Archive for March, 2009

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Obama Administration Updating Regulations for the 21st Century

Tuesday, March 24th, 2009

From the NY Times:
The crisis surrounding the American International Group was a near-tragedy that underlines the need for broad new government authority to regulate or even take control of financial institutions other than banks, the government’s top fiscal officials told lawmakers on Tuesday.


Treasury Secretary Timothy F. Geithner said financial crises like those caused by the recklessness of A.I.G. “contain a basic and tragic unfairness — that those who were prudent and responsible in their personal and professional judgments are harmed by the actions of those who were less careful and less prudent.”

Read Full Article

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GOP begs Dick Cheney to Go back into hiding

Tuesday, March 24th, 2009

From The Hill:
Congressional Republicans are telling Dick Cheney to go back to his undisclosed location and leave them alone to rebuild the Republican Party without his input.

Displeased with the former vice-president’s recent media appearances, Republican lawmakers say he’s hurting GOP efforts to reinvent itself after back-to-back electoral drubbings.

Read More Here

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President Obama Writes Op-Ed for Newspapers Around the World

Tuesday, March 24th, 2009

A time for global action
By Barack Obama
Monday, March 23, 2009

WASHINGTON: We are living through a time of global economic challenges that cannot be met by half measures or the isolated efforts of any nation. Now, the leaders of the Group of 20 have a responsibility to take bold, comprehensive and coordinated action that not only jump-starts recovery, but also launches a new era of economic engagement to prevent a crisis like this from ever happening again.

No one can deny the urgency of action. A crisis in credit and confidence has swept across borders, with consequences for every corner of the world. For the first time in a generation, the global economy is contracting and trade is shrinking.

Trillions of dollars have been lost, banks have stopped lending, and tens of millions will lose their jobs across the globe. The prosperity of every nation has been endangered, along with the stability of governments and the survival of people in the most vulnerable parts of the world.
…

Read the Full Op-Ed Here

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Media Matters Unveiling New Site: “Financial Media Matters”

Monday, March 23rd, 2009

From The Plum Line:
“The site, which will be announced this afternoon, reflects the sudden preoccupation that many on the left now have with the accuracy, balance, and fairness of financial coverage, now that the crisis has thrust all of our attention on the financial world. Witness the widespread liberal and public interest in the Rick Santelli rant on MSNBC and in Jon Stewart’s showdown with Jim Cramer.”

Media Matters Financial Site

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Thoughts on Treasury’s Private Partnership Investment Plan

Monday, March 23rd, 2009

I’ve pretty much agreed with those who have been critical of the way Tim Geithner has handled the AIG and bank bailouts in Henry Paulson-like fasion. We will have to give the time plan to determine whether it was good or not (it works if it works); but at first glance, Geithner’s plan seems to get “bad assets” off the books of banks at a price private investors are willing to pay for it.

Sample Investment Under the Legacy Loans Program

Step 1: If a bank has a pool of residential mortgages with $100 face value that it is seeking to divest, the bank would approach the FDIC.
Step 2: The FDIC would determine, according to the above process, that they would be willing to leverage the pool at a 6-to-1 debt-to-equity ratio.
Step 3: The pool would then be auctioned by the FDIC, with several private sector bidders submitting bids. The highest bid from the private sector – in this example, $84 – would be the winner and would form a Public-Private Investment Fund to purchase the pool of mortgages.
Step 4: Of this $84 purchase price, the FDIC would provide guarantees for $72 of financing, leaving $12 of equity.
Step 5: The Treasury would then provide 50% of the equity funding required on a side-by-side basis with the investor. In this example, Treasury would invest approximately $6, with the private investor contributing $6.
Step 6: The private investor would then manage the servicing of the asset pool and the timing of its disposition on an ongoing basis – using asset managers approved and subject to oversight by the FDIC.

There are many moving parts to the plan, but one of the important issues is whether the FDIC can properly determine the leveraging ratio for bad assets. One thing to note is that the FDIC has been getting a lot of practice in doing just that with the increasing rate of recent bank closings.

Downside – This may be the best available option, but taxpayers will be financing a significant portion of these “bad” bank assets for the next few years.

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Treasury Department Releases Details on Public Private Partnership Investment Program

Monday, March 23rd, 2009

From the Department of Treausury:
The Financial Stability Plan – Progress So Far: Over the past six weeks, the Treasury Department has implemented a series of initiatives as part of its Financial Stability Plan that – alongside the American Recovery and Reinvestment Act – lay the foundations for economic recovery:

  • Efforts to Improve Affordability for Responsible Homeowners: Treasury has implemented programs to allow families to save on their mortgage payments by refinancing, assist responsible homeowners in avoiding foreclosure through a loan modification plan, and, alongside the Federal Reserve, help bring mortgage interest rates down to near historic lows. This past month, the 30% increase in mortgage refinancing demonstrated that working families are benefiting from the savings due to these lower rates.
  • Consumer and Business Lending Initiative to Unlock Frozen Credit Markets: Treasury and the Federal Reserve are expanding the TALF in conjunction with the Federal Reserve to jumpstart the secondary markets that support consumer and business lending. Last week, Treasury announced its plans to purchase up to $15 billion in securities backed by Small Business Administration loans.
  • Capital Assistance Program: Treasury has also launched a new capital program, including a forward-looking capital assessment undertaken by bank supervisors to ensure that banks have the capital they need in the event of a worse-than-expected recession. If banks are confident that they will have sufficient capital to weather a severe economic storm, they are more likely to lend now – making it less likely that a more serious downturn will occur.

Read From the Department of Treasury

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Krugman: Treasury Plan Suggests Financial Crisis is Only a Confidence Problem

Saturday, March 21st, 2009

“The Geithner plan has now been leaked in detail. It’s exactly the plan that was widely analyzed — and found wanting — a couple of weeks ago. The zombie ideas have won.

The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.”

Read More Here

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AIG

Wednesday, March 18th, 2009

AIG Financial Products President Joseph Cassano Barred Auditor From Valuing Credit Default Swaps

Obama Administration: We Didn’t Find Out About AIG Bonuses Until This Month – Sources in the Obama administration Tuesday said that despite previous media reports administration officials did not know until a couple weeks ago that the officials of the controversial AIG Financial Product Division were set to receive $165 million in bonuses on March 13.

Wyden: My Bill Could Have Prevented AIG Mess – Senator Ron Wyden said on Tuesday that the furor surrounding AIG’s bonus payments could have been avoided had the Obama White House and members of Congress simply backed legislation that he and Sen. Olympia Snowe introduced more than a month ago.

AIG staff: We deserve this money – AIG’s new management team last year proposed that its employees give up their “retention” bonuses, or at least reduce them. The response from the 370 or so employees set to rake in $450 million in bonuses through 2010? Take a hike.

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