Geithner to Japanese Newspaper: No Second Wave of “Collapse of Banking”
From the Asahi Shimbun:
MR. FUNABASHI: I see. Is there any danger or risk for us to see the second wave of, you know, the collapse of banking, you know, the institutions if we would mishandle this stress test, you know, putting the public money into the companies?
SEC. GEITHNER: No, I don’t think so because we’re being very clear that we want to make sure there is continuity of funding, the banks are able to meet their commitments as we go through this process of adjustment, and that the government is prepared to put capital in where it’s necessary.
So in some ways what we’re saying is we’re going to backstop the amount of capital-raising that’s necessary.
And, again, a lot of that will come from the market, ultimately. But where it doesn’t we’ll make sure we provide it.
The Daily Graphic: U.S. Bank Failures – Updated Through April 10
Two more banks were seized by the FDIC on Friday, one in Colorado and one in North Carolina. Failed banks through April 10, 2009 are nearly as many as those failed during the entire year 2008.
Krugman: Fancy Finance Not Necessarily Economic Progress
Paul Krugman discusses the rise and fall and rise and fall of banking. My favorite line:
Despite everything that has happened, most people in positions of power still associate fancy finance with economic progress.
Treasury Backtracking on Transparency – Debate On Release of Stress Test Data
According to Reuters, not only is the U.S. Treasury Dept. holding off on release of bank stress tests due to earnings season, the government department may not release institution-specific data at all. One of the many factors leading to the current financial crisis was a lack of transparency in financial markets. If these institutions are publicly traded, and if they’ve taken tax dollar funded bailouts, the data needs to be available to anyone who wishes to see it.
From Reuters:
The U.S. Treasury Department is planning to delay the release of any completed bank stress test results until after the first-quarter earnings season to avoid complicating stock market reaction, a source familiar with Treasury’s discussions said on Tuesday.
The Treasury is still talking about how results of the regulatory stress tests on the 19 largest U.S. banks will be released, and may disclose them as summary results that are not institution-specific, the source said.
The government is testing how the largest banks would fare under more adverse economic conditions than are expected in an attempt to assess the firms’ capital needs. The tests are due to be completed by the end of April, but Treasury has said they may be finished before then.
The source, speaking anonymously because the Treasury has not made a final decision on what to disclose, said officials do not want any test results released before the earnings season wraps up for most U.S. banks on April 24.
Bearish on Banks – All The Big Ones
From the New York Times Dealbook Blog:
… Mr. Mayo, who recently left his job covering bank stocks for Deutsche Bank to join a unit of Calyon, initiated coverage of 11 large banks in the United States on Monday, and his first report at his new firm assigns all of them “underperform” or “sell” ratings.
The report was full of gloomy predictions, not least of which was this one: Mr. Mayo projects that loan losses in the current financial crisis will eventually exceed the levels experienced during the Great Depression.
In 1934, loan losses as a percentage of total loans outstanding reached a peak of 3.4 percent.
There’s also more here in a story just out from the Times.
IMF Will Raise Toxic Debts Estimates Later This Month
The Times of London reports on Tuesday that the Internation Monetary Fund will revise its estimates of how much the world’s bankers and brokers are on the hook for with regard to toxic assets. Excerpt below, entire article here.
Toxic debts racked up by banks and insurers could spiral to $4 trillion (£2.7 trillion), new forecasts from the International Monetary Fund (IMF) are set to suggest.
The IMF said in January that it expected the deterioration in US-originated assets to reach $2.2 trillion by the end of next year, but it is understood to be looking at raising that to $3.1 trillion in its next assessment of the global economy, due to be published on April 21. In addition, it is likely to boost that total by $900 billion for toxic assets originated in Europe and Asia.
Banks and insurers, which so far have owned up to $1.29 trillion in toxic assets, are facing increasing losses as the deepening recession takes a toll, adding to the debts racked up from sub-prime mortgages. The IMF’s new forecast, which could be revised again before the end of the month, will come as a blow to governments that have already pumped billions into the banking system.
The Daily Graphic: The Geithner Plan (PPIP) Explained
The Financial Times has a great, interactive graphic that explains the latest Geithner scheme for bailing out U.S. banks. Click the image below to go view it:
Transcript: Treasury Secy Tim Geithner on Meet the Press, March 29
(Source: Meet the Press)
MR. GREGORY: … But first, here live is Treasury Secretary Timothy Geithner.
Welcome to MEET THE PRESS.
SEC’Y GEITHNER: Thank you, David. Good to be here.
MR. GREGORY: Thank you. I want to start with some basic terms here. Can you explain as simply as you can why increasing bank lending is so important to the economy?
SEC’Y GEITHNER: Absolutely, David. Economies require banks because they require credit. Credit is like the blood, it’s like the oxygen of any economy. And for us to get the economy growing again, we need to make sure there’s going to be credit available to businesses and families across the country so that businesses can meet payroll, so that they can expand, so that families can put their kids through college, can borrow to finance purchase of a car or a new house. That’s, that’s why financial systems matter, and there is now way to get this economy back on track unless we have a financial system that’s working with the recovery rather than against recovery.
Transcript: Tim Geithner on This Week with George Stephanopolous – March 29
(Source: ABC News This Week)
[*] STEPHANOPOULOS: Good morning and welcome to “This Week.”
(BEGIN VIDEO CLIP)
PRESIDENT BARACK OBAMA: We put in place a comprehensive strategy designed to attack this crisis on all fronts.
(END VIDEO CLIP)
STEPHANOPOULOS: Our headliner this morning, the man behind Obama’s plan.
Video: Geithner Responds to Criticism by Krugman, Others About Taxpayer ‘Cash for Trash’
Why Do I Keep Hearing How Critical Securitization Is?
Since frozen credit markets began to be covered by the media last fall, I keep hearing talking heads on TV say that this or that credit market needs to be loosened up – and I agree. Right now there’s not enough free-flowing capital in the system to promote general economic growth.
But I also hear economists and others saying the securitization market needs to be ginned back up. They seem to talk about securitization as if it yields the same economic value as, say, credit which should be going to small business loans. Paul Krugman’s column in the Times today got me thinking about whether or not a securitization free-for-all is what will really help the structural economy. Krugman points out that banking and insurance used to be “staid” professions. In the 1960′s financial services were 4% of GDP, now they are 8%. It’s obvious that economic activity benefited relatively few and brought us to the brink of collapse last year. Whereas if there were to be a doubling of manufacturing’s portion of GDP, everyone benefits – from the plant owners to the guys sweeping the floors at night.
Deregulation of financial services spawned big numbers, but for whom? I’m not sure how Obama Administration plans to take care of toxic assets and the other gremlins in our current economy get at the fundamental unfairness of the structural U.S. economy.
A little context from Krugman:
Underlying the glamorous new world of finance was the process of securitization. Loans no longer stayed with the lender. Instead, they were sold on to others, who sliced, diced and puréed individual debts to synthesize new assets. Subprime mortgages, credit card debts, car loans — all went into the financial system’s juicer. Out the other end, supposedly, came sweet-tasting AAA investments. And financial wizards were lavishly rewarded for overseeing the process.
But the wizards were frauds, whether they knew it or not, and their magic turned out to be no more than a collection of cheap stage tricks. Above all, the key promise of securitization — that it would make the financial system more robust by spreading risk more widely — turned out to be a lie. Banks used securitization to increase their risk, not reduce it, and in the process they made the economy more, not less, vulnerable to financial disruption.
Text: Treasury Fact Sheet on Financial Services Regulatory Reform
The PDF document below outlines the highlights of comprehensive financial services regulatory reform proposals announced by Secretary fo the Treasury Timothy Geithner on March 26.
Click for Treasury Fact Sheet on Financial Regulatory Reform
Full Text: Treasury Secy Timothy Geithner Testimony on Financial System Regulation, House Financial Services Committee
(Source: U.S. Dept. of the Treasury)
Treasury Secretary Tim Geithner Written Testimony House Financial Services Committee Hearing
Introduction
Thank you Chairman Frank, Ranking Member Bachus, and other members of the Committee. I appreciate the opportunity to testify about the critical topic of financial regulatory reform.
Over the past 18 months, we have faced the most severe global financial crisis in generations. Some of the world’s largest financial institutions have failed. Equity and real estate prices have fallen sharply, eroding the value of our savings. The supply of credit has tightened dramatically. Confidence in the overall financial system, in the protections it is supposed to afford for investors and consumers, has eroded. These financial pressures have intensified the recession now underway around the world.
Mr. President, We’re Not All In The Same Boat
I just read the biggest bunch of horse pucky to come out of the Obama marketing machine since all of the false “outrage” over the AIG bonuses.
According to a story on the Reuters business wire tonight, President Barack Obama will meet with bankers on Friday and tell them, “We’re all in the same boat.” His press secretary, Robert Gibbs, explains further:
“The president looks forward to getting an update on what they’re seeing happening in the economy,” Gibbs said on Wednesday of the banking chief executives who are slated to meet with the president later this week.
He said Obama’s message at the meeting would be to say that what is good for Wall Street is good for Main Street.
“We’re all in the same boat,” Gibbs said. “We have to understand that … what is good for one has to be also good for the other.”
This is becoming the schizophrenic presidency. One day we get Obama, hero for the middle class. This Obama campaigns on a middle class tax cut – a true middle class tax cut, not Republican trickle down – and puts it in his budget. The next day, after attacks from Capitol Hill, the middle class tax cut is suddenly a “maybe.” One day we get President Outrage – angry beyond belief at those bloodsuckers on Wall Street for taking advantage of the taxpayer. The next day we get a trillion dollar pledge from the President’s treasury secretary to use more taxpayer money to further front toxic assets.
Today, this is just President Bad PR. Do taxpayers want to hear the President coddling bankers? “We’re all in the same boat?” Give me a break. We’re all in a barrel headed over the Niagra Falls – a barrel the bankers and brokers put us into. So far, in this recession, this financial crisis, the bankers and brokers have been sailing aboard the Queen Mary. I mean, come on — they made all the mistakes and we’re stuck footing the bill.
I know I’m not in the same boat with the suits Obama will speak to on Friday. When they fuck up, Hank Paulson, Timothy Geithner and Ben Bernanke are like the OJ Simpson Dream Team, pulling Wall Street’s chestnuts out of the fire. When you or I fuck up – we’re just fucked.
Transcript: Timothy Geithner Press Briefing – PPIP – Toxic Asset Bailout – March 23
(Source: White House Press Office)
8:56 A.M. EDT
SECRETARY GEITHNER: Thanks for coming. Nice to see you. Obviously we’re announcing this morning the next stage of our broad plan to help repair the financial system. But I want to start by stepping back, putting this in broader context.
The Daily Graphic: The Economic Downturn in Graphics
I found this page at the BBC. Titled the Economic Downturn in Graphics, it includes several graphics like those pictured below. Go check it out by following the link above or clicking on either of the two graphics below. Pay special attention to the U.S. bank bailouts picture below. We all decry the the $700 billion bailout bill from last fall. The amount of skin the Federal Reserve has in the game is staggering. Who watches or holds accountable the Federal Reserve?
Full Text: Ben Bernanke Speech – The Financial Crisis and Community Banking – March 20
(Source: Board of Governors of the Federal Reserve System)
CHAIRMAN BERNANKE:
When I addressed this convention three years ago, with all of five weeks under my belt as Chairman of the Federal Reserve Board, I opened my remarks with three observations: that community banks played a critical role in the U.S. economy, that community banks were generally doing well, and that community banks faced a changing business environment that posed important challenges. I am struck that all three observations, at least to some degree, still hold true today. Community banks continue to play a critical role in our economy and, in many cases, have an opportunity to step in and make sound profitable loans, where some competitors have pulled back. Relatively speaking at least, community banks are doing better as a group than other segments of our financial system, but at the same time they are far from immune to current conditions. And, surely, it is still true that the business environment poses important challenges to community banks.
