Mr DJIA down 290... 292 ... 10 YR is holding tight, white-knuckled. Diversity is the key to economic and political evolution.
DOW DOWN 375! When will we see the 6000's? Place yer bets! In the end, might makes right. Nothing has changed since the caveman.
There are extensive quotes from Geithner. Here's one:
Op-Ed Columnist - Showing Some Discipline - NYTimes.com
"I was very worried about us looking like we're vulnerable to the charge that we're overpaying as a way to provide disguised subsidies to banks."
So that isn't going to happen. Private capital is going to come in and buy those assets at fair value. Hallelujah.
"I was very worried about us looking like we're vulnerable to the charge that we're overpaying as a way to provide disguised subsidies to banks." David Brooks
The Village in one sentence:
worried about looking like
Again: it's apeearances that matter, not the actual substance
But it's not over
looking like we're vulnerable to the charge
that's appearances squared
But wait, it's not over
...as a way to provide disguised subsidies to banks.
We now have appearances cubed of ... subsidies.
Like nobody noticed subsidies were given to banks.
No wonder we're fucked if it is these people that influence policy. In the long run, we're all dead. John Maynard Keynes
because the banks would not accept the approximate real price
They can't. If the assets were sold at market values, the banks would go bust.
Could we please just nationalize them and stop fucking around?
4. To keep people in their homes and curb the housing crisis, Treasury will work with the Federal Reserve to commit $50 billion to reduce monthly payments and establish loan modification guidelines for government and private programs. The Financial Stability plan will also require all firms receiving federal funds participate in foreclosure mitigation plans to stem the housing crisis.
Why not do what Obama proposed yesterday and pass a bill in Congress granting bankruptcy court judges cram-down power? That way, the banksters and the housing gamblers both take a hit.
Could we please, oh please, stop pouring renters' tax dollars into schemes to "rescue" homeowners? Everybody should have the right to a roof over his or her head, but nobody's entitled to ownership of a house. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
the banks would go bust.
For sure. That's why I called the assets a figleaf.
I'll note that the conditions that they placed on the banks bear a striking similarity to the conditions in my October Beautiful Financial Rescue Plan ... but rather than 50:50 between financing Baker's Own to Rent plan for mortgages under water and the Wall Street bail out, and the Wall Street bail out being 50:50 Preferred Shares and acquisition of toxic debt with convertible warrants on the realized losses, its much less than that in a doomed to fail plan to fix the foreclosure crisis, and there is no tie between the sale of Toxic Assets and the purchase of Senior Preferred shares in banks. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
1. To stabilize the system and restore confidence in our markets, for the first time ever federal bank regulators will come together to institute uniform standards to help clean up and strengthen banks, and conduct "stress tests" to ensure the nation's largest banks can withstand a worsening economy. Those banks that need it will be given a capital buffer to ensure they can keep lending to families and businesses until they can attract additional private capital and weather economic downturns.Perhaps Geithner will present this in more convincing language. If not, here we have a case of the proverbial anchor in aspic. Those "stress tests" had better be good. And banks will be given - yet again - capital that they should lend out again. Except that they have every reason to hang on to whatever capital they can and avoid lending. As for hearing that they can "keep lending to families and businesses"... (shattered jaw on floor).
1. To stabilize the system and restore confidence in our markets, for the first time ever federal bank regulators will come together to institute uniform standards to help clean up and strengthen banks, and conduct "stress tests" to ensure the nation's largest banks can withstand a worsening economy. Those banks that need it will be given a capital buffer to ensure they can keep lending to families and businesses until they can attract additional private capital and weather economic downturns.
On March 5, 1933, the day after Roosevelt's inauguration, he called a special session of Congress which instituted a mandatory four-day bank holiday. This act provided for the reopening of banks after federal inspectors had declared them to be financially secure.
This is tantamount to using antibiotics to treat gangrene. You waste good medicine and the progression of the rot threatens to kill the patient.
The terms of the conversion are specific to the specific issue of Preferred shares.
It seems likely that that is the process for retiring the Preferred shares ... the banks have to try to get their common share price up to the point where they can buy back the Preferred shares by swapping them for common shares which the Trustee can sell on the open market.
The Trustee, of course, stands the risk that the bank goes on to fail anyway. That is why a critical point that they have omitted to mention is the dividend rate on the Preferred Shares ... what is the penalty rate over the cost of the Treasury Bills to fund TARP 2.0, and is that a reasonable risk premium over the losses to be expected on Senior Preferred Shares from likely bank failures down the track.
I read that Paulson put a rate of 5% on the Senior Preferred Shares, compared to Buffet putting a rate of 10% on the deal he made to inject equity into one of these big institutions ... I'd be very surprised if Geithner had a rate more like 10% than 5%, and in the meantime the cost of funds has risen. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Done, everyone knows where they stand. "Open and transparent".
It seems like it takes more than a cabinet level post to take the student of Larry Summers away from the Wall Street insider operating assumptions. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Only then what? They get a "capital buffer" just because they submitted to the audit, or because the audit says they're OK? If the former, the audit is a pure formality, if the latter, the walking-dead banks will still be walking dead.
In any case, are we to suppose that this audit will do what others have failed to do up to now, evaluate the toxic junk?
What exactly is the problem here? Someone has to pronounce the dead banks, dead. And banks with more than $100bn in assets don't get to opt out of the audit of their balance sheets so at least the Federal Government will know what's on those balance sheets. Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
banks with more than $100bn in assets don't get to opt out of the audit of their balance sheets so at least the Federal Government will know what's on those balance sheets.
Those off-balance-sheet liabilities have come back onto the balance sheets already.
But, really, I don't think any of those SIVs or off-balance-sheet "conduits" can still be standing after the last 18 months in the money markets. Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
Let Sheila Bair do her work.
is she the washington madam?
:) ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
Hereafter know by its acronym. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
Instead of catalyzing recovery, the financial system is working against recovery. And at the same time, the recession is putting greater pressure on banks. This is a dangerous dynamic, and we need to arrest it. It is essential for every American to understand that the battle for economic recovery must be fought on two fronts. We have to both jumpstart job creation and private investment, and we must get credit flowing again to businesses and families. ... We believe that access to public support is a privilege, not a right. When our government provides support to banks, it is not for the benefit of banks, it is for the businesses and families who depend on banks... and for the benefit of the country. Government support must come with strong conditions to protect the tax payer and with transparency that allows the American people to see the impact of those investments. We believe our policies must be designed to mobilize and leverage private capital, not to supplant or discourage private capital. When government investment is necessary, it should be replaced with private capital as soon as possible. ... Our work begins with a new framework of oversight and governance of all aspects of our Financial Stability Plan. ...These new requirements, which will be available on a new website FinancialStability.gov will give the American people the transparency they deserve.
We believe that access to public support is a privilege, not a right. When our government provides support to banks, it is not for the benefit of banks, it is for the businesses and families who depend on banks... and for the benefit of the country. Government support must come with strong conditions to protect the tax payer and with transparency that allows the American people to see the impact of those investments.
We believe our policies must be designed to mobilize and leverage private capital, not to supplant or discourage private capital. When government investment is necessary, it should be replaced with private capital as soon as possible. ...
Our work begins with a new framework of oversight and governance of all aspects of our Financial Stability Plan. ...These new requirements, which will be available on a new website FinancialStability.gov will give the American people the transparency they deserve.
um ... BWAHAHAHAHHAHAHAHA. 'K.
Under this framework, we are establishing three new programs to clean up and strengthen the nation's banks, bring in private capital to restart lending, and to go around the banking system directly to the markets that consumers and businesses depend on. ... First, we're going to require banking institutions to go through a carefully designed comprehensive stress test, to use the medical term. ...assessment about the risk on balance sheets ...access a new funding mechanism that uses funds from the Treasury as a bridge to private capital. The capital will come with conditions....
First, we're going to require banking institutions to go through a carefully designed comprehensive stress test, to use the medical term. ...assessment about the risk on balance sheets ...access a new funding mechanism that uses funds from the Treasury as a bridge to private capital. The capital will come with conditions....
Bad Bank: three parts Ch 11 (RFC), one part Ch 7 (yer RTC).
The Treasury's investments in these institutions will be placed in a new Financial Stability Trust. Second, alongside this new Financial Stability Trust, together with the Fed, the FDIC, and the private sector, we will establish a Public-Private Investment Fund. This program will provide government capital and government financing to help leverage private capital to help get private markets working again. This fund will be targeted to the legacy loans and assets [?!!] that are now burdening many financial institutions. ...We believe this program should ultimately provide up to one trillion in financing capacity, but we plan to start it on a scale of $500 billion [oops], and expand it based on what works.
Second, alongside this new Financial Stability Trust, together with the Fed, the FDIC, and the private sector, we will establish a Public-Private Investment Fund. This program will provide government capital and government financing to help leverage private capital to help get private markets working again. This fund will be targeted to the legacy loans and assets [?!!] that are now burdening many financial institutions. ...We believe this program should ultimately provide up to one trillion in financing capacity, but we plan to start it on a scale of $500 billion [oops], and expand it based on what works.
Fresh coat of paint for Geithner's FRBNY babies, birthed by TALF. To mix metaphors.
Third, working jointly with the Federal Reserve, we are prepared to commit up to a trillion dollars to support a Consumer and Business Lending Initiative. This initiative will kickstart the secondary lending markets, to bring down borrowing costs, and to help get credit flowing again. In our financial system, 40 percent of consumer lending has historically been available because people buy loans, put them together and sell them. Because this vital source of lending has frozen up, no financial recovery plan will be successful unless it helps restart securitization markets for sound loans made to consumers and businesses - large and small. This lending program will be built on the Federal Reserve's Term Asset Backed Securities Loan Facility, announced last November, with capital from the Treasury and financing from the Federal Reserve. ... Our focus will be on using the full resources of the government to help bring down mortgage payments and to reduce mortgage interest rates. We will do this with a substantial commitment of resources already authorized by the Congress under the Emergency Economic Stabilization Act.
In our financial system, 40 percent of consumer lending has historically been available because people buy loans, put them together and sell them. Because this vital source of lending has frozen up, no financial recovery plan will be successful unless it helps restart securitization markets for sound loans made to consumers and businesses - large and small.
This lending program will be built on the Federal Reserve's Term Asset Backed Securities Loan Facility, announced last November, with capital from the Treasury and financing from the Federal Reserve. ...
Our focus will be on using the full resources of the government to help bring down mortgage payments and to reduce mortgage interest rates. We will do this with a substantial commitment of resources already authorized by the Congress under the Emergency Economic Stabilization Act.
Especially the Secretary's gaping discretionary powers to value and to spend $1.5T on "troubled assets".
The success of our financial stability plan is going to require an unprecedented level of cooperation, here in the United States and around the world. Federal Reserve Chairman Ben Bernanke, FDIC Chair Sheila Bair, John Dugan, the Comptroller of the Currency, and John Reich the head of the Office of Thrift Supervision, are here today. I want to thank them for helping to shape this plan, and their commitment to making it work.
Expanding membership of the President's Working Group (PWG). See "Blueprint for a Modernized Financial Regulatory Structure." Short-term Recommendations concern standardizing mortgage products, establishing fed reg and licensing of insurance products, then consumer revolving and other primary market contracts; securitized domestic debt for sale in global capital markets.
Sad. Diversity is the key to economic and political evolution.
We believe that access to public support is a privilege, not a right. When our government provides support to banks, it is not for the benefit of banks, it is for the businesses and families who depend on banks... and for the benefit of the country. Government support must come with strong conditions to protect the tax payer and with transparency that allows the American people to see the impact of those investments. We believe our policies must be designed to mobilize and leverage private capital, not to supplant or discourage private capital. When government investment is necessary, it should be replaced with private capital as soon as possible.
We believe our policies must be designed to mobilize and leverage private capital, not to supplant or discourage private capital. When government investment is necessary, it should be replaced with private capital as soon as possible.
FT.com | Willem Buiter's Maverecon
Many (probably most, possibly all but a handful) high-profile, large border-crossing universal banks in the north Atlantic region are dead banks walking - zombie banks kept from formal insolvency only through past, present and anticipated future injections of public money. They have indeterminate but possibly large remaining stocks of toxic - hard or impossible to value - assets on their balance sheets which they cannot or will not come clean on. This overhang of toxic assets acts like a tax on new lending. Banks are required, by regulators or by market pressures, to hoard capital and liquidity rather than engaging in new lending to the real economy. The public financial support offered in the form of capital injections (in the US mainly through preference shares and other non-voting equity), guarantees for assets and for liabilities (old and new), insurance of toxic assets (as provided to Citigroup by the US sovereign) and possibly in the future through direct purchases by the state of toxic assets (using TARP money in the US) and the creation of one or more publicly owned `bad banks' has been a complete failure. The bad bank proposals the Obama administration and other governments are considering are non-starters, for the simple reason that they require the valuation of assets whose true value (even on a hold-to-maturity basis) can only be guessed at.
Many (probably most, possibly all but a handful) high-profile, large border-crossing universal banks in the north Atlantic region are dead banks walking - zombie banks kept from formal insolvency only through past, present and anticipated future injections of public money. They have indeterminate but possibly large remaining stocks of toxic - hard or impossible to value - assets on their balance sheets which they cannot or will not come clean on.
This overhang of toxic assets acts like a tax on new lending. Banks are required, by regulators or by market pressures, to hoard capital and liquidity rather than engaging in new lending to the real economy. The public financial support offered in the form of capital injections (in the US mainly through preference shares and other non-voting equity), guarantees for assets and for liabilities (old and new), insurance of toxic assets (as provided to Citigroup by the US sovereign) and possibly in the future through direct purchases by the state of toxic assets (using TARP money in the US) and the creation of one or more publicly owned `bad banks' has been a complete failure.
The bad bank proposals the Obama administration and other governments are considering are non-starters, for the simple reason that they require the valuation of assets whose true value (even on a hold-to-maturity basis) can only be guessed at.
He backs the idea of the State creating new institutions - "good banks" - rather than nationalise the old bad banks.
the old "bad banks" will eventually fail and will have to be taken over by the FDIC
Remember the spate of confusion in the interboobz, when MSM introduced the word "conservator"? Suddenly commentator were investigating the word "receivor", but abandon any discursion of the word "restructure"? Receivor and conservator are legal terms. The fiduciary duties of these agents are quite different with respect to remediating a bankruptcy determination ("fail").
Historically, that is until the criminal bush began to legislate, the FDIC's function was always receivor of bankrupt FDIC-insured deposit institutions. In the event of failure (Ch 7 determination), FDIC liquidates all the banks operating and financial assets to pay ("to resolve") creditors' claims (including FDIC advance to account holders), and transfers deposit accounts to another deposit bank. Unmarketable financial assets such as securities may be held to close the books but, ultimately, charged-off to end litigation. The RTC was a special purpose entity of the FDIC created especially to manage the massive number of S&L bankruptcies; operations ceased 1994.
These procedure pretty much changed when Bush Treasury instructed FDIC to "take over" the Pritzker family S&L in 2001. FDIC is still managing Superior Bank FSB operations -- above and beyond action to satisfy outstanding settlement.
By contrast Mr Bush appointed Mr Lockhart conservator of Fannie Mae and Freddi Mac, pursuant to execution of the Housing and Economic Recovery Act of 2008. His duty is to "restructure" these corporations' debt obligations despite contradictory directions by WH and FRB executives to the management of those two organizations. That is mitigate risk exposure by sale or maturity within a specified period versus increase spending on whole and securitized high LTV jumbo mortgages.
Finally, Lehman was never a (demand, commercial, retail) deposit bank insured by FDIC or an FRB reserve bank establishment. It's business was securities brokerage, and even Bernanke cannot be such a colossal, demented asshole to insure ex post the value of its trades.
Knowing all this, somehow, the US Treasury most certainly could implement plans to establish a "good" bank with deposit accounts and performing loans for the simple reason that the premise of confidence in the full faith and credit of the US is not for profit.
OTOH, commercial bankers would never stand idle by USG market power and competition for profitable clients. And that reality is also one of the greatest barriers to USG entry into medical insurance, i.e. single-payer. Politicians are skeered of assissination.
Which is why Barry will pass a rich ol' man. Diversity is the key to economic and political evolution.
Or did you mean "salvaging the unsalvageable"?
You saw what good it did letting Lehman go bust. Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
Were Geitner to use even $100 billion for creation of new banks and even if a 6% capital reserve were required, he would create $2 trillion of new, unimpaired loan capability.
That's right, over time. After all the jackass did commit $500B ($150B more than the TARP balance) PLUS another $500B ("we are prepared to commit up to a trillion dollars to support a Consumer and Business Lending Initiative" whatever that's suppose to entail) PLUS continued risk exposure created by FRB credit facility operations in order to service bad, bad banks' debt load.
10% of that would make a sweet start-up carburator. Diversity is the key to economic and political evolution.
Wall St runs the world, and if Wall St shows weakness the US is finished as a superpower.
Rescuing the little people from ruin is a nice, but optional, bonus.
This is a pasty over-fed finger stuck into a leaking dam, not an attempt to deal seriously with the imminent threat of flooding.
Any other response is - literally - inconceivable.
And the 2009 Nobel Prize for economic analysis goes to... "Life shrinks or expands in proportion to one's courage." - Anaïs Nin
The goal is to protect the financial monopoly owned by Wall St, at - literally - almost any cost.
Geitner and the Big Six banks should comprise the subjects of the first great auto da fe of the clean-up. Then they need to create a significant investigatory and prosecutorial entity to go after all of the miscreants, down to the level of the office managers of mortgage broker offices and the vice presidents of banks that originated and then sold sub-prime and option ARMs in L.A., Miami, Las Vegas, etc. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
If states are already considering going their own way now, what happens a year from now when there's even less money to go around at street level, unemployment is even higher, and there are no obvious prospects for improvement?
There's a point where the cancerous bloat eats the victim to the point where both die. Wall St is a tick which has just popped. Trying to put the flying body parts back together again doesn't seem like a useful pastime.
I'm more interested in what happens next, and how long it's going to take.
It's all about show trials... Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
1. To stabilize the system and restore confidence in our markets
The first point is that to stabilise banks only stops the bleeding of credit that is visible.
It doesn't stop the internal bleeding of the shadow banking system of Investors which was in fact largely responsible for inflating the Bubbles in property (deflation well under way) and private equity (just beginning, and with a knock on effect on employment and hence on property....)
European Tribune - MLECTARPPPIF, Same Story
And banks will be given - yet again - capital that they should lend out again. Except that they have every reason to hang on to whatever capital they can and avoid lending.
Second point is that in fact, they don't lend out capital. They create credit on the basis of it.
They are avoiding lending because they see very few credit-worthy prospects due to falling asset prices, and borrowers with increasingly rocky prospects.
This reluctance will continue until asset prices and employment stabilises, and we have along way to go on that IMHO.
European Tribune - Comments - MLECTARPPPIF, Same Story
3. To get financial markets working again, we will create a new Public-Private Investment Fund which provide government capital and financing to leverage private capital to buy up the "toxic assets" that are dragging down lending
Thirdly, I've been advocating a PPIF for a while -but not exactly what they have in mind.
Defaults are shared proportionally between the Investors
So that if private investors had (say) $5bn nominal share capital, and the government puts in (say) $15bn, then losses would be shared 25%/75%.
If new capital is needed, it then simply dilutes existing capital proportionally.
4. To keep people in their homes and curb the housing crisis, Treasury will work with the Federal Reserve to commit $50 billion to reduce monthly payments and establish loan modification guidelines for government and private programs.
Finally, people get to stay in their homes through the use of "Unitisation", not debt forgiveness or refinancing. We must change the quality of the financial obligations, not the quantity.
ie transfer distressed properties to the Custodian; set affordable index-linked rentals; divide the resulting pool into Units, and simply sell them to pension funds.
For Occupiers it's a new form of "rent to buy"; for Investors it's an index-linked, property-based, low risk (because "affordability" = "certainty", by definition) investment.
Right! That's sorted out the US property market, what about energy? ;-) "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Why Obama's new Tarp will fail to rescue the banks If Mr Obama does not fix this crisis, all he hopes from his presidency will be lost. If he does, he can reshape the agenda. Hoping for the best is foolish. He should expect the worst and act accordingly. Yet hoping for the best is what one sees in the stimulus programme and - so far as I can judge from Tuesday's sketchy announcement by Tim Geithner, Treasury secretary - also in the new plans for fixing the banking system. I commented on the former last week. I would merely add that it is extraordinary that a popular new president, confronting a once-in-80-years' economic crisis, has let Congress shape the outcome. The banking programme seems to be yet another child of the failed interventions of the past one and a half years: optimistic and indecisive. If this "progeny of the troubled asset relief programme" fails, Mr Obama's credibility will be ruined. Now is the time for action that seems close to certain to resolve the problem; this, however, does not seem to be it.
If Mr Obama does not fix this crisis, all he hopes from his presidency will be lost. If he does, he can reshape the agenda. Hoping for the best is foolish. He should expect the worst and act accordingly.
Yet hoping for the best is what one sees in the stimulus programme and - so far as I can judge from Tuesday's sketchy announcement by Tim Geithner, Treasury secretary - also in the new plans for fixing the banking system. I commented on the former last week. I would merely add that it is extraordinary that a popular new president, confronting a once-in-80-years' economic crisis, has let Congress shape the outcome.
The banking programme seems to be yet another child of the failed interventions of the past one and a half years: optimistic and indecisive. If this "progeny of the troubled asset relief programme" fails, Mr Obama's credibility will be ruined. Now is the time for action that seems close to certain to resolve the problem; this, however, does not seem to be it.
Ouch. In the long run, we're all dead. John Maynard Keynes
Why then is the administration making what appears to be a blunder? It may be that it is hoping for the best. But it also seems it has set itself the wrong question. It has not asked what needs to be done to be sure of a solution. It has asked itself, instead, what is the best it can do given three arbitrary, self-imposed constraints: no nationalisation; no losses for bondholders; and no more money from Congress. Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing. Trying to make up for this mistake by imposing pettifogging conditions on assisted institutions is more likely to compound the error than to reduce it.
That point about self-imposed constraints is a pretty fundamental one - and it's a rather good sign that the point is made by such an acknowledged "Serious Person." In the long run, we're all dead. John Maynard Keynes
Is there a realistic way from here to there? And why not just nationalise them immediately, if that's the aim? The political fall out won't be any less dramatic if it happens a couple of years from now rather than next week.
Because they don't want to expropriate them - they would have a massive lawsuit in their hands.
Look at it this way. If zombie banks have managed to postpone the day of reckoning for 18 months, they might still take another two years to fall over. Instead you pass an Act of Congress mandating a Federal audit of large banks and maybe not next week, but maybe you'll know next month that a particular bank is insolvent.
Note also how they are not saying "audit" - they are saying "forward-looking stress-test". Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
If a lot of banks fail the audits - which they will if the audits are honest - you have Lehmann II, III, IV, all the way up to an interesting but indeterminate double digit number. Market confidence won't be improved by this. All you're getting is a very expensive political pretext for a possible nationalisation program which would have to be vast and sweeping to have any effect at all.
But the catch is that after signalling insolvency after an audit, a fatal run on those banks is almost guaranteed.
We've already seen today what that would mean, and how precariously balanced confidence is.
If the audits are dishonest, no one is going to be better off because the toxic assets will still be toxic, and there will still be the nudge-wink implication that the government will be the lender of last resort.
Either way, all you've bought is the illusion of some breathing room while the sludge continues to accumulate. As the depression bites, 'proper' lending done with due diligence, will be decimated to the same extent that sub-prime has been, because formerly safe loans will turn bad as people lose their jobs.
So the problem is that even if this is a genius plan for nationalisation by the back door, it doesn't do enough to deal with the real problem - people without jobs and with mounting debts who could be doing something useful and getting paid for it - and it also creates an audit mechanism which will destroy confidence before it can do anything to improve it.
Maybe I'm missing something, but that doesn't look like a win to me.
There need not be a run on the banks, the FDIC is taking part in the audit. And a run on the stock should be the least of our concerns.
The banks won't go bust like Lehman because the Treasury is there ready to recapitalize the banks. But not to buy their toxic waste at a fictitious price. Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
FDIC's capitalisation is limited, and any support above and beyond would have to come straight from the Treasury.
For the rest - I thought the plan was to push a private sector solution for recapitalisation?
And if you're going to recapitalise banks which would die anyway, why not avoid the drama with a First National Bank of Not Actually Everyone Else's Shitpile, and use that to lend directly to the people who need useful credit?
The point for me is that audits don't deal with the Financial Uncertainty Principle. And Geithner seems too much of an ideologue to push for the kind of clarity that's needed. E.g.
The Ticker - Is Geithner To Blame For Today's Market Plunge? - Economy Watch
Rep. Sherrod Brown (D-Ohio) was upset to learn that some companies receiving bailout money are offshoring jobs to save money. He wondered if the government shouldn't require that such companies employ Americans, in addition to the limits on executive compensation they're now facing. "I do not believe we can put ourselves in position of raising the prospect where government comes in and directly manages at great detail the choices [companies] make," Geithner said. "Ultimately, we will end up costing the economy and taxpayers much more." Geithner said that he is "deeply offended" by "many of the judgments" top executives have made, clearly referring to big bonuses and other perks. "But the important offsetting obligation we have is to not create the prospect that the government is going to come in and make decisions for institutions that want to remain in private hands," he said.
Rep. Sherrod Brown (D-Ohio) was upset to learn that some companies receiving bailout money are offshoring jobs to save money. He wondered if the government shouldn't require that such companies employ Americans, in addition to the limits on executive compensation they're now facing.
"I do not believe we can put ourselves in position of raising the prospect where government comes in and directly manages at great detail the choices [companies] make," Geithner said. "Ultimately, we will end up costing the economy and taxpayers much more."
Geithner said that he is "deeply offended" by "many of the judgments" top executives have made, clearly referring to big bonuses and other perks. "But the important offsetting obligation we have is to not create the prospect that the government is going to come in and make decisions for institutions that want to remain in private hands," he said.
In other words - fuck you, Mr Little Guy.
And also
Trying to figure out how much to pay for this assets -- which once had a value, now are virtually worthless and probably will have a value at some point in the future -- is a tough task. Geithner just said there's a couple ways to price them: A) The government can set a price or B) The government can use an independent economic model to price them. "We were concerned that neither of those two would give us the level of comfort" we want, Geithner said. Instead, that's why he came up with the public-private funding mix: The government will use the private money as a kind of guide dog in entering this market, as the private sector has a better sense of the value of the toxic assets than the government does, and the private money knows it can invest without taking the whole risk on its shoulders, owing to the taxpayer co-investment. At least that's how it's supposed to work. Many traders are calling out for the government to set a price on the toxic assets -- any prices -- so they can get started at cleaning up the mess.
Trying to figure out how much to pay for this assets -- which once had a value, now are virtually worthless and probably will have a value at some point in the future -- is a tough task.
Geithner just said there's a couple ways to price them: A) The government can set a price or B) The government can use an independent economic model to price them.
"We were concerned that neither of those two would give us the level of comfort" we want, Geithner said.
Instead, that's why he came up with the public-private funding mix: The government will use the private money as a kind of guide dog in entering this market, as the private sector has a better sense of the value of the toxic assets than the government does, and the private money knows it can invest without taking the whole risk on its shoulders, owing to the taxpayer co-investment.
At least that's how it's supposed to work.
Many traders are calling out for the government to set a price on the toxic assets -- any prices -- so they can get started at cleaning up the mess.
That longer paragraph looks completely insane to me.
Guide dog? The private sector knows the value, but it can invest without taking the whole risk?
Really - wtf? What could possibly be clearer about the real aim here - privatising profit and socialising risk, as usual?
Co-investment? Where? Most of this money will come from profit on loans, so - er - that will be interest paid by businesses and ordinary people.
Paying tax to Wall St on taxpayer's money, in other words, in some vague as yet undefined proportion which will be based on some vague guide dog element of private investment, probably.
Nothing has changed here. It's the same game, and the outcome will be similar. The can is just being kicked slightly further down the road.
You're supposed to make a proper risk analysis whether you put in 20 or 100M - that(s what the government is counting in. and what it brings is more money to invest, alongside.
That's a failry basic risk allocation and sharing mechanism, there's nothign wrong with it per se - as long as public and private investors take the same risk pari passu. In the long run, we're all dead. John Maynard Keynes
If a lot of banks fail the audits - which they will if the audits are honest - you have Lehmann II, III, IV, all the way up to an interesting but indeterminate double digit number. Market confidence won't be improved by this.
Well, yes and no. Certainly I think we're going to find ourselves looking at some pretty horrifying losses. And there's a risk that a good chunk of the public sees Treasury declare BofA or Shitibank or whatever to be insolvent and responds with a run on the bank. (I don't think it's a very big risk, honestly, especially not if met from the beginning with assurances that deposits are protected no matter what they find.) But it's going to do a lot more for confidence over even the short term to know what's what.
The plan at least seems to get that right. And the plan doesn't, so far as I can tell, seem to involve Geithner simply running out to buy toxic shit at hyper-inflated prices like Paulson did.
Clearly Geithner and Obama are being chickenshits, politically. (Referring to audits as "stress tests" makes me wonder if Mark Penn and Frank Luntz edited Geithner's paper for him.) But they do seem to be cracking the back door open on nationalization, while obviously running away from saying anything about nationalization.
And I think Mig probably makes a fair point about the reaction to this on Wall Street and in the press. (You really should've seen CNBC erupt with Geithner Derangement Syndrome when this was released.) I don't think it's insignificant that investors got the hell out of financials. And I do think the blogosphere may have jumped the gun a bit. It might still wind up being right, but I'm just sayin'.
Much of it is, as Krugman said, subject to interpretation. "The Rorschach Plan," as he called it. So, once more, I declare, "We'll see." Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
The Rorschach plan (wonkish, or at least hard to read) An old joke from my younger days: What do you get when you cross a Godfather with a deconstructionist? Someone who makes you an offer you can't understand. I found myself remembering that joke when trying to make sense of the Geithner financial rescue plan. It's really not clear what the plan means; there's an interpretation that makes it not too bad, but it's not clear if that's the right interpretation. The plan deserves praise for what isn't in it, at least as far as I can tell. There doesn't seem to be provision for mass purchases of toxic waste at premium prices; there also doesn't seem to be a massive "ring-fencing" guarantee against private losses on bad assets. In that sense the plan is better than what the last few weeks of leaks led us to expect. What is in it, in reverse order: Super-TALF: a big expansion of the Fed's quantitative easing, with Treasury backing. I'm OK with that. Private-public purchases of questionable assets; as I understand it, private investors would be the junior partners, so this is probably not a big giveaway (unless there's huge public financing, in which case it amounts to ring-fencing after all). I also suspect it wouldn't accomplish much, but no harm, no foul. Stress test: everything depends on how this is actually implemented. What happens if, or more likely when, a major money center bank is stress-tested and found to have negative net worth? One possibility is that the auditors are told to come up with a different answer; that's a big concern. The other is that the bank is effectively nationalized; as I read the language that could be achieved as part of the public capital injection. So what is the plan? I really don't know, at least based on what we've seen today. But maybe, maybe, it's a Trojan horse that smuggles the right policy into place.
An old joke from my younger days: What do you get when you cross a Godfather with a deconstructionist? Someone who makes you an offer you can't understand.
I found myself remembering that joke when trying to make sense of the Geithner financial rescue plan. It's really not clear what the plan means; there's an interpretation that makes it not too bad, but it's not clear if that's the right interpretation.
The plan deserves praise for what isn't in it, at least as far as I can tell. There doesn't seem to be provision for mass purchases of toxic waste at premium prices; there also doesn't seem to be a massive "ring-fencing" guarantee against private losses on bad assets. In that sense the plan is better than what the last few weeks of leaks led us to expect.
What is in it, in reverse order:
The same thought occurred to me reading what Mig had to say. Are they setting up these audits and mechanisms as a back-door nationalization policy?
Need to know more.
Might explain why the CNBC crowd immediately began screeching after the speech.... Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
(unless there's huge public financing, in which case it amounts to ring-fencing after all)
Second clue.
Despite feeling like i'm having my pocket picked again, and despite feeling more comfortable living in Europe, i will add without detailed explanation what is so obvious from the comments on this thread and others...
[System.Is.Broken Alert] "Life shrinks or expands in proportion to one's courage." - Anaïs Nin
Shorter point 2 : depends to what extent private investors determine the price they're willing to pay, and the taxpayer comes up with the rest;
Shorter point 3 : depends on how the audits are run and what consequences they are allowed to have.
(Both points I made less diplomatically, in the story, and in response to Mig.)
I'll go along with Martin Wolf more on this one:
Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing.
Yes, why the need for a Trojan horse?
ABC News: Obama: No 'Easy Out' for Wall Street
PRESIDENT OBAMA:Well, you know, Wall Street I think is hoping for an easy out on this thing and there is no easy out. Essentially what you've got are a set a banks that have not been as transparent as we need to be in terms of what their books look like. And we're gonna have to hold out the Band-aid a little bit and go ahead and just be clear about some of the losses that have been made because until we do that, we're not going to be able to attract private capital into the marketplace. And so, you know, I think that you have two choices in this situation: you can prolong the agony and shareholders will be happy until they're not happy, and that could be a year from now or two years from now, or in the case of Japan, eight years later. Or you can just go ahead and acknowledge that yeah, there's, there's a lot of work that has to be done to put these banks back on a firmer footing.
PRESIDENT OBAMA:Well, you know, Wall Street I think is hoping for an easy out on this thing and there is no easy out. Essentially what you've got are a set a banks that have not been as transparent as we need to be in terms of what their books look like.
And we're gonna have to hold out the Band-aid a little bit and go ahead and just be clear about some of the losses that have been made because until we do that, we're not going to be able to attract private capital into the marketplace. And so, you know, I think that you have two choices in this situation: you can prolong the agony and shareholders will be happy until they're not happy, and that could be a year from now or two years from now, or in the case of Japan, eight years later.
Or you can just go ahead and acknowledge that yeah, there's, there's a lot of work that has to be done to put these banks back on a firmer footing.
"Today we have established the Civilian Energy Bank, to finance near-term renewable energy security. We will syndicate project finance to the sick banks, in the hope we can turn their balance sheets around. But if not, the CEB, will go forward with the peaceful equivalent of the warfare footing of WWII, and fund putting people to work on their children's sustainable future.
We will begin by funding service technician programs in community colleges across the windy plains, in addition to the existing portfolios of quality developers."
In reaction, Wall St was down 7%, which didn't account for the people partying in the streets. "Life shrinks or expands in proportion to one's courage." - Anaïs Nin
On the bright side, maybe none of the traders worldwide have learned that the Senate passed its version of the American Recovery and Reinvestment Act of 2009, S.336.
Tomorrow they may rally with Mr Bond.
Ha. Diversity is the key to economic and political evolution.
BTW, I had a hilarious depo with ma da on Abe Levy and Fusco LLC circo '64. Diversity is the key to economic and political evolution.
It's not a bailout.
Overview of U.S. bank rescue plan | Top News | Reuters
It's not a bank rescue.
It's a mandatory audit. Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
