Full Text – Document: Special Inspector General on TARP – Bailouts Ripe for Abuse – Barofsky
Click for SIGTARP Report
Full Text: SecTreas Written Testimony, TARP Oversight, April 21
Treasury Secretary Tim Geithner
Written Testimony
Congressional Oversight Panel
Introduction
Good morning. Thank you for the opportunity to appear before you.
The challenges that our financial system faces are complex, interrelated, and the result of developments over many years. Earlier in this decade, a combination of fundamental factors and financial innovations generated unsustainable bubbles in many housing markets across the country. When those bubbles began to burst, starting in early 2006, housing price declines led to a sharp acceleration in mortgage delinquencies and charge-offs. Those unanticipated losses revealed deep-seated problems in our financial and economic systems. A protracted period of rapid innovation, excessive risk taking, and inadequate regulation produced a financial system that was far more fragile than was generally appreciated during the boom times.
Text-Document: Geithner Letter to Congressional Oversight Panel, April 20, 2009 – Status of TARP Funds
Click for Full Geithner Letter & Charts
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: Financial Factors in the U.S. July 1929 v. December 2007
Source – International Monetary Fund
With Failure of Missouri Bank, U.S. One Failure Away from 2008 Tally
The twenty-fourth U.S. bank failure of 2009 occurred this evening when the American Sterling Bank, Sugar Creek, Missouri was seized by federal regulators.
Metcalf Bank of Lee’s Summit, Missouri will assume the deposits and former American Sterling offices will begin reopening on Saturday as Metcalf Bank branches.
According to a press release by the Federal Deposit Insurance Corp., the government agency which insures depositors for up to $250,000 and regulates member institutions, the Metcalf Bank acquisition of American Sterling was the least cost option. The estimated cost to the FDIC’s Deposit Insurance Fund is $42 million.
In 2008, the number of failed U.S. banks hit 25, the highest number in any year since the Failed Bank List began to be posted on the Internet. Since the current recession began, 49 banks have failed. Sixty-four percent of banks which have failed since October 2000 have failed during this recession.
The Daily Graphic: Bankers and Brokers Not The Only Ones Living on Other People’s Money
I’ve done a lot of bashing of the Merril Lynchs, AIGs and Banks of America of the world and their role in the U.S. financial crisis. While I’m at it, why don’t I just add the ratings agencies and every politician in Washington to that free market for the investment class dogpile.
What doesn’t get enough attention is the fact you, me, our family, friends and neighbors have been fueling the false economy that’s come down around us. The fuel has been easy credit and the accelerant has been Americans’ insatiable appetite for more, bigger and better things. The chart below is from the New York Federal Reserve Bank and shows how Americans’ financial obligations have grown over time. I would imagine the upward trend in the top chart beginning around 2000 is the housing bubble effect – how much equity did you take out of your house when it was worth 20 to 40 percent more than it is today?
Full Text: President Obama Georgetown Speech on Economic Strategy – “The House Upon a Rock”
(Source: White House)
It has now been twelve weeks since my administration began. And I think even our critics would agree that at the very least, we’ve been busy. In just under three months, we have responded to an extraordinary set of economic challenges with extraordinary action – action that has been unprecedented in both its scale and its speed.
I know that some have accused us of taking on too much at once. Others believe we haven’t done enough. And many Americans are simply wondering how all of our different programs and policies fit together in a single, overarching strategy that will move this economy from recession to recovery and ultimately to prosperity.
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.
Video: Larry Summers Gets Heckled By Bailout Protesters in Washington
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.
Roubini: Jim Cramer is a “buffoon” & Recovery “later rather than sooner”
You’ve got to at least listen to what Dr. Doom has to say …
First on the economy in general and recovery, markets, etc:
Nouriel Roubini, a professor at New York University’s Stern School of Business and chairman of economic research firm RGE Monitor, said on Tuesday that he expected more dour macroeconomic data and problems in the banking and housing sectors, as well as pressures on consumers.
Big stimulus packages will eventually slow the rate at which economies contract, but that will take time, he added.
“There will be a light at the end of the tunnel somewhere down the line, later rather than sooner,” he said at a Toronto news conference, which took place ahead of a Sprott Asset Management event entitled “A Night with the Bears.”
Then, on CNBC’s Jim Cramer:
“Cramer is a buffoon,” said Roubini, a New York University economics professor often called Dr. Doom. “He was one of those who called six times in a row for this bear market rally to be a bull market rally and he got it wrong. And after all this mess and Jon Stewart he should just shut up because he has no shame.”
Dow 6,500?
My last market call was 7,000 for the Dow back on November 19, 2008. Today, I’m calling 6,500 as a potential bottom.
You might recall that last week, Jim Cramer, host of CNBC’s Mad Money, and a very fine guy, said, “Time to buy the Depression is over.“ If you listened to or watched CNBC throughout the work day last week you heard many hosts and invited talking heads saying the same basic thing: It looks like we’ve found the bottom, some day we’ll look back at the first week of April or final week of March 2009 and say that’s when the recovery began.
Fed Chairman Ben Bernanke began the recovery talk on March 15 on CBS News’ 60 Minutes, when he spoke of “green shoots” of economic recovery.
“And I think as those green shoots begin to appear in different markets, and as some confidence begins to come back, that will begin the positive dynamic that brings our economy back,” Bernanke said.
Larry Summers, Timothy Geithner – all the government heavy weights – have sung from the same hymnal recently. Frankly, it’s a little disconcerting.
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.
Equifax Exec Says Delinquent Mortgages on Rise, Housing Market Has Not Hit Bottom
From Reuters:
… Dann Adams, president of U.S. Information Systems for Equifax Inc, reported that 7 percent of homeowners with mortgages were at least 30 days late on their loans in February, an increase of more than 50 percent from a year earlier.
He also said 39.8 percent of subprime borrowers were at least 30 days behind on their home mortgage loans, up 23.7 percent from last year. …
… But Adams said the continued increase in mortgage delinquencies revealed in his data foreshadows more foreclosures, short sales and home price declines as homeowners default and banks then repossess the homes to sell them at deep discounts.
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.
Video: Tim Geithner Talks Economic Recovery on Face the Nation
I’m An Obama Supporter and This Is An Example of Why It Makes Me Sick That Summers and Geithner Are in Charge of Economy
From the Washington Post tonight:
Lawrence H. Summers, one of President Obama’s top economic advisers, collected roughly $5.2 million in compensation from hedge fund D.E. Shaw over the past year and was paid more than $2.7 million in speaking fees by several troubled Wall Street firms and other organizations. …
… But Summers — who, as chairman of the National Economic Council, is a leading architect of the administration’s economic policies and helped shape the response to the global recession — appears to have collected the most income. Financial institutions including JP Morgan Chase, Citigroup, Goldman Sachs, Lehman Brothers and Merrill Lynch paid Summers for speaking appearances in 2008. Fees ranged from $45,000 for a Nov. 12 Merrill Lynch appearance to $135,000 for an April 16 visit to Goldman Sachs, according to his disclosure form. Summers reported donating two fees totaling $70,000, including the payment from Merrill Lynch, to charity.
Is it any wonder that the investment class who brought us this Great Recession and blow up of the U.S. financial system is getting off Scot-free with taxpayer bailouts? Larry Summers who brought us the repeal of Glass-Steagal. Tim Geithner who brought us TARP, the original $700 billion bailout.
The point is that there are fundamental problems with what is considered economic activity that delivers real value. Are creatures of Wall Street the right folks to be deciding what a new economic playing field should look like? For instance, what limits should there be on securitization? What should be allowed to be securitized? Should insurance companies be allowed to sell insurance but not call it insurance so it’s not regulated? How much is too much leverage? Etc.
We know what Wall Street’s answers are to these questions. We know that Summers and Geithner are tools of Wall Street. So, we know with them as our economic brain trust we’re fucked — unless of course we’re trading, banking or insuring.
