Posts Tagged ‘TARP’
As banks rush to repay TARP money, driven by the desire to remove government control rather than any reflection of improved financial standing, here is a sobering statement from Elizabeth Warren. Just as GM didn’t ‘get it’ in terms of the world will look like on the other side of this recession, many banks appear to have similar blinders. Instead of arguing that they are not in bad shape and that they are secure, why not make changes now that display the recognition that the future is not going to be anything like the past. I say again, and blame the politicians for the use of the word recovery – recovery does not mean a return to 2007.
Repeat stress tests right now | MSNBC
The Congressionally-appointed panel overseeing the Troubled Asset Relief Program (TARP) recommends running again the stress tests on US banks, as economic conditions have worsened, its chair, Harvard University professor Elizabeth Warren, told CNBC Tuesday.
“We actually make recommendations to do it all over again right now,” Warren told “Squawk Box.”
“We’ve already blown past the worst-case scenario on unemployment,” she added.
Yahoo Japan notes the expected repayment of $68 Bn from 10 banks.
Reported by Nobuyo Henderson
The only word for this document is breathtaking. It is breathtaking because it touches a large amount of the US economy, and the largest businesses in the economy. It deals with:
- Auto sector
- executive compensation
- Executive replacement
- ‘luxury’ purchases, (eg corporate jets)
- SIGTARP administration
And the detail contained in the 247 pages is work that is substantially net new since January this year. I say this in defence of Geithner, and his quiet approach at first. He has been rather busy. But to the report to Congress today.
Summary of Geithners testimony at FT. He descirbes the Stress test results as mixed. A quick review of the report tells me that the answer is not captured in a sentence, so have to dig further to find out what mixed means.
Tim Geithner acknowledged that evidence of improved liquidity as a result of the bank bail-out was “mixed”, but defended the $700bn troubled assets relief programme against charges that it gave an easy ride to the financial sector.
Appearing before a Congressional oversight panel on Tuesday, the Treasury secretary said interbank lending, corporate issuance and credit spreads showed signs of a thaw in credit. “To date, frankly, the evidence is mixed,” he said.
This extract from the introduction in this speech summarises the situation well, both in US and UK. It is such a clear example of taking the wrong actions (injecting cash into banks) over and over, yet not succeeding in the objective of restoring confidence. Bank stocks have now reached the point that they have no impact on the Dow Jones index. This means confidence is not just down but eliminated.
Time to address the root problems:
- asset values and resulting insolvency
- management change
Too big has failed | [pdf] Federal Reserve of Kansas City – Thomas Hoenig
Over the past year, the Federal government and financial policy makers have enacted numerous programs and committed trillions of dollars of public funds to address the crisis. And still the problems remain. We have yet to restore confidence and transparency to the financial markets, leaving lenders and investors wary of making new commitments.
The outcome so far, while disappointing, is perhaps not surprising.
We have been slow to face up to the fundamental problems in our financial system and reluctant to take decisive action with respect to failing institutions. We are slowly beginning to deal with the overhang of problem assets and management weaknesses in some of our largest firms that this crisis is revealing. We have been quick to provide liquidity and public capital, but we have not defined a consistent plan and not addressed basic shortcomings and, in some cases, the insolvent position of these institutions.
We understandably would prefer not to “nationalize” these businesses, but in reacting as we are, we nevertheless are drifting into a situation where institutions are being nationalized piecemeal with no resolution of the crisis.
I heard the headline earlier today but only after listening to this video now do I appreciate the depth of this. We know the Lehman Brothers collapse was serious but only now do we know to what extent. This was the economic version of the Russian missile crisis.
It also explains for the first time, the awkward and otherwise inexplicable overnight shift in TARP approach by Paulson.
Listen to the comments at 2 minutes 20 seconds and from then on. Kanjorski is the Chair of the Capital Markets Committee. The key comments are:
- “it was about September 15th [note his days and dates don't match] …. on Thursday at about 11 o’clock in the morning the federal reserve noticed a tremendous draw down of money market accounts in the United States to the tune of 550 billion dollars being drawn out in a matter of an hour or two. The Treasury opened up its window to help. They pumped 105 billion into the system and realised they could not stem the tide … they realised there was an electronic run on the banks and we closed it down” .
- They decided to close down the operation and announced a guarantee of $250,000 per account so there would not be further panic out there. Thats what actually happened. If they had not done that ………………. the estimate was that by 2 o;clock that afternoon 5.5 trillion would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States and within 24 hours the world economy would have collapsed.
- Now we talked about what would have happened if that happened… the end of the economic and political system as we know it.
- it would have taken 3 or 4 trillion to buy the bad bank assets, and UK came up with the idea of injection capital …. we only had 750 billion … so we did that
- it was much cheaper to put money in banks than buy bad assets