by the U.S. Troubled Asset Relief Program into common shares. Doing so would prop up capital under accounting rules and dilute the value of shareholdings for current investors…. - Bloomberg

3.  Paulson’s ‘Gift’ to Lewis Delivered at Gunpoint: Caroline Baum - … In it, Lewis says he was strong-armed by former Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke to seal the deal to buy Merrill Lynch without telling his shareholders about the brokerage’s mounting fourth-quarter losses, which came to $15.4 billion. … - Bloomberg

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escaping TARP? - Morgan Stanley’s “Subsidiary Strategy” - Posted by Daniel M. Harrison -  Yesterday, it was rumored on dealing desks on Wall Street that Morgan Stanley may be about transform its biggest proprietary trading desk into a hedge fund as a way to sidestep new government restrictions on pay and hiring. -  The Global Perspective

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‘Cramdown’ will face Senate test - By VICTORIA MCGRANE  - The so-called cramdown bankruptcy measure faces its big Senate test as early as this week.  Senate Majority Leader Harry Reid (D-Nev.) intends to bring up housing legislation. But Democratic congressional leaders haven’t decided whether to include the controversial bankruptcy language in the underlying bill or offer it as an amendment on the floor, where it would then face a 60-vote filibuster hurdle. - Politico