The Tally Stick

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U.S. Treasury Secretary Geithner to press case for wind-down authority for large banks

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Can someone please tell me why we did not just create this authority or use the existing FDIC which seems to be world-class at winding down banks while keeping all their functions in place (Anyone remember IndyMac)?  All the authority we need to handle this operation is already in place, all it seems that might be needed is more capitalization for the FDIC to help in the transfer process of the good assets from these bad banks.

Its great how we are talking about winding down A.I.G (American International Group) in this context, when the U.S. taxpayer owns the company.  Well I guess our $180 billion dollar investment is not worth as much.  Personally I was actually against the bonus claw-back even though it was correct in the basis for the claw-back for this simple reason.  If we are now owners of the insurance company and we want to get money out of our investment, then capping bonuses would be counter-productive.   With caps in place, the top talent in the company would go to greener pastures and that would effectively be a brain-drain on the company trying to regain face.

I guess the one thing positive from this move is maybe we can quit using the cover of “too big to fail” for a reason to give bad banks, good money for making reckless choices.  I hope we actually start setting the right precedence now.  Here is the press release from Reuters on Geithners upcoming committee hearing.

U.S. Treasury Secretary Timothy Geithner will use congressional testimony this week to press his case for creating new authority to wind down big financial firms and a new systemic risk regulator.

On Tuesday, Geithner will testify before the U.S. House of Representatives Financial Services Committee on the bailout of American International Group.

“AIG is the topic (on Tuesday) and the secretary is going to spend a lot of time talking about resolution authority,” the official said.

This would allow the federal government to intervene in financial institutions with the capacity to pose broad systemic risks to the economy, such as AIG, which was rescued three times at a cost of up to $180 billion.

Geithner’s testimony on regulatory reform on Thursday, before the same panel, will focus on the need for a systemic risk regulator to help identify risks, so that situations like AIG’s problems are not allowed to develop in the future, the official said.

Written by Tally Stick

March 23rd, 2009 at 12:32 pm

Posted in Commentary

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AIG bailout money is actually going to bail out foreign banks

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This morning I was watching “The McLaughlin Group” and they fully admitted was I have thought for a long time.  That while the public is outraged about the $170 million in bonuses, we are missing the major issue that our taxpayers dollars are going via A.I.G (American International Group) to bail out foreign banks that AIG made insurance bets with.  This is where the real outrage should be, we are squabbling about $170 million when we have sent $180 billion through AIG alone.  The question I ask is “Why don’t these foreign governments bailout their own banks?”

More and more I am seeing a trend that is taking place, I have noticed that articles that talk about the bailout money.  When you see them talk about a bank getting more bailout money, you will notice they mention the reason for these losses is “subprime mortgages” and “other assets” or “bad/toxic assets”.  This in my opinion is the codeword for all these off-balance-sheet derivatives that have come due and now to keep the small amount of trust left, we are making these contracts good.   The problem I see is that according to the Bank of International Settlements (BIS) report, we have $596 trillion dollars worldwide (2007 numbers that came out in 2008).

Now all these are not going to go bad at once but the problem is the U.S. policy seems to “bailout first and ask questions later”.  This policy is not going to work because investors will not fully trust the financial system until the bad players go bad and good players get rewarded.  Right now, its any-ones best guess.  They keep changing the rules when it best suits whatever populist notion is convenient for whatever interest group can complain the loudest.  I think the government will prevent a depression / deflation but the cost I believe will be a rate of inflation we have never seen in this country….ever.   Will it worth it?  I would rather see prices come down then go up but that is me.  Here is what the National Review said about the AIG bailout:

National Review (No Affiliation or broad support of opinions):

The whole AIG story is an outrage.

What’s more, AIG is acting as a conduit for taxpayer money that is being sent to dozens of derivative counterparties, including foreign banks and American banks like Goldman Sachs. If we’re going to bail out all these other firms, why not bail them out in full taxpayer view? Why is the money being laundered furtively through AIG? And where exactly is the end game for AIG? How are the taxpayers going to be repaid?

And what is Treasury man Geithner’s role in all this? He appears to be the biggest bungler in what has become a massive bungling. My CNBC friend and colleague Charlie Gasparino thinks Geithner can’t survive this. I am inclined to agree.

Click Here to Read the Whole Article

Written by Tally Stick

March 22nd, 2009 at 11:21 am

Posted in Commentary

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