Apr 05 2009
Congressional Broadside Launched At Team Obama Over Bailout Fiasco
Wow, we are seeing some major fireworks in Washington DC this evening. The government official responsible for overseeing the TARP funds and their use in bailing out troubled companies is laying into one and all today:
Elizabeth Warren, chief watchdog of America’s $700bn (£472bn) bank bailout plan, will this week call for the removal of top executives from Citigroup, AIG and other institutions that have received government funds in a damning report that will question the administration’s approach to saving the financial system from collapse.
She’s not just going after the failed fat cats, but has her sites on the inexperienced Team Obama:
Warren also believes there are “dangers inherent” in the approach taken by treasury secretary Tim Geithner, who she says has offered “open-ended subsidies” to some of the world’s biggest financial institutions without adequately weighing potential pitfalls. “We want to ensure that the treasury gives the public an alternative approach,” she said, adding that she was worried that banks would not recover while they were being fed subsidies. “When are they going to say, enough?” she said.
The massive programs designed to rescue the nation’s financial sector are operating without adequate oversight, with vague goals and limited disclosure of their details to the taxpayers who are paying for them, government watchdogs told a Senate panel Tuesday.
…
But “without a clearer explanation” about parts of the program, “it is not possible to exercise meaningful oversight over Treasury’s actions,” said Elizabeth Warren, a Harvard Law School professor who leads a special congressional oversight panel monitoring the TARP program. Her comments came in a Senate Finance Committee hearing on the bailout program.
Congress just took a major shot at the executive branch (or will take one, to be precise). Given the fact both branches are in Democrat hands means something is percolating below the surface.
One thing which will catch on with average, struggling Americans is how Ms. Warren is calling for investors to get their just rewards and end the raid on the treasury to fill their filthy-rich pockets with our tax dollars. As one commenter put it (very well):
I also think that bondholders need to take a haircut as well, not just shareholders, though they may not need to be wiped out in all cases. However, if the value of a company if it was liquidated is less than zero, then yes, non-secured bondholders (those whose bonds aren’t attached to specific assets with value) should be wiped out.
This will be a very interesting week ahead.
I dunno, AJ I smell something fishy here. Looks like Congress giving “cover” to the administration to make even more draconian management changes. Keep in mind that it wasn’t management of the financial institutions that caused this problem.
The problem was caused by loading up the institutions with marginal borrowers on direction from Congress with short term adjustable loans which adjusted upward when interest rates rose. Yes, it was made worse by derivatives based on those loans which were allowed to be treated as “riskless” by none other than Geithner when he was running the NY Fed. Other regulations that allowed this were passed by both houses of Congress and signed by Clinton.
It seems that this is a well-orchestrated plan to cast management of the financial institutions as the cause of the problem and to allow Treasury to use a more heavy hand in putting their people in charge of these companies.
The tone of the statements are particularly interesting as they berate the administration for not doing enough of what probably isn’t their role to do in the first place. They are trying to micromanage the US financial industry at the boardroom level. After looting the Treasury, Obama & Co. are now going after looting the major financial companies too. Force them to take money in exchange for a controlling interest in stock, then use that controlling interest to put their people in management. Then prevent them from buying that controlling interest back so the administration basically has control of the boardrooms of these firms.
She looks to me like she is providing Geithner with cover to do even more. Sort of like sentencing a kid to do three hours detention in a candy store.
AJ, have you seen this ?
Things are getting interesting, alright.
I think crosspatch is right. This is just an effort to use the anti business climate to do things that otherwise would not happen.
If the Democrats don’t want these people to have the money, the solution is simple…do not give it to them.
But, instead they cram it down their throats, refuse to take repayment and then put them out on a limb and start sawing.
Look at all the affluent people in Obama’s administration. These are not poor people, the Democrats are not poor people. They are just people looking for an advantage and using populist rhetoric to get it.
This is from crosspatches link, and it is interesting:
Lawrence Summers, a top economic adviser to President Barack Obama, pulled in more than $2.7 million in speaking fees paid by firms at the heart of the financial crisis, including Citigroup, Goldman Sachs, JPMorgan, Merrill Lynch, Bank of America Corp. and the now-defunct Lehman Brothers.
He pulled in another $5.2 million last year from D.E. Shaw, a hedge fund for which he served as managing director from October 2006 until joining the administration.
AJ when I look at your charts concerning Obama’s budget going forward, I don’t see how he inherited a $1.3 billion deficit. It looks like a $500 billion deficit. Can you explain?
Kathie,
Yes. Obama inflated the ‘inherited’ numbers by making two assumption not in any budget:
(1) The Surge in Iraq would last for ten years
(2) He is counting tax increases in our years as ‘savings’
he is cooking the books, as I noted in this post. He adds fake money to the deficit and then magically eliminates it – right back to where it was in the first place.
Amazing. The extent of the corruption of our government is just amazing.
Mayo Says Loan Losses Will Exceed Depression Levels
April 6 (Bloomberg) — Mike Mayo, who left Deutsche Bank AG last month and joined CLSA, assigned an “underweight†rating to U.S. banks and predicted loan losses will exceed levels from the Great Depression.
“While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class,†Mayo wrote. “New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.â€
Mayo said he expects loan losses to increase to 3.5 percent, and even as high as 5.5 percent in a stress scenario, by the end of 2010. Mortgage-related losses are about halfway to their peak, while credit-card and consumer losses are only a third of the way to their expected highest levels, according to Mayo, who declined to comment beyond the report.
The nation’s largest banks may be transitioning from a financial crisis marked by writedowns of capital to an economic crisis featuring large loan losses, Mayo wrote. The U.S. government cannot provide much relief because its actions will lead to either banks having to raise new capital or toxic assets remaining on banks’ balance sheets, Mayo wrote.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a1yCkrhVtOks&refer=worldwide
Bernanke ‘Green Shoots’ May Signal False Spring Amid Job Losses
April 6 (Bloomberg) — It will be months before it’s clear whether what Federal Reserve Chairman Ben S. Bernanke calls the U.S. economy’s “green shoots†represent the early onset of recovery, or a false spring.
The Labor Department’s April 3 report that the economy shed an additional 663,000 jobs last month, while the unemployment rate rose to 8.5 percent, will be followed by months more of bad-news headlines, economists say. The recession, now in its 17th month, has already cost 5.1 million Americans their jobs, the worst drop in the postwar era; unemployment may hit 9.4 percent this year, according to the median estimate in a Bloomberg News survey, and may top out above 10 percent in 2010.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aJa8WNMvKaxg&refer=worldwide
Dick Morris – “What Obama Gave Away At G20 Summit Is Absolutely Horrificâ€
http://www.floppingaces.net/2009/04/05/dick-morris-what-obama-gave-away-at-g20-summit-is-absolutely-horrific/
Morris says that not only is Obama Nationalizing banks; but, he is Internationalizing banks as well.
One thing that is going to make a huge difference is the elimination last week of “mark to market” requirements. This is going to stop the free fall of asset values with the lenders. Now when a home sells for less than the median price the lender isn’t forced to mark down the value of all the other loans in the neighborhood. This is going to put some support under the asset values. That one action is going to do more to improve the situation than all the other actions to date. This will allow loans that were “toxic” to now be valued up if the borrower is in good stead with the lender and has a good payment record.
Wall Street stocks sink on banks, tech
NEW YORK (Reuters) – U.S. stocks slid on Monday, as bank shares fell after a widely-followed analyst recommended investors reduce or sell holdings of several large bank stocks, sapping recent optimism on the health of the financial sector.
Banks shares stumbled after veteran banking analyst Mike Mayo of Calyon Securities started coverage on several large banks, citing the ongoing consequences of risk taking by banks in several different areas.
Adding to the negative tone on banks were comments by billionaire investor George Soros, who told Reuters the “banking system as a whole is basically insolvent.”
http://in.reuters.com/article/businessNews/idINIndia-38911520090406
NO PRIVATE HEDGE
GEITHNER’S TOXIC RECYCLING PLAN NIXED BY BIG FUND
April 2, 2009
Bridgewater Associates, the $71 billion money-management firm, has come out against participating in Treasury Secretary Tim Geithner’s plan to get private investors to buy banks’ toxic assets — a week after saying it was interested in it.
In an investor note obtained by The Post, Bridgewater founder Ray Dalio gave Geithner’s plan two thumbs-down, arguing that the hopes of would-be buyers probably won’t be met by what the government is offering, especially when it comes to the sale of so-called legacy securities.
http://www.nypost.com/seven/04022009/business/no_private_hedge_162512.htm
Estimated U.S. taxpayer cost for bailout jumps
Mon Apr 6, 2009
WASHINGTON (Reuters) – U.S. congressional budget analysts have raised their estimate of the net cost to taxpayers for the government’s financial rescue program to $356 billion, an increase of $167 billion from earlier estimates.
The Congressional Budget Office had originally projected the $700 billion Troubled Asset Relief Program would cost taxpayers $189 billion.
The additional cost, which applies to TARP spending for fiscal years 2009 and 2010, was included in the CBO’s March projection of a $1.8 trillion deficit for fiscal 2009, which ends September 30.
The TARP cost projection was raised due to changes in financial market conditions, new transactions and a shift in expected timing of payments, the CBO said.
http://www.reuters.com/article/domesticNews/idUSTRE53323420090406
So what is Miss Warrens reaction to bankers who have been denied the right to REPAY the TARP money!!