Geithner is appearing before Chris Dodd’s Banking, Housing & Urban Affairs Committee.
Jamie Galbraith has named Geithner’s taxpayer giveaway to Wall Street the Bad Assets Relief Fund (BARF). He was on Democracy Now this morning:
And the sooner that you get to that and the sooner that you take these steps, which every administration, including the Bush administration, actually took in certain cases—replacing the management, making the risk capital take the first loss, reorganizing the institution, guaranteeing the deposits so that there isn’t a run, reopening the bank under new management so that it can begin to function again as it should have all along as a normal bank—the sooner you get to that, the more quickly you’ll work through the crisis.
Wondering how the issue of "transparency" will be addressed.
SHELBY: Wants an explanation of the successes and failures of TARP. Does he realize Geithner just went around him and doesn’t think he needs congressional approval?
It’s really friggin’ hard to hear lectures on fiscal responsibility from people like Shelby. From Obama’s presser last night:
Mr. Obama sharply mocked the sudden rediscovery of fiscal rectitude on the other side. “What I’ve been concerned about is some of the language that’s been used suggesting that this [bill] is full of pork and this is wasteful government spending. First of all, when I hear that from folks who presided over a doubling of the national debt, then I just want them not to engage in some revisionist history. I inherited the deficit that we have right now and the economic crisis that we have right now.” Regarding those duplicitous politicians, he added later, “I’m not sure they have a lot of credibility when it comes to fiscal responsibility.”
GEITHNER: We have a website where we’re going to put all the contracts, where people can see what executive salaries are. So rather than standing up to the banks and limiting compensation, we’ll let the public do it for us.
We don’t know how we’re going to value the "assets that are at the center of this crisis." "We’re exploring a range of different structures for this program," and we’d love to have your suggestions.
We’ll also launch a comprehensive housing program to bring interest payments and mortgage payments down.
If you want to know how we got here — ask away.
DODD: We know how we got here. Not interested in hearing Shelby wank about the past when people are losing their jobs, committee should be asking what we do now.
There will be an "absence of specific details."
GEITHNER: Markets not functioning because of uncertainty about the depth of the problem. Can’t fix them without support of an economic investment program, or if the housing crisis isn’t addressed.
It is ultimately more effective, cheaper for the taxpayer if we move more aggressively now.
DODD: What are you going to do on mortages with TARP money?
GEITHNER: We’ll put $50 billion of TARP money toward that.
SHELBY: Your plan is pretty vague. Is there a concrete plan, and how do we assess it? We need to have more hearings when you have details.
GEITHNER: I’m not asking you to authorize more resources. Congress has already authorized resources, but we’ll need more. We’ll give you details if we think you need to ask you for them.
(If Shelby’s outrage isn’t all kabuki, don’t you think he’d mention that Geithner isn’t asking him for shit, he’s just going to do spend the money without congressional authorization?)
SHELBY: How do we restart the securitization markets? They worked so well before.
GEITHNER: "Our immeidate challenge is to get financing to help encourage new securitization by lending against the highly rated securities. Our judgment is, if we do that effectively, we can get those markets working again."
BENNETT: No sign that private capital is ready to come in. Buffet may have said "now is the time" — not sure he still believes it — but when are people going to decide to take advantage of low prices and opportunities.
GEITHNER: Glad you asked! We need to create conditions for that to happen. Market is unsure about the depth and duration of the financial crisis — government has to be willing to step in and take risks temporarily.
REED: Who’s going to absorb these losses?
GEITHNER: Good question. If we are aggressive now, crisis will be shorter and losses will be lower over time. Punt.
(The one thing that kind of amazes me is that nobody is pressing him very hard on anything — he just announced he’s going to end-run them, and nobody is mentioning it. It’s like nobody wants to know the answers.)
BUNNING: Do you think our largest banks are insolvent? What will you do if your stress tests indicate that they’re insolvent?
GEITHNER: In an economy this fragile, it is vital that we act carefully and wisely to help contain risk to taxpayers. Can’t say anything about individual companies because of national economic security.
BUNNING: You say we got into this mess because we lacked oversight. In 1994 we gave oversight to the Fed on all mortgages.
GEITHNER: What caused this crisis is gaps in our regulation — everyone in the system could have done more than was done, and it’s going to require a better use of authorities you gave to regulators.
BUNNING: How much of the funding for the other programs is coming from TARP, or the Fed. How much do you think you’re going to need?
GEITHNER: We will come to you as we design these programs and let you know how much we need.
BUNNING: Do you believe we have an independent Federal Reserve?
AKAKA: I’m concerned about predatory lending.
GEITHNER: We need to do better.
AKAKA: Undervaluing undermines the intent of the TARP. Elizabeth Warren said Bush paid $250 billion for assets worth $176 billion. Why did they do that and how do we keep it from happening again?
GEITHNER: "By definition in a crisis like this, there are risks the market will not take. So if you try to value those interventions at the level prevailing in a market reflecting this level of fear and uncertainty thet there will seem to be a gap. But again, the responsibility we have is to design these programs so we’re getting the maximum possible benefit in restoring flow of credit with the least potential risk. But these programs will come with risks."
GEITHNER: Create jobs. Numbers in the recovery act are large. Even as we move forward to do these substantial forceful programs, we give the American people confidence that we bring our resources and commitments back down to sustainable levels, so we need to bring down our budget over time. ENTITLEMENT REFORMS!! Medicare, social security — gotta cut em. (Defense spending? Never heard of it.)
TESTER: Stress tests — would you allow any of the fourteen biggest banks fail?
GEITHNER: We have to prevent the kind of failure that would cause systemic damage to our system.
TESTER: "Too big to fail?"
GEITHNER: Don’t want to use those words, need to stabilize core of our financial system.
TESTER: Is there some limit as to how much money you’ll put into one bank?
GEITHNER: I want to be careful and responsible — what has to guide everything we do, is what’s going to provide the best benefit, at least risk.
TESTER: If these folks are too big to fail, where is the accountability for them?
GEITHNER: "Conditions should escalate with the level of commitment."
TESTER: Community banks — regulators have clamped down on them so they can’t lend, even though they are not in trouble.
GEITHNER: I’ve heard that. Important to me and supervisors to send out balanced guidance to make sure that we know what risks are in normal business relationships.
TESTER: Well if there’s no accountability for the big boys, why are we second-guessing the relationships of banks that have been well run?
GEITHNER: We should look into that.
CORKER: Today’s plan was vague. Hopefully we can work with you into make it into something that works. Seems to be an internal debate — isn’t the question not how big the losses are, but who will take them and when? Banks working against an economic recovery, let ’em take loses over a couple of years and be dead man walking. Hard to figure out whether we’re solving a liquidity or solvency problem. Thinks it’s solvency.
GEITHNER: Short both liquidity and funding, need to treat both. Scale of losses ahead large compared to existing financial base.
CORKER: Isn’t the major debate — either address losses now, or dole it all over time (less transparency, less cash right now)
GEITHNER: I think it’s best to err on the side of the former.
CORKER: Is TALF becoming the bad bank?
CORKER: Would it be good figure out where we are?
CORKER: What is stress test going to entail? February 17 is big day in auto world — what’s up with that?
GEITHNER: Look ahead at a range of possible scenarios and measure against possible resources. Autos — we’ll receive series of restructuring plans on 17th, have a team of people at Treasury and National Economic Council, want to make them viable businesses without government support over time.
MENENDEZ: How much of public/private is going to be public and how much is going to be private? Valuation?
GEITHNER: We’re going to ask banks for a plan of what they are going to do with the money, then they’re going to have to report on a monthly basis and we’re going to let the public see that.
MENENDEZ: Can you talk to us about asset valuations?
GEITHNER: "Absolutely Enormously difficult to decide on a mechanism that will give us confidence that the values are fair and realistic, and that the government understands the risks we are assuming. There are no perfect ways to do this. One approach is for the government to decide. One approach is for the government to use independent model based estimates for valuation. We are conderned neither of those two approaches would give us the level of comfort we need, so instead what we propose to do is design a fund that can have private capital come in along side government financing and use that as a way to help solve this valuation problem. And we believe doing it that way will leave us with better protections against the risk in making these basic judgments indepently on our own.
"Now no process is perfect, and you’re right to ask what is the risk and return for the government in this area. One of the reasons why weay this out in general terms today, is because this is enormously complicated to get right, and we’re going to try to get it right before we layout the details."
HUTCHISON: I would like to give you my input for your collaboration. Resolution Trust Corp — because they wanted to get rid of bad assets — el problemo. Will you allow performing loans, and not allow performing loans to be called as long as they’re performing?
GEITHNER: S&L crisis not the right prism. This crisis much more severe, system much more complicted and fragile, and we’re not going to get through this by adopting the systems they did at that time.
Two risks — hiding problems hoping we’ll grow out of them, acting too aggressively and causing damage.
WARNER: Happy about new initiatives about small business and consumer. What about municipal markets? Slowing of projects.
GEITHNER: We’re looking at a range of suggestions, haven’t seen a good idea — got any?
WARNER: Sooner we bite the bullet the better. Isn’t stress test going to have to include valuation of bad assets? Interested in public/private initiative, but I’m concerned about what the timing is. Are you going to do the stress test first and value the assets and then put them into the public/private valuation?
GEITHNER: Many assets have no historical precedent. Stress test process is underway — you want these other things to get some traction, you want to have it as close as possible, trying to guess what a range of losses may be….(sorry, it’s such gibberish I can’t synopsise it)
WARNER: Please put TARP I stuff up on a website. Hurts your credibility going forward.
GEITHNER: Completely agree with you about the problem.
GEITHNER: We agreed to put the contracts on the website as quickly as possible, want to show the American people they got preferred stock, and what to show them what they’re getting for their money.
DODD: Would be a great source of some relief to know where the money has gone.
DEMINT: The market doesn’t like your plan. Where are we going to get this money — print it or borrow it?
GEITHNER: Good question. We need to lay out a path to bring our resources into balance….
DEMINT: Some time today.
GEITHNER: We’re going to borrow it.
DEMINT: Who’s going to borrow it?
GEITHNER: The American people and people around the world.
DEMINT: Our debt to GDP — we couldn’t get into the EU because of our debt. I can’t see any plan for the next 10-20 years where the federal government can service the interest on this debt. How can we deal with it? We don’t want to miss a good opportunity, but are you worried about inflation?
GEITHNER: We want to create a budget to "live within our means."
(Ian just arrived!)
BROWN: How are you going to keep oursourcing of back office jobs from having?
GEITHNER: Not sure what I can do, but we can make companies be more transparent. Don’t want to micromanage these companies, it will ultimately cost the taxpayers more.
BROWN: That’s not very reassuring to people who are losing their jobs to outsourcing when their companies are getting public money.
GEITHNER: We want every dollar of assistance we provide to get credit flowing again.
JOHANNS: We’re describing a level of taxpayer support that is really unprecedented. Not to pin you down today on numbers, but you’re giving us fair warning — this is going to be really expensive. What are things going to look like three years from now?
GEITHNER: Well we’d like borrowing costs to come down to normal level, and have credit worthy people be able to get loans.
JOHANNS: Stress test — when you publicize to the world that they lack the capital to continue lending, I would think that would cause serious problems for those 25 institutions, if not a run on the institutions? How would you stop that?
GEITHNER: Our hope is by bringing more clarity to that process, with some support for capital, that uncertainty is dispelled. Right now that problem is putting pressure on these institutions which is causing them to contract rather than grow and expand.
JOHANNS: You’re going to be a tremendous amount of capital to protect these institutions.
GEITHNER: These institutions are all in different circumstances, important not to tar them all with the same brush.
DODD: Next time get your testimony to us early.
MERKELEY: How urgent is addressing mortgages?
MERKELEY: Is plan going to be as sweeping as used in the great depression for mortgages?
GEITHNER: Need to put together a plan that addresses foreclosures.
MERKELEY: Are you going to address unscrupulous loan brokers, people who got into loans at higher rates than they qualified for because people lied to them?
GEITHNER: No. Not now, anyway.
MERKELEY: Well thanks for saying "not in stage one," I look forward to "stage II".
(Hugh says: Geithner shorter version: I am going to take a couple trillion dollars of your money and spend it although I don’t really have any idea about how I am going to spend it other than it is going to banks and hedge funds and I’ll make up the reasons later.)
VITTER: I appreciate the efforts at consultation, however I think having a major announcement and a major committee hearing today with the complete lack of detail we have quite frankly was a big mistake. And I think it’s a version of the American people hearing how cataclysmic the crisis is without no solution.
GEITHNER: I came here to testify the same day that we laid out broad principles. We’re not giving you the details so that when we give them they reflect the care and discipline the problem requires. You’re right, it’s not detailed, but I understand your concerns and we’re not claiming we’re doing something else.
VITTER: I’m not saying you rush something before it’s ready, I’m saying you don’t come and talk about something for four hours before it’s ready and you have the details.
GEITHNER: We don’t want to give details until we’ve solved every problem and ironed out every issue.
DODD: Nice to have all these process questions, but can we have some suggestions? We’d like to be involved in the takeoff and not just the landing.
SCHUMER: Since you’re going to be leveraging, what about taxpayers?
GEITHNER: Very important to have least risk to taxpayer.
SCHUMER: But if you make money, shouldn’t taxpayers make money?
GEITHNER: Uh, sure.
KOHL: Are all these bankers who ripped us off going to apologize and make us confident that they’re not going to do it again?
GEITHNER: Not my job.
DODD: It’s too small.
SHELBY: Do you think the stimulus package will fix our economy?
GEITHNER: You’ve got to fix banks and provide stimulus at the same time.
SHELBY: Economy won’t grow until we bring confidence in our banking system. You were at the NY Fed. Should you have done more? Did the Fed know the risks of the derivative system?
GEITHNER: Huge parts of the banking system out of the regulatory system (shadow banking system — hedge funds, insurance, etc.) where big parts were highly leveraged, no single regulator had authority over all of them, so nobody knew what was going on.
SHELBY: Do you believe the American people should know the truth of the debt, where this money is being spent and the risk of the future of the whole economy and the debt we’re putting on our children and grandchildren?
GEITHNER: Absolutely. But the returns on our investment and the collateralization of the loans make the risks to the taxpayers very small in comparison to how much the expenditures are.
SHELBY: Will you give us a list of all the debt?
GEITHNER: I commit to working to provide as honest and candid picture as we can.
CORKER: We’ve been here for 3 hours and 23 minutes and we have no idea how to solve this problem.
GEITHNER: I would not want to encourage you toward that view.
CORKER: I’ve got 3 hours and 23 minutes encouraging me toward that view. We’ve heard guidelines and platitudes, but we have neard of comprehensive plan to deal with this plan. That creates uncertainty.
GEITHNER: We laid out broad set of principles and new programs, and we told you, we’re going to consult with you.
CORKER: I rest my case. How about a bad bank for each of the four big banks?