Posted by Kendall Harmon

The nation’s banks are holding a much higher rate of defaulted mortgages on their books than mortgage giants Fannie Mae and Freddie Mac, according to a report released Wednesday by the Office of the Comptroller of the Currency, which regulates national banks.

The report said that some 19.7% of mortgages held in banks’ portfolios were delinquent at the end of March. By contrast, nearly 6.8% of mortgages backed by mortgage giants Fannie Mae and Freddie Mac were nonperforming, and 11.4% of all mortgages that are serviced by banks.

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Filed under: * Economics, PoliticsEconomyCorporations/Corporate LifeHousing/Real Estate MarketThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--

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Posted June 30, 2011 at 5:34 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Estimates of monthly GDP indicate that the only growth in the first quarter of 2011 was from February to March. After a temporary rise in March, the economy began sliding again in April, with declines in real wages, in durable-goods orders and manufacturing production, in existing home sales, and in real per-capita disposable incomes. It is not surprising that the index of leading indicators fell in April, only the second decline since it began to rise in the spring of 2009.

The data for May are beginning to arrive and are even worse than April's. They are marked by a collapse in payroll-employment gains; a higher unemployment rate; manufacturers' reports of slower orders and production; weak chain-store sales; and a sharp drop in consumer confidence.

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Filed under: * Economics, PoliticsEconomyConsumer/consumer spendingCorporations/Corporate LifeHousing/Real Estate MarketLabor/Labor Unions/Labor MarketThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe U.S. GovernmentPolitics in GeneralHouse of RepresentativesOffice of the PresidentPresident Barack ObamaSenate

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Posted June 9, 2011 at 11:28 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Read it all.

Filed under: * Economics, PoliticsEconomyHousing/Real Estate MarketThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentBudgetThe National DeficitThe United States Currency (Dollar etc)Politics in GeneralHouse of RepresentativesOffice of the PresidentPresident Barack ObamaSenate

1 Comments
Posted March 20, 2011 at 12:00 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Foreign banks were among the biggest beneficiaries of the $3,300bn in emergency credit provided by the Federal Reserve during the crisis, according to new data on the extraordinary efforts of the US authorities to save the global financial system.

The revelation of the scale of overseas lenders’ borrowing underlines the global nature of the turmoil and the crucial role of the Fed as the lender of last resort for the world’s banking sector.

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Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentFederal Reserve* International News & CommentaryEurope

2 Comments
Posted December 2, 2010 at 6:40 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The U.S. government will face pressure to bail out struggling states in the next 12 months, said Meredith Whitney, the banking analyst who correctly predicted Citigroup Inc.’s dividend cut in 2008.

While saying a bailout might not be politically viable, Whitney joined investor Warren Buffett in raising alarm bells about the potential for widespread defaults in the $2.8 trillion municipal bond market. She said state and local issuers have taken on too much debt and that the gap between public spending and revenue is unsustainable.

“People will think the federal government will bail these states out,” Whitney, 40, the founder of Meredith Whitney Advisory Group Inc., said in an interview on Bloomberg Television’s “In the Loop.” “It’s going to be an incredibly divisive issue.”

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Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentPolitics in GeneralHouse of RepresentativesOffice of the PresidentPresident Barack ObamaSenateState Government

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Posted September 30, 2010 at 6:49 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Winston Churchill once moaned about the long, dishonourable tradition in politics that sees commerce as a cow to be milked or a dangerous tiger to be shot. Businesses are the generators of the wealth on which incomes, taxation and all else depends; “the strong horse that pulls the whole cart”, as Churchill put it. No sane leader of a country would want businesspeople to think that he was against them, especially at a time when confidence is essential for the recovery.

From this perspective, Barack Obama already has a lot to answer for. A president who does so little to counter the idea that he dislikes business is, self-evidently, a worryingly negligent chief executive. No matter that other Western politicians have publicly played with populism more dangerously, from France’s “laissez-faire is dead” president, Nicolas Sarkozy, to Britain’s “capitalism kills competition” business secretary, Vince Cable (see article); no matter that talk on the American right about Mr Obama being a socialist is rot; no matter that Wall Street’s woes are largely of its own making. The evidence that American business thinks the president does not understand Main Street is mounting

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Filed under: * Economics, PoliticsEconomyCorporations/Corporate LifeHousing/Real Estate MarketLabor/Labor Unions/Labor MarketTaxesThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe U.S. GovernmentPolitics in GeneralOffice of the PresidentPresident Barack Obama

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Posted September 26, 2010 at 1:41 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Pundits are restless, an election looms – so this week, President Barack Obama is proposing yet another round of special favors, aimed at improving the economy. Prominent columnist Paul Krugman wants the plans to be “bold” and to involve huge amounts of money. Here’s a contrasting view: government should stop declaring recovery plans, bold or otherwise.

Maybe the constant announcing of new plans – especially plans backed by borrowing or tax cuts – is, itself, an impediment to economic growth.

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Filed under: * Economics, PoliticsEconomyConsumer/consumer spendingCorporations/Corporate LifeCredit MarketsHousing/Real Estate MarketLabor/Labor Unions/Labor MarketThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentBudgetThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

3 Comments
Posted September 8, 2010 at 6:01 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The Obama administration and the Federal Reserve want to fix the United States economy by spending more money. But while that approach might work for Europe, it is risky for the US. The nation would be better off embracing traditional American values like self-reliance and small government.

There's no question about it: The 20th century was America's era. The United States rose rapidly from virtually nothing to become the most politically powerful and economically strongest country in the world. But the financial crisis and subsequent recession have now raised doubts about its future. Are we currently witnessing the beginning of the end of the American era?

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Filed under: * Economics, PoliticsEconomyConsumer/consumer spendingCorporations/Corporate LifeCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe U.S. GovernmentFederal ReserveTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama* International News & CommentaryAmerica/U.S.A.EuropeGermany

2 Comments
Posted September 4, 2010 at 1:00 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

We don’t have alternative universe laboratories to run control bailout experiments, but we can imagine the alternative outcomes if different actions were taken.

So let’s do just that. Imagine a nation in the midst of an economic crisis, circa September-December 2008. Only this time, there are key differences: 1) A President who understood Capitalism requires insolvent firms to suffer failure (as opposed to a lame duck running out the clock); 2) A Treasury Secretary who was not a former Goldman Sachs CEO, with a misguided sympathy for Wall Street firms at risk of failure (as opposed to overseeing the greatest wealth transfer in human history); 3) A Federal Reserve Chairman who understood the limits of the Federal Reserve (versus a massive expansion of its power and balance sheet).

In my counter factual, the bailouts did not occur. Instead of the Japanese model, the US government went the Swedish route of banking crises: They stepped in with temporary nationalizations, prepackaged bankruptcies, and financial reorganizations; banks write down all of their bad debt, they sell off the paper. Int he end, the goal is to spin out clean, well financed, toxic-asset-free banks into the public markets.

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Filed under: * Culture-WatchHistory* Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentFederal ReserveTreasury Secretary Timothy GeithnerPolitics in GeneralHouse of RepresentativesOffice of the PresidentPresident Barack ObamaSenate

34 Comments
Posted August 18, 2010 at 7:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The administration's second assumption, meanwhile, is a matter of academic theories about the sizes of the relevant economic multipliers. Textbook Keynesian economics tells us that government-purchases multipliers are larger than tax-cut multipliers. And, as we have seen, the Obama administration's economic team consulted these standard models in deciding that spending would be significantly more effective than tax cuts.

But a great deal of recent economic evidence calls that conclusion into question. In an ironic twist, one key piece comes from Christina Romer, who is now chair of Obama's Council of Economic Advisers. About six months before she took the job, Romer teamed up with her husband and fellow Berkeley economist David Romer to write a paper ("The Macroeconomic Effects of Tax Changes") that sought to measure the influence of tax policy on GDP. Crucial to the Romers' method was their effort to identify changes in tax policy made during times of relative economic stability, and driven by a desire to influence economic behavior or activity (to encourage growth, say, or reduce a deficit), rather than those changes made in response to a recession or crisis. By studying such "exogenous" tax-policy changes, the Romers could be more confident that they were in fact measuring the effects of taxes and not those of extraneous conditions.

The Romers' conclusion, which is at odds with most traditional Keynesian analysis, was that the tax multiplier was 3 — in other words, that every dollar spent on tax cuts would boost GDP by $3. This would mean that the tax multiplier is roughly three times larger than Obama's advisors assumed it was during their policy simulations.

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Filed under: * Economics, PoliticsEconomyConsumer/consumer spendingCorporations/Corporate LifeCredit MarketsHousing/Real Estate MarketLabor/Labor Unions/Labor MarketThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentPolitics in GeneralHouse of RepresentativesOffice of the PresidentPresident Barack ObamaSenate

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Posted July 24, 2010 at 1:56 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

A new Time poll reveals just how hard the task is: Two-thirds of respondents say they oppose a second government stimulus package. And 53% say the country would have been better off without the first one.

The result is a White House pulled in three directions at once as it tries to repair the economy — and ensure that Obama and the Democrats can survive a rising tide of public anger. First, the Obama team is improvising ways to pass piecemeal spending items through a Congress where stimulus has become a toxic word. At the same time, the White House is signaling its concern about that budget deficit that has Tea Partyers raging — both through token gestures, like a White House contest that lets the public vote on cost-cutting ideas submitted by federal employees (the winner gets to meet Obama and see his or her idea go in the President's next budget), and through Obama's support for the work of a bipartisan deficit commission. And finally, the White House is trying to explain to angry liberals that it's doing everything possible to keep the economy moving and fight Republican resistance to new spending.

It's a delicate balancing act, on a par with Obama's effort to pass health care reform without appearing to get too involved in the details. And just as it did in the health care battle, the future of Obama's presidency — as well as the fate of the American economy — may hang on the outcome.

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Filed under: * Culture-WatchHistoryPsychology* Economics, PoliticsEconomyHousing/Real Estate MarketLabor/Labor Unions/Labor MarketThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentFederal ReserveThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralHouse of RepresentativesOffice of the PresidentPresident Barack ObamaState Government

0 Comments
Posted July 17, 2010 at 12:30 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

To believe Christopher Dodd, the Connecticut Democrat who is chairman of the Senate Banking Committee, the end of government bailouts is near. In truth, the financial-overhaul legislation now before Congress would do little to arrest the bailouts already in progress.

When the U.S. government rescued American International Group Inc. in 2008, it reasoned that a disorderly failure of the financial-services giant would lead to an economic catastrophe. What the Treasury and Federal Reserve said they needed was a way to wind down systemically important institutions without sending them into bankruptcy courts, to keep the companies from triggering defaults on their obligations that would cascade throughout the broader financial system.

Congressional leaders say their final bill will deliver the resolution authority regulators have been seeking. “It will end bailouts, ensuring that failing firms can be shut down without relying on taxpayer bailouts or threatening the stability of our economy,” Dodd said June 10 at the House-Senate conference committee where the differences between the two chambers’ bills are being negotiated.

It wouldn’t end AIG’s rescue, though. The reason AIG hasn’t failed is that the Fed and the Treasury continue to stand behind it. There’s no sign this will change anytime soon. Nor would the legislation force the government to do otherwise.

Read the whole thing.

Filed under: * Economics, PoliticsEconomyCorporations/Corporate LifeStock MarketThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralSenate

2 Comments
Posted June 18, 2010 at 9:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

It is past time to end the conspiracy of silence about Fannie Mae and Freddie Mac, government-sponsored companies that buy and sell mortgages and related securities. Both were taken over by the Treasury Department in 2008. So far Washington has shelled out $140 billion to keep them afloat. A Congressional Budget Office study says their losses could reach $400 billion. Other estimates put them at $500 billion.

In contrast, the net cost to date of TARP, after loan repayments and other government income, is $172.5 billion, nearly half of which is owed by the auto industry.

While optimists foresee the repayment of most TARP funds, the same cannot be said of Fannie and Freddie, which own well over a trillion dollars in risky mortgages and mortgage-backed securities.

Unlike TARP funds, the subsidies to Fannie and Freddie do not show up in the government's budget. If they did, it would be even further out of balance.

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Filed under: * Economics, PoliticsEconomyHousing/Real Estate MarketThe 2009 Obama Administration Bank Bailout PlanThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentBudgetThe National DeficitPolitics in GeneralOffice of the PresidentPresident Barack Obama

7 Comments
Posted May 24, 2010 at 7:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The US economy is in a mess – even if growth has resumed, and bankers are once again receiving huge bonuses. More than one out of six Americans who would like a full-time job cannot get one; and 40% of the unemployed have been out of a job for more than six months.

As Europe learned long ago, hardship increases with the length of unemployment, as job skills and prospects deteriorate and savings gets wiped out. The 2.5-3.5 million foreclosures expected this year will exceed those of 2009, and the year began with what is expected to be the first of many large commercial real-estate bankruptcies. Even the Congressional Budget Office is predicting that it will be the middle of the decade before unemployment returns to more normal levels, as America experiences its own version of “Japanese malaise....”

Three things can make a difference: a second stimulus, stemming the tide of housing foreclosures by addressing the roughly 25% of mortgages that are worth more than the value the house, and reshaping our financial system to rein in the banks.

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Filed under: * Economics, PoliticsEconomyLabor/Labor Unions/Labor MarketThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentBudgetThe National DeficitPolitics in GeneralHouse of RepresentativesOffice of the PresidentPresident Barack ObamaSenate

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Posted February 6, 2010 at 10:42 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

It is payback time for Fannie Mae and Freddie Mac on some mortgages sold to the finance companies by lenders.

Stuck with about $300 billion in loans to borrowers at least 90 days behind on payments, Fannie and Freddie have unleashed armies of auditors and other employees to sift through mortgage files for proof of underwriting flaws. The two mortgage-finance companies are flexing their muscles to force banks to repurchase loans found to contain improper documentation about a borrower's income or outright lies.

The result: Freddie Mac required lenders to buy back $2.7 billion of loans in the first nine months of 2009, a 125% jump from $1.2 billion a year earlier. Fannie Mae won't disclose its figure, but trade publication Inside Mortgage Finance said Fannie made $4.3 billion in loan-repurchase requests in the first nine months of 2009.

"Because taxpayers are involved, we're being very vigilant," said Maria Brewster, who oversees Fannie's repurchase team. "No taxpayer should have to pay for a business decision that caused a bad loan to be sold to Fannie Mae."

Read it all from the weekend Wall Street Journal.

Filed under: * Culture-WatchLaw & Legal Issues* Economics, PoliticsEconomyHousing/Real Estate MarketThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. Government

5 Comments
Posted February 1, 2010 at 12:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

AIG and the Federal Reserve Bank of New York have become targets of an investigation into whether the overseer had instructed the troubled insurer not to disclose certain key information to the public.

Neil Barofsky, special inspector general for the $700 billion bailout, is set to tell the House Oversight Committee on Wednesday that he has initiated an investigation into whether the New York Fed instructed AIG (AIG, Fortune 500) not to disclose more than a dozen controversial counterparty transactions to the Securities and Exchange Commission.

Read the whole article.

Filed under: * Culture-WatchLaw & Legal Issues* Economics, PoliticsEconomyConsumer/consumer spendingStock MarketThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentFederal ReserveTreasury Secretary Timothy GeithnerPolitics in General

1 Comments
Posted January 26, 2010 at 5:55 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Scott Brown has a lot to answer for. His stunning Senate victory for the Republicans in Massachusetts sent the White House into a spin. President Obama promptly decided on the populist gesture of targeting Wall Street with vague proposals to outlaw banks’ risky activities and limit their size. Though seemingly hastily wheeled out, the ideas were first floated a few months ago by Paul Volcker, former chairman of the Federal Reserve Board, a man widely regarded as the best US central banker of the modern era. As a result they have some credibility, though they are far from being a panacea.

Many believe the banks have brought this on their own heads. The return of big bonuses so soon after a crisis of their own making, for which ordinary people will be paying for years, showed crass insensitivity and greed. America’s banks rushed to pay off their obligations to taxpayers under the Tarp (troubled asset relief programme) precisely so that they could get back on the bonus gravy train. The behaviour of the banks, however, is no excuse for flawed policy. Nobody yet knows the detail of Mr Obama’s plans, probably not even the president. But from what we know so far, they suffer from two serious shortcomings.

The first is that they would not have stopped the current crisis....

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Filed under: * Culture-WatchGlobalizationLaw & Legal Issues* Economics, PoliticsEconomyCorporations/Corporate LifeStock MarketThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentFederal ReserveTreasury Secretary Timothy GeithnerPolitics in GeneralHouse of RepresentativesOffice of the PresidentPresident Barack ObamaSenate* International News & CommentaryEngland / UK

1 Comments
Posted January 24, 2010 at 8:07 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

A professor at Columbia University, Mr. Stiglitz uses his experience teaching to give the lay reader a lucid account of how overleveraged banks, a shoddy mortgage industry, predatory lending and unregulated trading contributed to the meltdown, and how, in his opinion, ill-conceived rescue efforts may have halted the freefall but have failed to grapple with more fundamental problems.

He is eloquent on how the American economy was sustained before the crisis by “a debt-financed consumption binge supported by a housing bubble” and impassioned in describing what he sees as the government’s failure to make substantial reforms to the economic system: though “excesses of leverage will be curbed,” he writes, “the too-big-to-fail banks will be allowed to continue much as before, over-the-counter derivatives that cost taxpayers so much will continue almost unabated, and finance executives will continue to receive outsized bonuses.” In each case, he writes, “something cosmetic will be done, but it will fall far short of what is needed.”

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Filed under: * Culture-WatchHistory* Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentFederal ReserveTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

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Posted January 19, 2010 at 12:18 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The effect of free money is remarkable. A year ago investors were panicking and there was talk of another Depression. Now the MSCI world index of global share prices is more than 70% higher than its low in March 2009. That’s largely thanks to interest rates of 1% or less in America, Japan, Britain and the euro zone, which have persuaded investors to take their money out of cash and to buy risky assets.

For all the panic last year, asset values never quite reached the lows that marked other bear-market bottoms, and now the rally has made several markets look pricey again. In the American housing market, where the crisis started, homes are priced at around fair value on the basis of rental yields, but they are overvalued by almost 30% in Britain and by 50% in Australia, Hong Kong and Spain.

Stockmarkets are still shy of their record peaks in most countries. The American market is around 25% below the level it reached in 2007. But it is still nearly 50% overvalued on the best long-term measure, which adjusts profits to allow for the economic cycle, and is on a par with two of the four great valuation peaks in the 20th century, in 1901 and 1966.

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Filed under: * Culture-WatchGlobalization* Economics, PoliticsEconomyStock MarketThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentFederal ReserveTreasury Secretary Timothy GeithnerPolitics in General

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Posted January 10, 2010 at 2:05 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The second important lesson involves understanding why markets often do not work the way they are meant to. There are many reasons for market failures. In this case, too-big-to-fail financial institutions had perverse incentives: if they gambled and succeeded, they walked off with the profits; if they lost, the taxpayer would pay. Moreover, when information is imperfect, markets often do not work well - and information imperfections are central in finance. Externalities are pervasive: the failure of one bank imposed costs on others, and failures in the financial system imposed costs on taxpayers and workers all over the world.

The third lesson is that Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster. Other countries succumbed to the old orthodoxy pushed by the financial wizards who got us into this mess in the first place.

Whenever an economy goes into recession, deficits appear, as tax revenues fall faster than expenditures. The old orthodoxy held that one had to cut the deficit - raise taxes or cut expenditures - to "restore confidence." But those policies almost always reduced aggregate demand, pushed the economy into a deeper slump, and further undermined confidence - most recently when the International Monetary Fund insisted on them in East Asia in the 1990's.

The fourth lesson is that there is more to monetary policy than just fighting inflation....

Read it all.

Filed under: * Culture-WatchGlobalizationHistory* Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentFederal ReserveThe National Deficit

0 Comments
Posted January 3, 2010 at 2:33 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The last two quarters were even more extreme: Productivity in the nonfarm business sector grew at a shocking 8.1% annual rate. There are two possible explanations. One: The last two quarters were among the most technologically innovative and entrepreneurial in the history of the United States. Two: Fearful businesses pared payrolls to the bone. If the second is closer to the truth, payrolls are extraordinarily lean right now. Which means that firms will need to hire more workers as their sales and production grow. Which means that employment may start growing sooner than the pessimists think.

I have been pointing this out for months, but until the last employment report, it was a hypothesis supported by no evidence. Not anymore. While payrolls continued to decline in November, it was by only a scant 11,000 jobs; and the job counts for September and October were revised upward. The data now show a clear trend that suggests that net job creation may be only a month or two away. We'll see.

There is more to the case for optimism. For one thing, less than 30% of February's $787 billion fiscal stimulus has been spent to date; over 70% is still in the pipeline. Pessimists dote on the fact that the rate of increase of stimulus spending has probably peaked and will be lower in 2010. True. But the level of GDP will continue to get support from fiscal policy, and a second job-creation package ("Please don't call it a stimulus!") looks to be in the works.

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Filed under: * Economics, PoliticsEconomyConsumer/consumer spendingCorporations/Corporate LifeCredit MarketsHousing/Real Estate MarketLabor/Labor Unions/Labor MarketThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentFederal Reserve

1 Comments
Posted December 16, 2009 at 12:30 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Federal regulators initially told Citigroup and other troubled banks that they would be required to hold on to the federal aid for some time as they return to health. But in recent months, the government switched to pushing the companies to repay the money as soon as possible. All nine firms that took federal money last October now have approved plans to pay it back.

This urgency has come despite the lingering concerns of many financial experts about the companies' health. These analysts said they worry that the firms could face rising losses next year as high unemployment and economic weakness continue to drive great numbers of borrowers into default.

"They are rolling the dice big time," said Christopher Whalen, a financial analyst with Institutional Risk Analytics. "My fear is that the banks will definitely have to raise a lot more capital next year. The question is from whom and on what terms."

Read it all.

Filed under: * Economics, PoliticsEconomyTaxesThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. Government

0 Comments
Posted December 16, 2009 at 5:11 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The animus towards the Fed is striking, considering that its unprecedented market interventions almost certainly averted a financial meltdown last year and a far more severe recession. But many congressmen care less about the disaster avoided than the injustice of bailed-out bankers taking home record bonuses as unemployment keeps rising. The Fed is now guilty by association, seen as too close to banks, too quick to bail them out and too generous and secretive when it does so. The Fed’s structure supplies fodder for this critique. The compromise that led to its creation in 1913 split responsibility for monetary policy between politically-appointed governors in Washington, dc, and the presidents of 12 regional banks, whose boards are appointed in part by private bankers.

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Filed under: * Culture-WatchLaw & Legal Issues* Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentFederal ReserveTreasury Secretary Timothy GeithnerPolitics in GeneralHouse of RepresentativesSenate

1 Comments
Posted November 29, 2009 at 4:28 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Yet the urgent problem now isn't TBTF [too big to fail], or even banker bonuses. These are distractions. The urgent problem is the giant riverboat gamble that Washington can save the economy by doing what comes naturally—spending money carelessly, creating massive new entitlements without funding them, dishing out cheap credit to politically favored sectors, telling business people where and how to invest.

Mr. Feinberg is an apt symbol indeed, for this gamble is built on the conceit that Washington can hector the recipients, whether auto companies, banks or homeowners, into behaving in ways that are "responsible." So far, however, human nature is proving a disappointment: Take the outbreak of tax fraud related to the government's emergency home-buyer's credit.

Nor is the larger gamble looking so good either. Banks continue to fail at an alarming rate, the dollar is under assault, and Washington is looking at a future of trillion-dollar deficits. One might have guessed it would take a decade of Obamanomics to produce European welfare state levels of youth unemployment, but at 18.5% we're there.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentBudgetThe National DeficitThe United States Currency (Dollar etc)Treasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

3 Comments
Posted October 28, 2009 at 12:40 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The scale of that help is huge. Loans from central banks and debt guarantees alone amount to $2.7 trillion. As with any private industry in receipt of almost unlimited cheap public funds, finance now has every incentive to be as big as possible—beyond the point of usefulness. Change the assumptions behind this weird system, and everything else, including pay and the heads-I-win, tails-you-lose culture, will move too.

Removing the explicit side of the state’s commitment is relatively simple. Some guarantees are still plainly needed now, but a firm deadline of, say, five years for the final expiry of the governments’ various crisis-induced pledges should be set globally. With the world economy in better shape, this looks more realistic than it did six months ago. But even then the implicit assumption will linger that banks will always be bailed out. This is the core problem. There are two possible responses to it: regulate banks to try to make them safer, and attempt to limit the implicit guarantee. Both approaches are now needed.

Read it all.

Filed under: * Economics, PoliticsEconomyStock MarketThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--* International News & CommentaryEngland / UK

1 Comments
Posted September 13, 2009 at 4:34 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

One year after the demise of Lehman Brothers Holdings Inc. paralyzed the financial system, “mega-banks,” as Fine’s group calls them, are as interconnected and inscrutable as ever. The Obama administration’s plan for a regulatory overhaul wouldn’t force them to shrink or simplify their structure.

“We could have another Lehman Monday,” Niall Ferguson, author of the 2008 book “The Ascent of Money” and a professor of history at Harvard University in Cambridge, Massachusetts, said in an interview. “The system is essentially unchanged, except that post-Lehman, the survivors have ‘too big to fail’ tattooed on their chests.”

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy Geithner

0 Comments
Posted September 12, 2009 at 1:28 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The biggest spur to deal-making among banks isn't private-equity cash or foreign investors. It is the federal government.

To encourage banks to pick through the wreckage of their collapsed competitors, the Federal Deposit Insurance Corp. has agreed to assume most of the risk on $80 billion in loans and other assets. The agency expects it will eventually have to cover $14 billion in future losses on deals cut so far. The initiative amounts to a subsidy for dozens of hand-picked banks.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe U.S. Government

3 Comments
Posted August 31, 2009 at 6:43 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

"The dominant public policy imperative motivating reform is to address the moral hazard risk created by what we did, what we had to do in the crisis to save the economy," Treasury Secretary Timothy F. Geithner said in an interview.

The worry for consumers is that the bailouts skewed the financial industry in favor of the big and powerful. Fresh data from the FDIC show that big banks have the ability to borrow more cheaply than their peers because creditors assume these large companies are not at risk of failing. That imbalance could eventually squeeze out smaller competitors. Already, consumers are seeing fewer choices and higher prices for financial services, some senior government officials warn.

Those mergers were largely the government's making. Regulators pushed failing mortgage lenders and Wall Street firms into the arms of even bigger banks and handed out billions of dollars to ensure that the deals would go through. They say they reluctantly arranged the marriages. Their aim was to dull the shock caused by collapses and prevent confidence in the U.S. financial system from crumbling.

Officials waived long-standing regulations to make the deals work. J.P. Morgan Chase, Bank of America and Wells Fargo were each allowed to hold more than 10 percent of the nation's deposits despite a rule barring such a practice. In several metropolitan regions, these banks were permitted to take market share beyond what the Department of Justice's antitrust guidelines typically allow, Federal Reserve documents show.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy Geithner

23 Comments
Posted August 29, 2009 at 8:28 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Why hasn’t President Obama insisted on public hearings over what happened during this financial crisis?

Not a single top executive of a Wall Street securities firm responsible for causing the financial crisis has had the courage or the decency to step forward in front of the cameras and explain to the American people in his own words exactly how and why he allowed his firm to cause the crisis. Both Mr. Fuld and Alan Schwartz, the chief executive of Bear Stearns at the end, in their Congressional testimony blamed the proverbial once-in-a-century financial tsunami. Do they or any of their peers really think this is true?

There may be a way to find out. There is much talk nowadays coming from top bankers — Lloyd Blankfein of Goldman Sachs, Jamie Dimon of JPMorganChase, John Mack of Morgan Stanley and even Ken Lewis of Bank of America — about seeing how quickly they can repay to the Treasury the TARP money Mr. Paulson forced on them. One precondition of their being allowed to repay the funds should be a requirement that each gives a public deposition and explains, under oath, what truly happened and why.

This piece was given an astonishing full page on yesterday's New York Times op-ed page. Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

2 Comments
Posted June 8, 2009 at 5:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Many of Mr. Obama's supporters surely thought this young, dynamic generation of public leaders would elevate the hip, cutting edge of the U.S. economy -- nanotechnology, genomics, robotics, even health and medicine technology. Instead, we've gotten the Old Economy on dialysis. General Motors has been commanded to restart aging UAW factories to output product on behalf of the administration's hybrid-car obsession. Where's the New Economy in any of this?

Or ObamaCare. How will a build-out of Medicare (b. 1965) to cover everyone and costing $1.2 trillion over 10 years not kill innovation in medical and health technology by siphoning away growth capital and its potential financial rewards?

All of this seems so out of sync with the persona and promise Barack Obama conveyed in the campaign. A lot of his Web-based supporters probably thought Mr. Obama was going to be about promoting young guns with new ideas seeking risk capital for the next big thing. Instead, it looks as if the Obama years will be about managing soft landings for mature industries and old unions in the American autumn.

Congress is talking about a "bad behavior" tax on beer and soda pop to reduce obesity and fund mega-Medicare. How about a bad-behavior tax on government? Slim as the president looks, Uncle Sam is looking like quite the fat boy.

Read it all.

Filed under: * Culture-WatchScience & Technology* Economics, PoliticsEconomyConsumer/consumer spendingThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentThe National DeficitPolitics in GeneralOffice of the PresidentPresident Barack Obama

3 Comments
Posted June 5, 2009 at 7:48 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Such government micromanagement of the economy is everywhere. The Post recently reported that Richard Wagoner, the former CEO of General Motors who was removed by the government, remains on GM's payroll "because senior Treasury officials have yet to decide whether he should get the $20 million severance package that the company had promised him." His 2009 compensation -- $1 -- is payable Dec. 31. The $20 million promised to him includes contractual awards, deferred compensation and pension benefits accrued over 32 years with the company. Promise-keeping, including honoring contracts, is the default position of a lawful society. But suddenly, many citizens' legal claims are merely starting points for negotiations with an overbearing government.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

10 Comments
Posted June 2, 2009 at 4:16 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

They're back. We refer to the global investors once known as the bond vigilantes, who demanded higher Treasury bond yields from the late 1970s through the 1990s whenever inflation fears popped up, and as a result disciplined U.S. policy makers. The vigilantes vanished earlier this decade amid the credit mania, but they appear to be returning with a vengeance now that Congress and the Federal Reserve have flooded the world with dollars to beat the recession.

Treasury yields leapt again yesterday at the long end, with the 10-year note climbing above 3.7%, its highest close since November. Treasury yields had stayed low, and the dollar had remained strong, as long as investors were looking for the safest financial port amid the post-September panic. But as risk aversion subsides, and investors return to corporate bonds and other assets, investors are now calculating the risks of renewed dollar inflation.

They have cause to be worried, given Washington's astonishing bet on fiscal and monetary reflation. The Obama Administration's epic spending spree means the Treasury will have to float trillions of dollars in new debt in the next two or three years alone....

Read it all.

Filed under: * Economics, PoliticsEconomyCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe U.S. GovernmentBudgetThe National DeficitThe United States Currency (Dollar etc)Treasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

0 Comments
Posted May 29, 2009 at 12:02 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

[BARRY] RITHOLTZ: Most of Wall Street is furious at what happened. Most of Wall Street aren't involved in mortgage securitization or derivatives or any of the other bad assets that have been blowing up. The average guy -- you know Wall Street is a meritocracy, eat what you kill, as much as you can earn in profits you get to take as a bonus -- and I know a lot of guys, everywhere from Merrill Lynch to Bear Stearns to Lehman, that actually were really profitable. But because this one division was run by rogue pirate traders and reckless derivatives salesmen, they wiped up the entire bonus pool for the entire firm, and then some, all the while engaging in really reckless behavior.

[Kai] Ryssdal: Do you figure we're stuck now as a bailout nation? We're going to be subsidizing banks and car companies and insurance companies for some time to come.

RITHOLTZ: You know we've already seen the trucking industry make hints they want stuff. And we've seen the homebuilders who are key players in this, who just overbuilt everything. They've been asking for a bailout. That's the slippery slope. Once you reward people for their worst behavior, for speculative, irresponsible investing and punish the prudent and the people who are careful with that money. Everybody seems to think it's a free for all. Hey, you've got yours. How do I get mine?

Ryssdal: What's the alternative to these bailouts? I mean should we have just done nothing?

RITHOLTZ: What you do is what the FDIC does when a bank is found to be insolvent. Look what happened with Washington Mutual....

Read it all.

Filed under: * Economics, PoliticsEconomyCorporations/Corporate LifeThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentTreasury Secretary Timothy Geithner

0 Comments
Posted May 28, 2009 at 12:52 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The U.S. Treasury auction of long-term bonds on Thursday was “terrible”, in the words of one Wall Street economist, with the rate on the 30 year bond jumping from 4.1 to 4.3 percent. This is just the first sign that the debt-based Obama economic stimulus plan is about to become a major drag on the recovery, just as expected.

The economic news is not all bad. We are seeing signs the rate of contraction is abating quickly, promising a bottom to the recession sometime this summer as many forecasters have expected. But therein lies another piece of the interest rate puzzle, and the trouble ahead.

There are two critical consequences to the economy stabilizing. The first is that the massive liquidity injected into credit markets by the Federal Reserve and central banks around the world transforms from economic medicine to inflationary heroin. Central banks are going to face a difficult task of extracting the excess liquidity before inflation soars and without causing another recession. Doubt about the fight against soaring inflation means higher inflation premiums in interest rates.

The second dangerous consequence is that President Obama is on course to double the national debt in just four years....

Read it all.

Filed under: * Economics, PoliticsEconomyCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe U.S. GovernmentThe National DeficitPolitics in GeneralOffice of the PresidentPresident Barack Obama

7 Comments
Posted May 10, 2009 at 6:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The Federal Reserve significantly scaled back the size of the capital hole facing some of the nation's biggest banks shortly before concluding its stress tests, following two weeks of intense bargaining.

In addition, according to bank and government officials, the Fed used a different measurement of bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital deficits.

The overall reaction to the stress tests, announced Thursday, has been generally positive. But the haggling between the government and the banks shows the sometimes-tense nature of the negotiations that occurred before the final results were made public.

I remain uncomfortable with it all. Read the whole article--KSH.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy Geithner

2 Comments
Posted May 9, 2009 at 2:00 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

At one bank in Alabama, the problem is a construction bust. At two in Ohio, the trouble is real estate. And in San Francisco, at Wells Fargo, the worry is credit cards — a staggering 26 percent of that bank’s card loans, federal regulators have concluded, might go bad if the economy takes a turn for the worse.

The stress tests released by the Obama administration Thursday painted a broad montage of the troubles in the nation’s banking industry and, for the first time, drew a stark dividing line through the new landscape of American finance.

On one side are institutions like JPMorgan Chase and Goldman Sachs, which regulators deemed stronger than their peers — perhaps strong enough to repay billions of bailout dollars and wriggle free of government control.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy Geithner

0 Comments
Posted May 8, 2009 at 8:20 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The relatively modest size of the hole discovered by regulators carrying out the tests, which were based on an "adverse" economic scenario, led to both applause from investors who believe the worst is over and skepticism among those who think the examination wasn't rigorous enough.

"The fears of nationalization or of failure have more or less disappeared, and now what we're getting is details of how banks are going to fill in their capital deficiencies," said Eric Kuby, chief investment officer at North Star Investment Management in Chicago.

The doubters believe the banks will need much more of a capital cushion than stipulated by the regulators, as the U.S. jobless rate soars and the housing market and economy takes time to pull out of a funk, driving up credit losses.

"I'm a skeptic. I don't see this as a genuine audit. They have been playing the marketing game strongly lately," said Robert Andres, president of Andres Capital Management in Philadelphia.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy Geithner

2 Comments
Posted May 8, 2009 at 6:19 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

6 The administration seems to bounce back and forth between emphasizing building a strong capital base and helping BHC[Bank Holding Company]'s get rid of toxic assets. I think the capital cushion is more important.
7 $34 B more for Bank of America is a big number.
8 I continue to be confused about why the administration is so confident they will not need to ask Congress for more TARP money, especially if they intend to use a lot of cash to prevent GM from liquidating.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy Geithner

0 Comments
Posted May 8, 2009 at 5:30 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Federal regulators told the country’s 19 largest banks that they must raise $75 billion in extra capital by November, a more upbeat verdict on the health of the financial system than the industry had feared just two months ago.

Ten of the 19 bank holding companies deemed “too big to fail” by the Obama administration will be required to raise additional capital, according to the results of the government’s stress tests, released late Thursday afternoon. But the 10 banks will have to raise much less capital than some analysts had expected as recently as a few days ago.

“With the clarity today’s announcement will bring, we hope banks are going to get back to the business of banking,” Treasury Secretary Timothy F. Geithner said during a news briefing on Thursday afternoon.

Mr. Geithner noted that banks had a long way to go to restore the nation’s confidence in the financial industry, and that they could get a start in generating good will by lending more.

Read it all

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--

2 Comments
Posted May 7, 2009 at 7:27 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Still, the tea parties are not based on the cold wonkery of budget data. They are based on an "ethical populism." The protesters are homeowners who didn't walk away from their mortgages, small business owners who don't want corporate welfare and bankers who kept their heads during the frenzy and don't need bailouts. They were the people who were doing the important things right -- and who are now watching elected politicians reward those who did the important things wrong.

Voices in the media, academia, and the government will dismiss this ethical populism as a fringe movement -- maybe even dangerous extremism. In truth, free markets, limited government, and entrepreneurship are still a majoritarian taste. In March 2009, the Pew Research Center asked people if we are better off "in a free market economy even though there may be severe ups and downs from time to time." Fully 70% agreed, versus 20% who disagreed.

Read it all.

Filed under: * Economics, PoliticsEconomyTaxesThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentThe National DeficitPolitics in GeneralOffice of the PresidentPresident Barack Obama

6 Comments
Posted May 1, 2009 at 6:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Can we afford to fix our financial systems? The answer is yes. We cannot afford not to fix them. The big question is rather how best to do so. But fixing the financial system, while essential, is not enough.

The International Monetary Fund’s latest Global Financial Stability Report provides a cogent and sobering analysis of the state of the financial system. The staff have raised their estimates of the writedowns to close to $4,400bn (€3,368bn, £3,015bn). This is partly because the report includes estimates of writedowns on European and Japanese assets, at $1,193bn and $149bn, respectively, and on emerging markets assets held by banks in mature economies, at $340bn. It is also because writedowns on assets originating in the US have jumped to $2,712bn, from $1,405bn last October and a mere $945bn last April.

Read it all.

Filed under: * Culture-WatchGlobalization* Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--

1 Comments
Posted April 29, 2009 at 5:31 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The cavalier use of brute government force has become routine, but the emerging story of how Hank Paulson and Ben Bernanke forced CEO Ken Lewis to blow up Bank of America is still shocking. It's a case study in the ways that panicky regulators have so often botched the bailout and made the financial crisis worse.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe U.S. Government

5 Comments
Posted April 28, 2009 at 6:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

A conversation about the economy with Bill Ackman, major investor and hedge fund manager of Pershing Square Capital Management LP, Kate Kelly, Andrew Ross Sorkin and Joe Stiglitz, economist and a member of Columbia University faculty.

Watch it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--

0 Comments
Posted April 27, 2009 at 2:16 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

President Obama’s top economic advisers have determined that they can shore up the nation’s banking system without having to ask Congress for more money any time soon, according to administration officials.

In a significant shift, White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.

Converting those loans to common shares would turn the federal aid into available capital for a bank — and give the government a large ownership stake in return.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--

2 Comments
Posted April 20, 2009 at 8:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

. Asked about the tea parties, President Barack Obama responded that he was not aware of them. As Marie Antoinette said, "Let them drink Lapsang Souchong." His Imperial Majesty at Barackingham Palace having declined to acknowledge the tea parties, his courtiers at the Globe and elsewhere fell into line. Talk-show host Michael Graham spoke to one attendee at the 2009 Boston Tea Party who remarked of the press embargo: "If Obama had been the king of England, the Globe wouldn't have covered the American Revolution."

The American media, having run their own business into the ground, are certainly qualified to run everybody else's into the same abyss. Which is why they've decided that hundreds of thousands of citizens protesting taxes and out-of-control spending and government vaporization of Americans' wealth and their children's future is no story. Nothing to see here. As Nancy Pelosi says, it's AstroTurf – fake grass-roots, not the real thing.

Besides, what are these whiners so uptight about? CNN's Susan Roesgen interviewed a guy in the crowd and asked why he was here:

"Because," said the Tea Partier, "I hear a president say that he believed in what Lincoln stood for. Lincoln's primary thing was he believed that people had the right to liberty, and had the right …"

Read it all.

Filed under: * Economics, PoliticsEconomyTaxesThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentBudgetThe National DeficitPolitics in GeneralOffice of the PresidentPresident Barack Obama

5 Comments
Posted April 19, 2009 at 3:15 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The U.S. Treasury and financial regulators are clashing with each other over how to disclose results from the stress tests of 19 U.S. banks, with some officials concerned at potential damage to weaker institutions.

With a May 4 deadline approaching, there is no set plan for how much information to release, how to categorize the results or who should make the announcements, people familiar with the matter said. While the Office of the Comptroller of the Currency and other regulators want few details about the assessments to be publicized, the Treasury is pushing for broader disclosure.

The disarray highlights what threatens to be a lose-lose situation for Treasury Secretary Timothy Geithner: If all the banks pass, the tests’ credibility will be questioned, and if some banks get failing grades and are forced to accept more government capital and oversight, they may be punished by investors and customers.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy Geithner

0 Comments
Posted April 19, 2009 at 6:05 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

As a Peruvian educated by British and American teachers, I learned never to embark on a major task without first "doing the math." No more of that Latino "happy go lucky, trust your gut and say three Hail Marys" approach to life.

Without measurement, my teachers advised, I wouldn't be able to identify and disentangle the very reality before my eyes. By doing the math, I would see order and coherence, the way things were organized; invisible relationships would come into view, and right behind order would come meaning, followed by confidence. Thanks to my Anglo-Saxon education, I learned the lesson: You cannot manage what you have not previously measured.

So imagine how I have felt watching my role models go to war over weapons of mass destruction that they never actually assessed, or now, watching them wage a losing war against derivatives....

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy Geithner

8 Comments
Posted April 13, 2009 at 9:34 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

During World War I, Americans were exhorted to buy Liberty Bonds to help their soldiers on the front.

Now, it seems, they will be asked to come to the aid of their banks — with the added inducement of possibly making some money for themselves.

As part of its sweeping plan to purge banks of troublesome assets, the Obama administration is encouraging several large investment companies to create the financial-crisis equivalent of war bonds: bailout funds.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

3 Comments
Posted April 9, 2009 at 7:30 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The pricing of the toxic assets of the banks is in line with the pricing of other risky assets. There is no evidence that prices of credit instruments are now reflecting fire sales or distress selling. The evidence, if anything, suggests that the prices are actually on the high side. This means that the liquidity rationale of the Keynesians has no basis in fact.

The findings are sure to be contested in the literature, as most research is. In the end, they will prove robust. They will hold up.

The debate on bank bailouts is broader than economics. It goes to a question of justice. Should one group, taxpayers, be forced to pay for the mistakes of another group, bankers? It goes to a question of freedom versus socialism and fascism. Should banks operate in a profit and loss system and bear the losses that they incur, or should they not, in which case the financial system becomes more socialist and fascist? Even before addressing these questions, if the Keynesian policy does not do what it is claimed, then in economic terms the Keynesian case falls.

The government and FED claim that the financial system lacks liquidity. They say that there is a market pricing defect or failure. This, they say, is why the bad loans (toxic assets) held by the banks are worth more than the prices that they are fetching in the market. These prices, they claim, are fire sale prices. The remedy, they call for and implement, is for the Treasury and FED to supply the banks with liquidity, i.e., bail them out. Thus, the government and the FED are directing trillions of taxpayer dollars to shore up weak banks by buying their bad loans rather than overseeing a judicial-like process of re-organizing the banks and cleaning out these loans in established bankruptcy-like procedures.

The Austrian position is that the financial system does not lack liquidity. The bad loans were overpriced to begin with, largely because the FED and government engineered a speculative bubble. The bubble burst. The loans were repriced in the market. The loans are now worth what they are bringing in the market. Thus, the government has no liquidity justification for bailing out the banks. The government’s economic rationale has no merit. Many banks are insolvent. On the economic merits, they should be allowed to fail, not bailed out.

This may seem arcane but it really does matter. Read it all--KSH.

Filed under: * Economics, PoliticsEconomyCredit MarketsHousing/Real Estate MarketThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

5 Comments
Posted April 7, 2009 at 5:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Mr. Obama is betting that the totality of economic policies his team and the Federal Reserve have put in place will act, like radiation therapy, to halt the spread and reduce the size of the cancerous tumors eating away at our financial system — and stimulate enough new growth and optimism so that Phase II will be small enough to get past Congress and the public.

As Treasury Secretary Timothy Geithner told ABC News, “If we get to that point” — where more funds are needed — “we’ll go to the Congress and make the strongest case possible and help them understand why this will be cheaper over the long run to move aggressively.”

Have no doubt, Phase II is coming. At best, it will require hundreds of billions of dollars more, at worst more than a trillion, to deal with more bad loans and toxic assets weakening the economy — problems that Phase I can’t fully absorb. Because unemployment is still rising — ensuring that the initial spate of mortgage defaults, which came from loans to people who could never repay, will be followed by another spate of defaults from those who could repay but now can’t because the deteriorating economy has stripped them of their jobs, their businesses or their credit lines.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe U.S. GovernmentBudgetFederal ReserveThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

3 Comments
Posted April 6, 2009 at 5:00 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Listen to it all from NPR. Note especially what he says about the so-called "Geithner plan" to rescue the banks. At some point it is going to dawn on more people that significant questions need to be asked about this plan and whether it is the right approach, since so many thoughtful industry participants and observers do not think so. But maybe that is just yours truly, since I am worried about the plan--KSH

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

2 Comments
Posted April 4, 2009 at 2:16 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

What happened to the global economy? We seemed to be chugging along, enjoying moderate business cycles and unprecedented global growth. All of a sudden, all hell broke loose.

There are many theories about what happened, but two general narratives seem to be gaining prominence, which we will call the greed narrative and the stupidity narrative. The two overlap, but they lead to different ways of thinking about where we go from here.

Read it all, and note that the first essay mentioned has already been posted on this blog.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--

3 Comments
Posted April 4, 2009 at 10:02 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Check it out.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy Geithner

2 Comments
Posted April 1, 2009 at 7:46 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Ironically, the moral hazard created by the Geithner plan is similar to the incentivizing of risky mortgage investments by the government's backing of Fannie Mae and Freddie Mac, which played a major role in causing the financial crisis in the first place, as economists Peter Wallison and Charles Calomiris describe in this paper. Wallison deserves some credit for warning about this danger back in 2005.

Both parties deserve blame for the policy of federal backing for dubious mortgages and investments. Certainly, President Bush didn't help matters when he, in his own words, "use[d] the mighty muscle of the federal government" to promote the issuing of risky mortgages.

Barack Obama, however, promised to break with the failed policies of the past, and often criticizes those who he claims advocate "the same failed ideas that got us into this mess in the first place." Ironically, he has now embraced some of the worst of those ideas himself.

Read it all and follow the links as well.

Filed under: * Economics, PoliticsEconomyCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy Geithner

2 Comments
Posted April 1, 2009 at 7:37 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Here is the real plan that now seems odds on to succeed.

The Plan: Dump $500 billion of toxic assets on to unsuspecting taxpayers via a public-private partnership in which 93% of the losses are born by the taxpayer.

--Mish in his latest analysis of the Geithner "plan"

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentFederal ReserveTreasury Secretary Timothy Geithner

3 Comments
Posted March 30, 2009 at 1:23 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Looking just at the financial crisis (and leaving aside some problems of the larger economy), we face at least two major, interrelated problems. The first is a desperately ill banking sector that threatens to choke off any incipient recovery that the fiscal stimulus might generate. The second is a political balance of power that gives the financial sector a veto over public policy, even as that sector loses popular support.

Big banks, it seems, have only gained political strength since the crisis began. And this is not surprising. With the financial system so fragile, the damage that a major bank failure could cause—Lehman was small relative to Citigroup or Bank of America—is much greater than it would be during ordinary times. The banks have been exploiting this fear as they wring favorable deals out of Washington. Bank of America obtained its second bailout package (in January) after warning the government that it might not be able to go through with the acquisition of Merrill Lynch, a prospect that Treasury did not want to consider...

To break this cycle, the government must force the banks to acknowledge the scale of their problems....

Read it all.

Filed under: * Economics, PoliticsEconomyCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

1 Comments
Posted March 30, 2009 at 7:22 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

U.S. Treasury Secretary Timothy Geithner said some financial institutions will need substantial government aid, while warning against any attempt to tax investors who join a federal program to buy tainted assets from banks.

“Some banks are going to need some large amounts of assistance,” Geithner said today on the ABC News program “This Week.” The terms of a $500 billion public-private program to aid banks “cannot change” for investors or they’ll lose confidence in the plan, he said on NBC’s “Meet the Press.”

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy Geithner

0 Comments
Posted March 30, 2009 at 5:45 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

After experiencing a few emerging-market crises, I get the sense of watching the same movie over and over. All too often, a tragic part of that movie is the failure of the countries' policymakers to hear the loud cries of canaries in the coal mine. Before running up further outsized budget deficits, should we not heed the markets that now see a 10 percent probability that the U.S. government will default on its sovereign debt in the next five years? And should we not be paying close attention to the Chinese central bank governor's musings that he does not feel comfortable with the $1 trillion of U.S. government debt that the Chinese central bank already owns, let alone adding to those holdings?

In the twilight of my career, when I am hopefully wiser than before, I have come to regret how the IMF and the U.S. Treasury all too often lectured leaders in emerging markets on how to "get their house in order" -- without the slightest thought that the United States might fare no better when facing a major economic crisis. Now, I fear time is running out for our own policymakers to mend their ways and offer real leadership to extricate the United States from its worst economic calamity since the 1930s. If we insist on improvising and not facing our real problems, we might soon lose our status as a country to be emulated and join the ranks of those nations we have patronized for so long.

Read it all.

Filed under: * Culture-WatchGlobalization* Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe U.S. GovernmentBudgetThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

5 Comments
Posted March 29, 2009 at 8:33 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

An interesting array of editorial opinion on the subject.

Update: in yesterday's Financial Times Jeffrey Sachs did not like the plan:

The idea of “private sector price discovery” is therefore flim-flam. There would be price discovery if the government’s loan had to be repaid whether or not the asset paid off in full. In that case, the investor would bid $360,000. But under the Geithner-Summers plan the loan is precisely designed to be a one-way bet, for the purpose of overpricing the toxic asset in order to bail out the bank’s shareholders at hidden cost to the taxpayers.

The banks could be saved without saving their shareholders – a better deal for taxpayers and without the moral hazard of rescuing shareholders from the banks’ bad bets. Most simply, the government could provide loans to buy the toxic assets on a recourse basis, therefore without the hidden subsidy. Alternatively, the plan could give the taxpayers an equity stake in the banks in return for cleaning their balance sheets. In cases of insolvency, the government could take over the bank, the much dreaded nationalisation, albeit temporary. At the end of the Bush administration, Congress voted for the $700bn (€517bn, £479bn) troubled asset relief programme (Tarp) on the assurance the taxpayer would get fair value for money (for example, by taking equity stakes in the rescued banks). The new plan does not offer that.



Filed under: * Economics, PoliticsEconomyCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

1 Comments
Posted March 27, 2009 at 6:37 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The good news from our historical study of eight centuries of international financial crises is that, so far, they have all ended. And we confidently predict this one will end, too. We are just not quite so sure it will be nearly as soon as the chirpy forecasts coming from policymakers around the globe. The U.S. administration, for example, is now predicting that growth will renew in the latter part of this year and continue at a brisk pace of 4 percent for several years thereafter. Is this a fact-based forecast or wishful thinking?

A careful look at the international evidence on severe banking crises suggests a far more cautious assessment. The recessions that follow in the wake of big financial crises tend to last far longer than normal downturns, and to cause considerably more damage. If the United States follows the norm of recent crises, as it has until now, output may take four years to return to its pre-crisis level. Unemployment will continue to rise for three more years, reaching 11–12 percent in 2011.

Read it all.

Filed under: * Culture-WatchHistory* Economics, PoliticsEconomyConsumer/consumer spendingCredit MarketsHousing/Real Estate MarketLabor/Labor Unions/Labor MarketThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

0 Comments
Posted March 25, 2009 at 12:02 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

...[DONALD MARRON] I hope the government has set it up that, once it gets going, they can change the terms, as the market gets more comfortable, as more confidence this thing is actually going to work, isn't as concerned about what the Congress is going to do as they are in the case of TALF.

So this is getting things going. There needs to be flexibility in the future. I'm assuming Tim Geithner and Larry Summers have thought that through. So once we get it started, we can make sure it becomes a positive continuing force and not some kind of a windfall.

JEFFREY BROWN: Well, Mr. Krugman, go ahead. Argue back. That's the argument is, you need to attract investors, so...

PAUL KRUGMAN: I don't think that's the issue, really. I mean, there's a lot of people who've got money parked in the banks. The problem is that people -- it's the banks as institutions that are the issue, not whether people are willing to buy these particular assets.

In a way, we'd like to make the whole story of these assets go away. The only reason that they're there, the only reason it's an issue is because the banks have lost so much money that they are not effective at their job of passing funds from one end of the economy to the other.

This is not going to change that. I mean, it's going to make some of the stuff sell for a slightly better price, but the banks are still going to be deep underwater, at least the troubled ones are going to be. It's going to convey some windfall benefits to people who are holding some of this paper who are not actually crucial financial intermediaries.

Read it all. I am on the Paul Krugman side of the argument, believing this treats symptoms rather than the disease. I would love to be wrong--KSH.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentBudgetFederal ReserveThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

3 Comments
Posted March 24, 2009 at 5:15 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

An infographic that flowcharts the nearly $12 Trillion allocated in government progams affecting the financial services industry.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentBudgetFederal ReserveThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

4 Comments
Posted March 24, 2009 at 4:14 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

In all the uproar over AIG, the most important lesson has been ignored. AIG failed because it sold large amounts of credit default swaps (CDS) without properly offsetting or covering their positions. What we must take away from this is that CDS are toxic instruments whose use ought to be strictly regulated: Only those who own the underlying bonds ought to be allowed to buy them. Instituting this rule would tame a destructive force and cut the price of the swaps. It would also save the U.S. Treasury a lot of money by reducing the loss on AIG's outstanding positions without abrogating any contracts.

CDS came into existence as a way of providing insurance on bonds against default. Since they are tradable instruments, they became bear-market warrants for speculating on deteriorating conditions in a company or country. What makes them toxic is that such speculation can be self-validating.

Up until the crash of 2008, the prevailing view -- called the efficient market hypothesis -- was that the prices of financial instruments accurately reflect all the available information (i.e. the underlying reality). But this is not true. Financial markets don't deal with the current reality, but with the future -- a matter of anticipation, not knowledge. Thus, we must understand financial markets through a new paradigm which recognizes that they always provide a biased view of the future, and that the distortion of prices in financial markets may affect the underlying reality that those prices are supposed to reflect.

Read it all.


Filed under: * Economics, PoliticsEconomyCredit MarketsStock MarketThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

2 Comments
Posted March 24, 2009 at 12:36 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The long awaited details of Geithner's "plan" for dealing with bad bank assets is finally out. Githener's plan is disingenuous at best. If people want to be outraged at something, it should be over Geithner's plan.

Read it carefully and read it all.

Filed under: * Economics, PoliticsEconomyCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe U.S. GovernmentTreasury Secretary Timothy Geithner

4 Comments
Posted March 24, 2009 at 6:18 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Q: What is the Geithner Plan?

A: The Geithner Plan is a trillion-dollar operation by which the U.S. acts as the world's largest hedge fund investor, committing its money to funds to buy up risky and distressed but probably fundamentally undervalued assets and, as patient capital, holding them either until maturity or until markets recover so that risk discounts are normal and it can sell them off--in either case at an immense profit.

Q: What if markets never recover, the assets are not fundamentally undervalued, and even when held to maturity the government doesn't make back its money?

A: Then we have worse things to worry about than government losses on TARP-program money--for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition.

Q: Where does the trillion dollars come from?

A: $150 billion comes from the TARP in the form of equity, $820 billion from the FDIC in the form of debt, and $30 billion from the hedge fund and pension fund managers who will be hired to make the investments and run the program's operations.

Q: Why is the government making hedge and pension fund managers kick in $30 billion?

A: So that they have skin in the game, and so do not take excessive risks with the taxpayers' money because their own money is on the line as well.

Read it all--and the discussion.

Update:: Paul Krugman doesn't like the plan.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

6 Comments
Posted March 23, 2009 at 8:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The Public-Private Investment Program will purchase real-estate related loans from banks and securities from the broader markets. Banks will have the ability to sell pools of loans to dedicated funds, and investors will compete to have the ability to participate in those funds and take advantage of the financing provided by the government.

The funds established under this program will have three essential design features. First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors. Second, the Public-Private Investment Program will ensure that private-sector participants share the risks alongside the taxpayer, and that the taxpayer shares in the profits from these investments. These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.

Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

6 Comments
Posted March 23, 2009 at 7:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Bankers on Wall Street and in Europe have struck back against moves by US lawmakers to slap punitive taxes on bonuses paid to high earners at bailed-out institutions.

Senior executives on both sides of the Atlantic on Friday warned of an exodus of talent from some of the biggest names in US finance, saying the “anti-American” measures smacked of “a McCarthy witch-hunt” that would send the country “back to the stone age”.

There were fears that the backlash triggered by AIG’s payment of $165m in bonuses to executives responsible for losses that forced a $170bn taxpayer-funded rescue would have devastating consequences for the largest banks.

“Finance is one of America’s great industries, and they’re destroying it,” said one banker at a firm that has accepted public money. “This happened out of haste and anger over AIG, but we’re not like AIG.”

Read it all.

Filed under: * Culture-WatchLaw & Legal Issues* Economics, PoliticsEconomyStock MarketTaxesThe 2009 Obama Administration Bank Bailout PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralHouse of RepresentativesOffice of the PresidentPresident Barack ObamaSenate

16 Comments
Posted March 22, 2009 at 2:00 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The Obama administration's latest attempt to tackle the banking crisis and get loans flowing to families and businesses rely on a new government entity, the Public Investment Corp. to help purchase as much as $1 trillion in toxic assets on banks' books.

The plan that Treasury Secretary Timothy Geithner intends to announce Monday aims to use the resources of the $700 billion bank bailout fund, the Federal Reserve and the Federal Deposit Insurance Corp.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe U.S. GovernmentFederal ReserveThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

3 Comments
Posted March 22, 2009 at 1:29 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

I ran into an Indian businessman friend last week and he said something to me that really struck a chord: “This is the first time I’ve ever visited the United States when I feel like you’re acting like an immature democracy.”

You know what he meant: We’re in a once-a-century financial crisis, and yet we’ve actually descended into politics worse than usual. There don’t seem to be any adults at the top — nobody acting larger than the moment, nobody being impelled by anything deeper than the last news cycle. Instead, Congress is slapping together punitive tax laws overnight like some Banana Republic, our president is getting in trouble cracking jokes on Jay Leno comparing his bowling skills to a Special Olympian, and the opposition party is behaving as if its only priority is to deflate President Obama’s popularity.

I saw Eric Cantor, a Republican House leader, on CNBC the other day, and the entire interview consisted of him trying to exploit the A.I.G. situation for partisan gain without one constructive thought. I just kept staring at him and thinking: “Do you not have kids? Do you not have a pension that you’re worried about? Do you live in some gated community where all the banks will be O.K., even if our biggest banks go under? Do you think your party automatically wins if the country loses? What are you thinking?”

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentBudgetTreasury Secretary Timothy GeithnerPolitics in GeneralHouse of RepresentativesOffice of the PresidentPresident Barack ObamaSenate

7 Comments
Posted March 22, 2009 at 8:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Can we all just calm down a little?

Yes, the $165 million in bonuses handed out to executives in the financial products division of American International Group was infuriating. Truly, it was. As many others have noted, this is the same unit whose shenanigans came perilously close to bringing the world’s financial system to its knees. When the Federal Reserve chairman, Ben Bernanke, said recently that A.I.G.’s “irresponsible bets” had made him “more angry” than anything else about the financial crisis, he could have been speaking for most Americans.

But death threats? “All the executives and their families should be executed with piano wire — my greatest hope,” wrote one person in an e-mail message to the company. Another suggested publishing a list of the “Yankee” bankers “so some good old southern boys can take care of them.”

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The September 2008 Proposed Henry Paulson 700 Billion Bailout Package* TheologyEthics / Moral Theology

7 Comments
Posted March 21, 2009 at 1:45 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The Treasury Department is expected to unveil early next week its long-delayed plan to buy as much as $1 trillion in troubled mortgages and related assets from financial institutions, according to people close to the talks.

The plan is likely to offer generous subsidies, in the form of low-interest loans, to coax investors to form partnerships with the government to buy toxic assets from banks.

To help protect taxpayers, who would pay for the bulk of the purchases, the plan calls for auctioning assets to the highest bidders.

Read it all.



Filed under: * Economics, PoliticsEconomyCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe U.S. GovernmentTreasury Secretary Timothy Geithner

1 Comments
Posted March 21, 2009 at 10:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

When President-elect Barack Obama picked Timothy F. Geithner to be his Treasury secretary four months ago, numerous analysts praised the choice because of Geithner's expertise in the financial industry. He was president of the Federal Reserve Bank of New York at the time, and had helped craft the response to the troubles roiling global credit markets. But as the debacle over the American International Group bonuses has made clear, Geithner's knowledge about Wall Street is matched by his ignorance about the political culture of Washington. And the blunders committed by Geithner (and others, including the Federal Reserve and previous Treasury Secretary Henry M. Paulson) could undermine key elements of President Obama's economic recovery plan.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

1 Comments
Posted March 21, 2009 at 6:02 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Some bank executives warned yesterday that the government is forcing them toward a disastrous choice between accepting restrictions on compensation that could cripple their ability to compete with rivals, or returning billions in federal aid, which could retard lending and damage the economy.

The possibility of a newly weakened banking industry also raised concerns among businesses in the wider economy that already are struggling to find financial firms willing to lend them needed money.

"We're all going to lose on this thing," said an executive at a large bank that took federal aid. He and other bankers expressed shock at the rapid progress of legislation that could impose large pay cuts on thousands of workers, and dismay that the industry is at the mercy of an angry Congress.

Read it all.

Filed under: * Economics, PoliticsEconomyCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentTreasury Secretary Timothy Geithner

46 Comments
Posted March 20, 2009 at 8:29 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

What has happened - not only in America but also in Britain - to this promise of a calm, pragmatic response to the world's economic problems? This week Mr Obama expressed outrage at the $165 million bonuses paid by AIG, the stricken insurance group, to executives in its financial products division who are responsible for most of its tens of billions of dollars in losses.

In Britain the row over Sir Fred Goodwin's pension continues to grow. And in both countries, hatred of bankers is making it difficult for governments to take further action to stabilise the banks and support economic growth.

The behaviour of the bankers who first blew up the world financial system and then proceeded to loot it, is genuinely outrageous and deserves political retribution. But that should take the form of recovering the booty by the normal processes of law.

Read it all.

Filed under: * Culture-WatchGlobalization* Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama* International News & CommentaryEngland / UKEurope

1 Comments
Posted March 19, 2009 at 5:02 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

President Barack Obama’s approval rating has slipped, as a growing number of Americans see him listening more to his party’s liberals than to its moderates and many voice opposition to some of his key economic proposals. Obama’s job approval rating has slipped from 64% in February to 59% currently, while disapproval has jumped from 17% to 26% over this period.

Although most people think the new president is doing as much as he can to fix the economy and relatively few say Obama’s policies have made the economy worse, the public expresses mixed views of his many major proposals to fix the economy.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

0 Comments
Posted March 19, 2009 at 12:02 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Let’s just say in September, when Lehman failed, it took people two plus weeks to find out where all of the counterparties were. I am certain during that time, which is the same week that AIG came under significant duress, they thought the same thing. It would take a significant amount of time to name the counterparties.

Now, you know, several month later, they can know who the counterparties were, but at that time they didn’t know who the counterparties were, and that is what is so frightening about how perverted the system had gotten, in terms of people didn’t know where the bodies were. And so in a way, it was a Band-Aid approach to say, OK, here is money, get it where it needs to go, it buys them time.

And the government reaction in all of this seems to have been, OK, we need more time, we need more time.

The curious thing about Geithner rushing to get a plan was, they weren’t ready. You know, do your homework and then come to the table and have a real plan. But all of this, had all these unintended consequences, and so we are talking about a $165 million bonus pool when it is not the real issue.

--Banking analyst Meredith Whitney, who used to be with Oppenheimer but who has now gone out on her own, last night on the Charlie Rose Show


Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

0 Comments
Posted March 18, 2009 at 7:00 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Let me be specific: If you didn’t like reading about A.I.G. brokers getting millions in bonuses after their company — 80 percent of which is owned by U.S. taxpayers — racked up the biggest quarterly loss in the history of the Milky Way Galaxy, you’re really not going to like the bank bailout plan to be rolled out soon by the Obama team. That plan will begin by using up the $250 billion or so left in TARP funds to start removing the toxic assets from the banks. But ultimately, to get the scale of bank repair we need, it will likely require some $750 billion more.

The plan makes sense, and, if done right, it might even make profits for U.S. taxpayers. But in this climate of anger, it will take every bit of political capital in Barack Obama’s piggy bank — as well as Michelle’s, Sasha’s and Malia’s — to sell it to Congress and the public.

The job can’t be his alone. Everyone who has a stake in stabilizing and reforming the system is going to have to suck it up. And that starts with the brokers at A.I.G. who got the $165 million in bonuses. They need to voluntarily return them. Everyone today is taking a haircut of some kind or another, and A.I.G. brokers surely can be no exception. We do not want the U.S. government abrogating contracts — the rule of law is why everyone around the world wants to invest in our economy. But taxpayers should not sit quietly as bonuses are paid to people who were running an insurance scheme that would have made Bernie Madoff smile. The best way out is for the A.I.G. bankers to take one for the country and give up their bonuses.

I live in Montgomery County, Md. The schoolteachers here, who make on average $67,000 a year, recently voted to voluntarily give up their 5 percent pay raise that was contractually agreed to for next year, saving our school system $89 million — so programs and teachers would not have to be terminated. If public schoolteachers can take one for schoolchildren and fellow teachers, A.I.G. brokers can take one for the country.

Read it all.

Filed under: * Economics, PoliticsEconomyCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

13 Comments
Posted March 18, 2009 at 4:55 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

You have to wonder what else has to go wrong, how much more wealth will need to be destroyed, before the people on Wall Street get the message that it's no longer business as usual.

The latest outrage, of course, is over the $400 million in retention bonuses promised to those financial geniuses at AIG's Financial Products unit last year, months before the insurance giant was essentially taken over by the government in a bailout that already has required an injection of $170 billion in taxpayer money.

The legal argument for honoring these ill-considered contracts is that a deal is a deal and that trying to abrogate them will only wind up costing the government even more in legal fees and punitive damages. But that doesn't mean the government and its handpicked new management team at AIG were powerless to renegotiate those contracts long before last weekend's deadline.

Read it all.

Filed under: * Economics, PoliticsEconomyStock MarketThe 2009 Obama Administration Bank Bailout PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The September 2008 Proposed Henry Paulson 700 Billion Bailout PackagePolitics in GeneralOffice of the PresidentPresident Barack Obama* TheologyEthics / Moral Theology

12 Comments
Posted March 18, 2009 at 6:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Sixteen years ago, two economists published a research paper with a delightfully simple title: “Looting.”

The economists were George Akerlof, who would later win a Nobel Prize, and Paul Romer, the renowned expert on economic growth. In the paper, they argued that several financial crises in the 1980s, like the Texas real estate bust, had been the result of private investors taking advantage of the government. The investors had borrowed huge amounts of money, made big profits when times were good and then left the government holding the bag for their eventual (and predictable) losses.

In a word, the investors looted. Someone trying to make an honest profit, Professors Akerlof and Romer said, would have operated in a completely different manner. The investors displayed a “total disregard for even the most basic principles of lending,” failing to verify standard information about their borrowers or, in some cases, even to ask for that information.

The investors “acted as if future losses were somebody else’s problem,” the economists wrote. “They were right.”

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

4 Comments
Posted March 16, 2009 at 6:12 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The federal agency that insures bank deposits, which is asking for emergency powers to borrow up to $500 billion to take over failed banks, is facing a potential major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006....

Congress believed that the fund was so well-capitalized - and that bank failures were so infrequent - that there was no need to collect the premiums for a decade, according to banking officials and analysts.

Ugh. Read it all.


Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. Government

3 Comments
Posted March 11, 2009 at 4:30 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Watch it all from Charlie Rose.

Filed under: * Economics, PoliticsEconomyConsumer/consumer spendingCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

1 Comments
Posted March 11, 2009 at 5:27 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The misguided policy response from Washington has focused almost exclusively on squandering public money and burdening our children with indebtedness in order to defend the bondholders of mismanaged financial institutions (blame Paulson and Geithner – I've got a lot of respect for our President, but he's been sold a load of garbage by banking insiders). Meanwhile, I suspect that the little tapes in Bernanke's head playing “we let the banks fail in the Great Depression” and “we let Lehman fail and look what happened” are so loud that he is making no distinction about the form of those failures. Simply letting an institution unravel is quite different from taking receivership, protecting the customers, keeping the institution intact, replacing management, properly taking the losses out of stockholder and bondholder capital, and issuing it back into private ownership at a later date. This is what it would mean for these banks to “fail.” Nobody is advocating an uncontrolled unraveling of major financial institutions or permanent nationalization as if we've suddenly become Venezuela.

Make no mistake. Buying up “troubled assets” will not materially ease this crisis, nor will it even improve the capital position of financial institutions (see You Can't Rescue the Financial System if You Can't Read a Balance Sheet). Homeowners will continue to default because their payment obligations have not been restructured to any meaningful extent. We are simply protecting the bondholders of mismanaged financial institutions, even though that bondholder capital is more than sufficient to cover the losses without harm to customers. Institutions that cannot survive without continual provision of public funds should be taken into receivership, their assets should be restructured to better ensure repayment, their stockholders should be wiped out, bondholders should take a major haircut, customer assets should (and will) be fully protected, and these institutions should be re-issued to the markets when the economy stabilizes.

Read it all.

Filed under: * Economics, PoliticsEconomyConsumer/consumer spendingStock MarketThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

1 Comments
Posted March 10, 2009 at 7:31 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The day after the report I heard from a young Naval aviator in predeployment training north of San Diego. He flies a Super Hornet, sister ship to the plane that went down. He said the Marine investigation "kept me up last night" because of how it contrasted with "the buck-passing we see" in the government and on Wall Street. He and his squadron were in range of San Diego television stations when they carried the report's conclusions live. He'd never seen "our entire wardroom crowded around a television" before. They watched "with bated breath." At the end they were impressed with the public nature of the criticism, and its candor: "There are still elements within the government that take personal responsibility seriously." He found himself wondering if the Marines had been "too hard on themselves." "But they are, after all, Marines."

By contrast, he says, when the economy came crashing down, "nowhere did we see a board come out and say: 'This is what happened, these are the decisions these particular people made, and this was the result. They are no longer a part of our organization.' There was no timeline of events or laymen's explanation of how a credit derivative was actually derived. We did not see congressmen get on television with charts and eviscerate their organization and say, 'These were the men who in 2003 allowed Freddie and Fannie unlimited rein over mortgage securities.' Instead we saw . . . everybody against everybody else with no one stepping forth and saying, 'We screwed up.'" There is no one in national leadership who could convincingly "assign blame," and no one "who could or would accept it."

Read it all or you may also find it here.

Filed under: * Culture-WatchMilitary / Armed Forces* Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentPolitics in General

10 Comments
Posted March 10, 2009 at 6:30 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Last month, in his big speech to Congress, President Obama argued for bold steps to fix America’s dysfunctional banks. “While the cost of action will be great,” he declared, “I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade.”

Many analysts agree. But among people I talk to there’s a growing sense of frustration, even panic, over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern.

Here’s how the pattern works: first, administration officials, usually speaking off the record, float a plan for rescuing the banks in the press. This trial balloon is quickly shot down by informed commentators.

Then, a few weeks later, the administration floats a new plan. This plan is, however, just a thinly disguised version of the previous plan, a fact quickly realized by all concerned. And the cycle starts again.

Why do officials keep offering plans that nobody else finds credible?

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

3 Comments
Posted March 6, 2009 at 5:32 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Senate Banking Committee Chairman Christopher Dodd is moving to allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department.

The Connecticut Democrat's effort -- which comes in response to urging from FDIC Chairman Sheila Bair, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner -- would give the FDIC access to more money to rebuild its fund that insures consumers' deposits, which have been hard hit by a string of bank failures.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentThe National Deficit

2 Comments
Posted March 6, 2009 at 5:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The Federal Reserve Board of Governors receives daily reports on loans to banks and securities firms, the institution said in response to a Freedom of Information Act lawsuit filed by Bloomberg News.

The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast “a stigma” on recipients of more than $1.9 trillion of emergency credit from U.S. taxpayers and the assets the central bank is accepting as collateral.

Read it all.

Filed under: * Culture-WatchLaw & Legal Issues* Economics, PoliticsEconomyCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe U.S. Government

1 Comments
Posted March 5, 2009 at 7:30 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

I’m worried. We’ve just elected a talented young president with many good instincts about how to propel our country forward, extend health care to more people, make our tax code fairer and launch a green industrial revolution. But do you know what I fear? I fear that his whole first term could be eaten by Citigroup, A.I.G., Bank of America, Merrill Lynch, and the whole housing/subprime credit bubble we inflated these past 20 years.

I hope my fears are exaggerated. But ask yourself this: Why couldn’t former Treasury Secretary Hank Paulson solve this problem? And why does it seem as though his successor, Tim Geithner, won’t even look us in the eye and spell out his strategy? Is it because they don’t get it? No. It is because they know — like Roy Scheider in the movie “Jaws,” when he first saw the great white shark — that “we’re gonna need a bigger boat,” and they’re too afraid to tell us just how big.

This problem is more complicated than anything you can imagine. We are coming off a 20-year credit binge. As a country, too many of us stopped making money by making “stuff” and started making money from money — consumers making money out of rising home prices and using the profits to buy flat-screen TVs from China on their credit cards, and bankers making money by creating complex securities and leverage so more and more consumers could get in on the credit game.

Read it all.



Filed under: * Economics, PoliticsEconomyCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentBudgetThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

8 Comments
Posted March 5, 2009 at 5:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

"The stuttering attempts to repair the banking and lending mechanisms so far by the new administration suggests that by late 2010, the specter of a second dip into recession will be looming large," said Merrill Lynch economist Sheryl King.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentBudgetThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

2 Comments
Posted March 3, 2009 at 5:00 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

There are also no green shoots yet to suggest a turning point. There is, for example, very little sign of a recovery in the US housing market – in fact none at all. Inasmuch as you can generalise about such a vast country, US homes are pretty much back to fair value in terms of their affordability. But the uncertainty is such, and the overhang of unsold homes so huge, that prices are still falling. Confidence is lower than it was during the recessions of the 1980s, 1990s and early 2000s, as you can see from the other graph.

The question that arises then is whether the new US budget will change things. The boost is huge. The budget deficit is projected to rise to 12.5 per cent of GDP. That is higher than at any time since the Second World War. It is double the size, relative to GDP, of Franklin D Roosevelt's New Deal in the 1930s. It is larger than the fiscal deficits run by Japan during the 1990s, which is not an encouraging precedent since they pretty much failed – though arguably Japan's so-called "lost decade" would have been even more lost without them. Finally, it is even larger than the proposed deficit that our present Government plans to run here.

So what should we make of it? I suppose I fear this administration is making the same mistake with fiscal policy that the previous one made with monetary policy. Remember how the Federal Reserve cut US interest rates way below the rate of inflation to pump up the economy after the collapse of the internet bubble? It succeeded in boosting demand. People borrowed like crazy, savings plunged, the housing boom took off, and the economy recovered. But the growth was artificial and could not be sustained.

Read the whole article.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The U.S. GovernmentBudgetThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama* International News & CommentaryAmerica/U.S.A.

0 Comments
Posted March 2, 2009 at 5:33 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Here’s what is most infuriating: Here we are now, fully aware of how these scams worked. Yet for all practical purposes, the government has to keep them going. Indeed, that may be the single most important reason it can’t let A.I.G. fail. If the company defaulted, hundreds of billions of dollars’ worth of credit-default swaps would “blow up,” and all those European banks whose toxic assets are supposedly insured by A.I.G. would suddenly be sitting on immense losses. Their already shaky capital structures would be destroyed. A.I.G. helped create the illusion of regulatory capital with its swaps, and now the government has to actually back up those contracts with taxpayer money to keep the banks from collapsing. It would be funny if it weren’t so awful.

I asked Mr. Arvanitis, the former A.I.G. executive, if the company viewed what it had done during the bubble as a form of gaming the system. “Oh no,” he said, “they never thought of it as abuse. They thought of themselves as satisfying their customers.”

That’s either a remarkable example of the power of rationalization, or they were lying to themselves, figuring that when the house of cards finally fell, somebody else would have to clean it up.

That would be us, the taxpayers.

Simply infuriating. Read it all.

Filed under: * Economics, PoliticsEconomyCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

5 Comments
Posted February 28, 2009 at 10:44 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

A single piece of paper may just be one of the most surprising and illuminating documents of the whole banking crisis.

It's a one-page research note from an economist at Deutsche Bank, and it outlines in the clearest terms the kind of solution many bankers are looking for. The basic message: We should forget trying to get a good deal for taxpayers because even trying will hurt.

"Ultimately, the taxpayer will be on the hook one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line," the document says.

In other words, the paper says, if the government tries to save taxpayers money, many people will lose their jobs and the whole economy will suffer.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

9 Comments
Posted February 27, 2009 at 11:13 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The U.S. government waded deeper into the bailout of one of the nation's largest banks Friday when it announced a deal that will give it control over as much as 36% of Citigroup's common stock.

Citigroup shares tumbled 46% in premarket trading.

The deal will convert preferred shares that Treasury already holds in Citigroup for common shares, a shift that is designed to improve the embattled bank's capital base, which in turn will hopefully allow it to increase its lending.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

1 Comments
Posted February 27, 2009 at 8:12 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Bill Clinton declared more than a decade ago "the era of big government is over." With his new budget, President Barack Obama has brought it back.

Obama's $3.55 trillion budget proposal represents a gamble that Americans are ready for the sort of change they embraced by electing him in November, including a tax increase on Americans making more than $250,000 a year.

He proposes expansion of spending on the U.S. healthcare system, on greater energy independence and on education, hoping Americans weary of paying for a raft of expensive bailouts for banks and the car industry will go along.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

9 Comments
Posted February 27, 2009 at 12:03 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

President Barack Obama forecast the biggest U.S. deficit since World War Two in a budget on Thursday that urges a costly overhaul of the healthcare system and would spend billions to arrest the economy's freefall.

An eye-popping $1.75 trillion deficit for the 2009 fiscal year is projected in Obama's first budget. That is equal to 12.3 percent of U.S. gross domestic product -- the largest share since 1945 when the country ran a shortfall of 21.5 percent of GDP.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe U.S. GovernmentThe National DeficitPolitics in GeneralOffice of the PresidentPresident Barack Obama

23 Comments
Posted February 26, 2009 at 12:18 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Devoting nearly 20% of his speech to the topic, ...[President Obama] acknowledged the public loathing of bank rescue efforts. He explained the role of credit in creating and preserving jobs. And he took some requisite, and wholly justified, swipes at executives for their outrageous pay and perks. But most important, he stated unequivocally what no one in the chamber wanted to hear and what he did not want to have to say — that even more money might be necessary to restore the banking system to its former self.

He was right on all scores. Nothing is more important to the livelihood of Americans than getting the credit spigot flowing again. Without it, all other efforts to revive the economy will fail.

And yet, if Congress were asked today for more funds for banks, the likeliest response would be a resounding no....

But there is no valid rationale for opposing a round three if it becomes necessary.

Read it all and there is a different view here.

Filed under: * Economics, PoliticsEconomyCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

3 Comments
Posted February 26, 2009 at 6:49 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

Former federal officials have dubbed Citigroup the “Death Star,” comparing the bank’s threat to the financial system with the planet-destroying super weapon in the “Star Wars” movies. Privately, in the words of one official, they regard the banking giant as “unmanageable.”

--From a front page Wall Street Journal story this morning

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe U.S. GovernmentTreasury Secretary Timothy Geithner

2 Comments
Posted February 25, 2009 at 12:35 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

President Obama has concentrated enormous power on a few aides in the West Wing of the White House. These aides are unrolling a rapid string of plans: to create 3 million jobs, to redesign the health care system, to save the auto industry, to revive the housing industry, to reinvent the energy sector, to revitalize the banks, to reform the schools - and to do it all while cutting the deficits in half.

If ever this kind of domestic revolution were possible, this is the time and these are the people to do it. Yet they set off my Burkean alarm bells.

I fear that in trying to do everything at once, they will do nothing well. I fear that we have a group of people who haven't even learned to use their new phone system trying to redesign half the U.S. economy.

I fear they are going to try to undertake the biggest administrative challenge in American history while refusing to hire the people who can help the most: agency veterans who are registered lobbyists.

I worry that we're operating far beyond our economic knowledge.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

11 Comments
Posted February 24, 2009 at 12:35 pm [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

These are difficult times for economic policy makers, especially given what the new Administration inherited. But after five weeks of watching the repeated muffs of the Obama financial team, we're inclined to recall Casey Stengel's famous crack about the 1962 New York Mets: "Can't anyone here play this game?"

Read it all.

Filed under: * Economics, PoliticsEconomyCredit MarketsThe 2009 Obama Administration Bank Bailout PlanThe 2009 Obama Administration Housing Amelioration PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Fiscal Stimulus Package of 2009The U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

0 Comments
Posted February 24, 2009 at 8:48 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The real question is why the Obama administration keeps coming up with proposals that sound like possible alternatives to nationalization, but turn out to involve huge handouts to bank stockholders.

For example, the administration initially floated the idea of offering banks guarantees against losses on troubled assets. This would have been a great deal for bank stockholders, not so much for the rest of us: heads they win, tails taxpayers lose.

Now the administration is talking about a “public-private partnership” to buy troubled assets from the banks, with the government lending money to private investors for that purpose. This would offer investors a one-way bet: if the assets rise in price, investors win; if they fall substantially, investors walk away and leave the government holding the bag. Again, heads they win, tails we lose.

Why not just go ahead and nationalize? Remember, the longer we live with zombie banks, the harder it will be to end the economic crisis.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Banking System/SectorThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The U.S. GovernmentTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

15 Comments
Posted February 24, 2009 at 8:22 am [Printer Friendly] [Print w/ comments]

Posted by Kendall Harmon

The government faced mounting pressure on Monday to put billions more in some of the nation’s biggest banks, two of the biggest automakers and the biggest insurance company, despite the billions it has already committed to rescuing them.

The government’s boldest rescue to date, its $150 billion commitment for the insurance giant American International Group, is foundering. A.I.G. indicated on Monday it was now negotiating for tens of billions of dollars in additional assistance as losses have mounted.

Separately, the Obama administration confirmed it was in discussions to aid Citigroup, the recipient of $45 billion so far, that could raise the government’s stake in the banking company to as much as 40 percent.

The Treasury Department named a special adviser to work with General Motors and Chrysler, two of Detroit’s biggest automakers, which are seeking $22 billion on top of the $17 billion already granted to them.

Read it all.

Filed under: * Economics, PoliticsEconomyThe 2009 Obama Administration Bank Bailout PlanThe Credit Freeze Crisis of Fall 2008/The Recession of 2007--The Possibility of a Bailout for the U.S. Auto IndustryThe September 2008 Proposed Henry Paulson 700 Billion Bailout PackageThe U.S. GovernmentThe National DeficitTreasury Secretary Timothy GeithnerPolitics in GeneralOffice of the PresidentPresident Barack Obama

2 Comments
Posted February 24, 2009 at 12:04 am [Printer Friendly] [Print w/ comments]




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