Geithner: "Vast Majority" of US Banks Have More Capital Than Needed

This morning before Congress Treasury Secretary Turbo Tax Tim said that the stress test results show that the 'vast majority' of US banks have more capital than they need.

Right. Most real banks, who do banking, have sufficient capital and have been well managed.

Its only the five or six largest money center banks that have trillions in bad debt and toxic derivatives that threaten to soak up all the available capital in the real economy.

Its the vast majority of banks who have been sound in their credit expansion and risk management who are paying the price through higher FDIC fees, along with the taxpayers, as Tim and Larry support the Wall Street oligarchs.

The action in the equity markets ahead of Tim's remarks was about as blatant as it gets. This is getting to be disgusting.

Market manipulation and rampant financial speculation with public funds will continue until we are confident that the economy has improved. When the electricity fails because of malinvestment in the real world economy, the Obama people can have public service community organizers deliver pamphlets door to door telling us how good things are becoming.


April 21 (Bloomberg) -- Treasury Secretary Timothy Geithner told a congressional panel that the “vast majority” of U.S. banks have more capital than needed.

He also said there are signs of thawing in credit markets and some indication that confidence is beginning to return.

“Indicators on interbank lending, corporate issuance and credit spreads generally suggest improvements in confidence in the stability of the system and some thawing in credit markets,” Geithner said in prepared testimony to the committee overseeing the Troubled Asset Relief Program.

Earlier today, Geithner said the program has enough money for bank rescues even under “conservative” estimates.

Geithner reiterated the Treasury’s view that about $135 billion is still available for bank rescues, out of $700 billion originally authorized by Congress.

The total includes about $590 billion that has been allocated so far for various TARP activities, leaving $110 billion remaining. Also, the Treasury expects $25 billion in repayments this year, leading to the total projection of $135 billion available.

“We believe that even under the conservative estimate of available funds described here, we have the resources to move forward implementing all aspects of our Financial Stability Plan,” Geithner said in a letter to Elizabeth Warren, the chair of the Congressional Oversight Panel.

May Have More

The Treasury first put forward these estimates in late March. In the letter, Geithner said it’s possible the Treasury may have even more money remaining, depending on how many banks repay TARP and whether the housing program uses its full allocation.

“Our projections anticipate only $25 billion will be repaid” over the next year, Geithner said. This figure is “lower than many private analysts expect,” he said.

Geithner’s letter comes on the same day as a separate report on the rescue program prepared by Neil Barofsky, the special inspector general for TARP. Barofsky said his office has six audits underway about various elements of the program.

One of these inquiries is looking into federal assistance to Bank of America, which has benefited from three different bank rescue programs, and Treasury’s decision to extend aid in connection with Bank of America’s acquisition of Merrill Lynch. The audit was expanded to include the other eight large banks that received TARP funding in October 2008, the report said.

The reporters on this story: Rebecca Christie in Washington

Collapsing US Aggregate Demand Strikes Imports Hardest

Falling aggregate Demand and the weaker dollar have finally broken the back of the parabolic growth of imports and the US trade deficit.



As one can see, imports have been hit much harder than exports. This is why Japan and China will be struggling with their export driven GDPs.



This is the worst decline in retail sales in the post World War II era.

The US consumer has finally hit the wall. The folks in DC think they can crank this Frankenstein monster of reckless consumption back up again, given the right jolts of liquidity and spin.

To think that consumers will start borrowing and buying again without a meaningful change in the dynamic of their cashflows implying an increase in the median wage, is a hard to believe. Even for the reckless American consumer, this episode has been daunting to their over-confidence, and rightfully so.

Let's hope they don't just patch this bubble and blow it back up again. But it certainly appears as though Larry, Ben and Tim are going to try and take it to the limit one more time.

Our Modern Financial System: Hypocrisy on Parade

Crony Capitalism and Incompetence Doom Obama Economic Plans Says Nobel Laureate

Nothing you have not heard here before, and frequently.

But this is a Nobel Prize winner in Economics saying it, and a Democratic appointee to boot.

"The people who designed the plans are either in the pocket of the banks or they’re incompetent."

That sounds like Larry Summers and Tim Geithner in a nutshell to us.

Joe Stiglitz is assuming that Crew Obama really WANT to fix the economy and serve their nation. It seems possible that, being out of power for so many years, the Democratic leaders are handing out favors to their campaign contributors and feathering their nests for the future.

Then they'll worry about the public welfare. Political reform, Chicago-style.

The banks must be restrained, and the financial system must be reformed, before there can be any meaningful recovery in the real economy.


Bloomberg
Stiglitz Says Ties to Wall Street Doom Bank Rescue
By Michael McKee and Matthew Benjamin

April 17 (Bloomberg) -- The Obama administration’s bank rescue efforts will probably fail because the programs have been designed to help Wall Street rather than create a viable financial system, Nobel Prize-winning economist Joseph Stiglitz said.

“All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.” (That pretty much covers Larry Summers and Tim Geithner, respectively - Jesse)

The Troubled Asset Relief Program, or TARP, isn’t large enough to recapitalize the banking system, and the administration hasn’t been direct in addressing that shortfall, he said. Stiglitz said there are conflicts of interest at the White House because some of Obama’s advisers have close ties to Wall Street.

“We don’t have enough money, they don’t want to go back to Congress, and they don’t want to do it in an open way and they don’t want to get control” of the banks, a set of constraints that will guarantee failure, Stiglitz said.

The return to taxpayers from the TARP is as low as 25 cents on the dollar, he said. “The bank restructuring has been an absolute mess.”

Rather than continually buying small stakes in banks, the government should put weaker banks through a receivership where the shareholders of the banks are wiped out and the bondholders become the shareholders, using taxpayer money to keep the institutions functioning, he said. (Personally I'd give the bondholders a very high and tight haircut - Jesse)

Nobel Prize

Stiglitz, 66, won the Nobel in 2001 for showing that markets are inefficient when all parties in a transaction don’t have equal access to critical information, which is most of the time. His work is cited in more economic papers than that of any of his peers, according to a February ranking by Research Papers in Economics, an international database....

Bailing Out Investors

“You’re really bailing out the shareholders and the bondholders,” he said. “Some of the people likely to be involved in this, like Pimco, are big bondholders,” he said, referring to Pacific Investment Management Co., a bond investment firm in Newport Beach, California.

Stiglitz said taxpayer losses are likely to be much larger than bank profits from the PPIP program even though Federal Deposit Insurance Corp. Chairman Sheila Bair has said the agency expects no losses.

“The statement from Sheila Bair that there’s no risk is absurd,” he said, because losses from the PPIP will be borne by the FDIC, which is funded by member banks.

Andrew Gray, an FDIC spokesman, said Bair never said there would be no risk, only that the agency had “zero expected cost” from the program.

Redistribution

“We’re going to be asking all the banks, including presumably some healthy banks, to pay for the losses of the bad banks,” Stiglitz said. “It’s a real redistribution and a tax on all American savers.”

Stiglitz was also concerned about the links between White House advisers and Wall Street. Hedge fund D.E. Shaw & Co. paid National Economic Council Director Lawrence Summers, a managing director of the firm, more than $5 million in salary and other compensation in the 16 months before he joined the administration. Treasury Secretary Timothy Geithner was president of the New York Federal Reserve Bank.

“America has had a revolving door. People go from Wall Street to Treasury and back to Wall Street,” he said. “Even if there is no quid pro quo, that is not the issue. The issue is the mindset.”
Stiglitz was head of the White House’s Council of Economic Advisers under President Bill Clinton before serving from 1997 to 2000 as chief economist at the World Bank. He resigned from that post in 2000 after repeatedly clashing with the White House over economic policies it supported at the International Monetary Fund. He is now a professor at Columbia University.

Critical of Stimulus

Stiglitz was also critical of Obama’s other economic rescue programs.

He called the $787 billion stimulus program necessary but “flawed” because too much spending comes after 2009, and because it devotes too much of the money to tax cuts “which aren’t likely to work very effectively.”

“It’s really a peculiar policy, I think,” he said. (Peculiar? Perhaps he meant the odor. - Jesse)

The $75 billion mortgage relief program, meanwhile, doesn’t do enough to help Americans who can’t afford to make their monthly payments, he said. It doesn’t reduce principal, doesn’t make changes in bankruptcy law that would help people work out debts, and doesn’t change the incentive to simply stop making payments once a mortgage is greater than the value of a house.

Stiglitz said the Fed, while it’s done almost all it can to bring the country back from the worst recession since 1982, can’t revive the economy on its own.

Relying on low interest rates to help put a floor under housing prices is a variation on the policies that created the housing bubble in the first place, Stiglitz said. (You got that right Joe - Jesse)

Recreating Bubble

“This is a strategy trying to recreate that bubble,” he said. “That’s not likely to provide a long-run solution. It’s a solution that says let’s kick the can down the road a little bit.” (They have been kicking this cow pie down the road for so long we're almost at the edge of the world - Jesse)

While the strategy might put a floor under housing prices, it won’t do anything to speed the recovery, he said. “It’s a recipe for Japanese-style malaise.”

Even with rates low, banks may not lend because they remain wary of market or borrower risk, and in the current environment “there’s still a lot of risk.” That’s why even with all of the programs the Fed and the administration have opened, lending is still very limited, Stiglitz said.

“They haven’t thought enough about the determinants of the flow of credit and lending.”