Posts Tagged ‘geithner’

Why Does Our Financial System Need Reform?

March 28, 2009

Treasury Secretary Tim Geithner and the Obama Administration are pushing for powers to regulate all aspects of the financial system.  These areas include hedge funds, private firms, and derivatives.  They also want the power to intervene with any company to make sure their collapse will not bring down the financial system.

While these ideas sound great, especially in the middle of the crisis we’re in, they are misguided attempts to intervene, when intervention is the last thing we need.  The perfect example of the need to get involved when it was not necessary was the Sarbanes-Oxley Act after the Enron case.  Everyone wanted regulation, so we strapped every publicly traded company with the huge burden of archiving every piece of data for 7 years.  However, the executives that were in charge of Enron were found guilty of fraud, and the company was bankrupted and dissolved.  The system for weeding out Enron worked, but our government felt the need to act, so they did.

In the current crisis, if we did not bail everyone out, would we need to regulate hedge funds, private equity firms, and derivatives?  Those were fringe investments to begin with, but since the Federal Reserve made credit cheap and easy to obtain, they became too large.  Warren Buffet even called the derivatives market the “financial weapons of mass destruction.”  If we let them fail and liquidate their assets, they would go back to being fringe investments only for specialty firms or the super rich people of the country.

By propping them up, we now have the need to regulate them.  By regulating them, we are acknowledging their existence as a major part of the financial system, when they should only be bit players.  Our system needs to be cleansed of these bad investment vehicles and instead we are implementing rules to legitimize them.

Also, the power to intervene with any company by the Treasury Department is setting a dangerous precedent for the future.  They want the power to take over a company and sell off assets before the company collapses.  Looking at how well the bailouts and toxic assets plans have gone, I question whether they really know what is best for our system to begin with.  Why not just let the companies go bankrupt and liquidate their assets letting the market set the prices?

Also, I question whether these reforms and protections will really help.  We all knew the derivatives market was a problem waiting to happen, and all of the financial geniuses who are now calling for regulation just sat back and watched.  The SEC had rules to prevent things like Enron from happening, but it still happened.  Madoff kept a ponzi scheme going for decades and the SEC couldn’t figure it out.  How can we expect our government to regulate when they have failed us so far?  If another bank does commit fraud or crooked accounting and it slips through the cracks, can we sue the government for their lack of oversight?

These broad government regulations just give us a false sense of security because we think the government is looking out for us.  That gives us the impression that they are watching what funds are doing, and they know that their investments are legitimate.  We fail to do our own due diligence because we think the government already has for us.  Then we will again be burned when the government fails to regulate like they promised.

We need to let the market liquidate the bad investments and let the companies that made these decisions fail.  Once that happens, we can see how widespread the problem was and if there is a need for sweeping regulations.  If anything, we need to regulate the Federal Reserve to make sure that our boom-bust economic policy comes to an end.  We can treat the symptoms (hedge funds, private equity and derivatives) only after we treat the cause of the cancer, which is the Federal Reserve.

Geithner – From Zero to Hero?

March 26, 2009

Read this glowing piece on Tim Geithner from Marketwatch.  How disgusting.

I cannot believe, in anyone’s mind, that a three day stock market rally turns this insider cronie to some sort of market guru.  He’s had almost 3 months in office, and so far has come up with a half baked plan that is bound to fail.

Since when is making the stock market rise the job of the Treasury Secretary anyway?

Also, the author, David Weidner goes as far to bash the free market.  Here’s an excerpt:

The power grab is likely to stick in the craw of anti-government, free-market types who rightfully worry that Uncle Sam is overstaying his visit to Wall Street.

What they need to remember is that the government is not only an unwelcome guest; it’s a reluctant traveler. Wall Street’s despair is of its own making. Had it not threatened to bring down the rest of us with it, the government might have been justified in watching Citigroup and AIG burn in the same way it’s keeping General Motors Corp. and Ford Motor Co. a contained blaze.
Geithner finally seems to understand the delicate political tightrope he must navigate to push through his rescue plans. He must be tough on bonuses. He needs to protect the taxpayer. He has to be positive. That’s why he sold the plan’s details through multiple media outlets this week — and sold them well.

This is such a crock of lies that I cannot believe a financial website like Marketwatch would publish it.  He acts like the free market is responsible for all this, when it has been the actions of the Federal Reserve that fueled the fire.

The reason we’re still even talking about toxic assets is because the government got involved and now has no other path but to keep blowing through money.  If we had let the banks fail and the toxic assets be liquidated, we would have had a deeper, sharper downturn, but we’d already be pulling our way out of it.  The actions of Geithner, and his predecessor Paulson, have just prolonged the crisis and made it worse.

Finally, there is a big reason why Wall Street loves Geithner’s plan: it takes the toxic assets off their books and shoves them on the taxpayer.  The plan is great for banks and financial firms because it gives them a no-risk, all-reward proposition.  It’s like going to Vegas with $100, but if you lose, the casino will give you all but $7 of your money back.

Mark my words, the scandal of Geithner’s plan will be that the same firms strapped with these bad investments will sell them for above their real value and then buy them back for a fraction of that.

Before we put Geithner up on a pedestal, we need to really see how his plan is going to play out.  How will the assets be valued?  Who will buy them?  How long will this plan take to implement?  A three day stock rally is no reason for a parade, and this will all just be false hopes and empty promises.

Why More Regulation Will Not Help

March 25, 2009

Treasury Secretary Tim Geithner wants to have the authority to intervene in any hedge fund or other company that is big enough to bring the banking system down.  The goal is to create oversight and regulation that will help protect us from another recession like we’re in now.

However, we are already supposed to have government agencies looking out for us, and the Supreme Court just ruled that even if they are in place, they are not responsible.

The case I am referring to is one where the Court ruled that even if there is an FDA approved label on a drug, the drug maker and patient are responsible in case something goes wrong.  I can’t remember the specifics right now, but the drug was causing potentially fatal side effects, and the Court just threw it back in the face of drugmakers.

They just passed the buck back to the drugmakers, doctors and patients.  Why then, does the FDA exist in the first place?  If they are supposed to be monitoring drugs that go out to make sure they are safe, why can they shed any sort of responsibility?

I’m sure the same thing would happen if a lawsuit was ever brought against the SEC.  The onus would end up falling on the investor and mangers to do their own due diligence.  Look at all the fraud that had to occur to create the real estate bubble.  Have they brought charges against anyone?

Why then, do we continue to believe that a regulating body will help at all?  Has government regulation proven to be effective?  And even if it works, when something goes wrong, they don’t have to bear any responsibility.

What we need is some good, old-fashioned tough medicine.  Let these banks fail.  Show them that you will not be there to stop their collapse.  If banks knew that they did not have the government as a backstop, they would make wiser decisions.  The moral hazard we have created is going to lead us to our demise as a nation.

We do not need more government regulating bodies, especially ones that have all the authority, but ultimately no responsibility.  The only proven regulator has been the free market.  Let’s let it work.

If You Can’t Dazzle Them With Brilliance…

March 25, 2009

There’s a saying, “If you can’t dazzle them with brilliance, baffle them with bullshit.”

To me, this quote best sums up Treasury Secretary Geithner’s one trillion dollar, toxic asset plan.  I haven’t read one article on the internet on any news site that can spell out the basics.  We know it is going to be a public/private partnership, and that the government is going to insure the assets if they go bust.

I also read things about five funds being established to serve as vehicles for investment.  They would take the private investment and government money to buy toxic assets.  These funds would be led by managers who Geithner selected.  These funds will undoubtedly overpay for the toxic assets, giving the financial firms a reward for their irresponsible behavior.

I don’t know if it is part of this legislation or not, but Geithner also wants the authority to intervene in the business of any non-financial institution.  Supposedly this would have allowed them to stop the AIG bonuses, but it will infringe on the rights of every business in the United States.

Of course, after Geithner announced his plan, the stock market jumped.  This is because his plan allows Wall Street firms to buy toxic assets and then have the government insure all the risk.  There is no downside for the Street.

What you don’t read anywhere, is how this plan is going to screw over the American taxpayer.  Geithner knows that if he can distract us with a small stock market rally, we’ll forget about how horrible this plan is for the country a few years from now when we see how much of that trillion dollars the government has thrown away.

This is the perfect plan for Geithner to help bail out his Wall Street and hedge fund buddies in New York (he was the head of the NY Federal Reserve, which dealt directly wiht Wall Steet), and stick the bill on the taxpayer.  His plan was just smokescreen for a huge transfer of wealth from the taxpayer to a small group of financial institutions.  We need to see through it, and call him on this bullshit.

All in the Name of Financial Stability

March 24, 2009

So far, we’ve approved a $750 billion bailout package, a $800 billion stimulus package, and set aside $750 billion for more bailouts.  Also, the Federal Reserve has expanded its balance sheet by over a trillion dollars of printed money, and the FDIC has changed its rules to insure hundreds of billions more than before.

All of this has been done in the name of “Financial Stability,” but the economy has been anything but stable since the Federal Government started getting involved.  They keep talking about the disaster that will happen if they don’t intervene.  Do they not realize we are in the worst recession since the Great Depression?  Their constant meddling and half-baked plans have prolonged the recession and could lead to the demise of our economy.

Now, we have Treasury Secretary Tim Geithner announcing some new plan where the government will form a public/private partnership with investors to buy $1 trillion in bad debts from banks.  Supposedly, for every $100 in bad loans, the government will put in $7, a private investor will put in $7, and the FDIC will provide insurance or loans for the other $86.

The big problem is that we still have not set a price for these securities, and that will be a big factor in how this plays out.  If we they are bought at an inflated price, the government and the taxpayers will definitely be footing the bill.  Geithner has crafted this plan exactly how his Wall Street and hedge fund buddies want – no risk for them and unlimited risk for the taxpayer.

Today, Geithner also plans to ask Congress for new powers, allowing the Treasury to intervene in “troubled” businesses early on, restructure them and sell assets, all in the name of “financial stability.”  Who knows what “troubled” means?  Does it mean their favorite firms?  Does it mean letting their old competitors fail?  Will the books of every company be open to the Fed to review whenever they want?  This is a dangerous power grab by the Executive Branch, and Congress, led by blowhard airheads Pelosi and Reid, is sure to just roll over.

Geithner’s partner in crime, Fed Chairman Ben Bernanke is also calling for more regulation to prevent excessive bonuses and to prevent another recession, in the name of “financial stability.”  Why must we always place regulations after the fact?  Just like after the Enron debacle, we created Sarbanes-Oxley, which put an enormous burden on US companies, and made a few big software companies a ton of money.

There are already ways to discourage the kind of behavior that led to the crisis we’re in.  They’re called bankruptcy and fraud.  If we let firms fail, businesses in the future will know they cannot take excessive risks and invest in all sorts of complicated investments.  If we let them fail, then the government can get involved cleaning up the mess, not trying to prop up and save a sinking ship.  The bankruptcy system works!  It allows us to get rid of debt that will not be repaid and cleanses the system of all of these “toxic assets.”

Also, we need to charge all of these executives of big banks, ratings agencies, and hedge funds for fraud.  How did all of these subprime loans end up rated AAA?  How did all of these complex derivatives get sold and rated?  Because all of the players were in bed together.  We hear Obama talk all the time about how greed got us here, and that’s true.  Some of this greed was illegal, and we need to bring those to justice, not punish the taxpayers!

If we keep going about the bailouts the way we are now, we will keep throwing our money away.  We’ve already wasted trillions of dollars in the name of “financial stability” and it has made our economy worse.  We need to let firms fail and bring those who were responsible for this to justice.

If we do this, firms in the future will not make these bad decisions again.  Since we are just letting everyone get away with it, though, we are creating a moral hazard where those that made bad decisions get all the help.

The path we are going down will do anything but lead to “financial stability” and the unintended consequences are going to lead to more power for the executive branch and less freedom and liberty for the American people.

It’s Impossible to Remove Toxic Assets

March 21, 2009

Information came out yesterday and today that the Obama administration is about to unveil their plan to buy up toxic assets from banks.  They plan to use up to a trillion dollars from the previous bailouts, help from the Federal Reserve and a form of a public/private partnership to accomplish this.  After the uproar over the AIG bailout and bonuses, the administration does not want to go to Congress for more money.

However, it does not matter what kind of plan the Obama team comes up with for one key reason:  Banks will not sell any of their toxic assets.  They will not sell because the second they do, they will have to revalue their assets to the market value, and that will lead to failures across the board.

They would rather sit with billions of dollars of toxic assets on their books, not try to get rid of them, and collect billions from the government.  The only way banks will sell their assets is if the government suspends the mark-to-market accounting rule.

Mark-to-market means that banks have to value assets for their market value.  This is similar to how things operate in the real world for you and I.  Previously, they could use “mark-to-model” accounting, which meant they could value their assets using a computer model to determine their value.

For example, if we bought a home for $500,000, and we want to refinance or pull out equity, the bank will look at the value of our home if we sold it, or the market value.  If it’s value has dropped to $450,000, we have to adjust our plans for the new value.

You will hear some “economists” argue that banks should not have to use mark-to-market because there is no market right now and prices are artificially depressed.  There is a market right now, it’s just that no one will price assets that low because it will trigger all the other banks having to write down their assets.

If the value of these assets was artificially depressed, people should be buying them because their true value is really higher.  Just because it involves millions of dollars and the banking industry does not mean that the rules should be different.

If we suspend mark-to-market it will only lead to inflated prices for worthless assets.  Then the government will buy them and lose all their money and the losses will be stuck on the American taxpayer.  Sounds like a great idea to me.

There is a very simple alternative to all the bailouts and failed schemes – let the banks fail and let the bad debt be liquidated.  Only one politician has been a proponent of this, Ron Paul, and only a small handful of economists have called for this alternative.  It is amazing how the debate is limited to how many billions we should give away and how mad we should get for less than 1% of those billions being handed out in bonuses.

If you talk about bank failures, you are bound hear about Lehman Brothers and how disasterous that was.  I would argue though, that the Lehman failure has nothing to do with the crisis we are in.  Sure, lots of people lost money, but it was pretty orderly, proving the bankruptcy system worked.   Shareholders got wiped out, bondholders settled for 20 cents on the dollar, and the derivatives settled for about $6 billion.

Are we still talking about Lehman?  No.  Are we still talking about another firm that failed but had a government negotiated failure, Bear Sterns?  No.  The government got involved and arranged for a way to settle the debts and found a buyer.

Are will still talking about firms the government has tried to rescue through all the bailouts?  AIG?  Fannie and Freddie?  Bank of America?  Citi?  I know this is anectdotal evidence, but it seems that firms we let fail have gone by the wayside, and those that we’ve saved have just kept causing more trouble.

The point is that spending more taxpayer money and coming up with more schemes to help the banks are futile attempts to put humpty back together again.  The banks will not cooperate and liquidate their debt when they have the promise of government overpaying for worthless assets.  However, we will keep these insolvent institutions alive by giving them money to offset the writedowns on their bad debts.  It is an endless cycle with no light at the end of the tunnel.

The only way to move through this is to let the insolvent banks fail, liquidate their debts, and let the healthy or new institutions fill the void.  Until we do this, the current crisis will continue and eventually lead to the failure of the dollar and our economy as a whole.

Bank Bailout a Failure Already

February 8, 2009

New Treasury Secretary, Tim Geithner, is supposed to announce his new and improved Bank Bailout Plan on Tuesday.  Supposedly, the gist of his plan is to have private investors buy the bad assets from banks, with the US Government setting a floor for the minimum return on investment.

So, basically, the banks will be able to unload their assets on investors.  Then, when the assets prove to be worthless, the Federal Government will backstop the deals.  This results in the losses being shouldered by you and me, the American taxpayer.

First, some comments on the plan in general.  Why will someone buy these assets if the government is already setting a floor price?  Why not just buy them for that floor price amount?

Also, this plan seems to allow the Wall Street firms and big banks to get out of this unharmed.  That makes no sense.  Why do they get to unload all their bad investments, but homeowners across the country are stuck with upside down mortgages?  Wouldn’t this money be better served attacking upside down mortgages?  Those are the root of the problem.  Bailing out the banks is just treating a symptom, but not the real problem.

If you step back though, and look at this from the bigger picture, you realize that this plan is going to fail already.  There should be one goal and one goal only right now:  Liquidate the Bad Debt.  Don’t move it around, don’t artificially set a higher price for it.  Just get rid of it.

If the banks had been required to declare bankruptcy before getting government help (like was done in Sweden), we’d be on our road to recovery by now.  The pain might have been a little worse, but it would have been short lived.

Instead, we have spent the last four months throwing almost $2 trillion around, with nothing to show for it.  We might have “staved off a financial collapse,” as the pundits like to say, but who’s to say it’s still not going to happen?  The bad assets are still there, and they are getting worse!  We might have just prolonged it by four months and dug a deeper hole from which we have to get out.

Currently, the actions of the government are making a bad situation worse.  We have attacked this crisis without any sort of plan, and we have changed course too many times.  When will we learn that we are going to have to take our medicine?  Actually, the American public already has.  We are feeling this more than the elite in Washington are!  How bad do you think Geithner is feeling this when he makes enough to owe $34,000 in back taxes?  That’s a lot of people’s yearly salaries!

We have learned to deal with this recession and just want it to be over.  Instead, our leaders are trying to make themselves feel important and are trying to “save us.”  Right now, we don’t need saving.  We need the government to get out of the way and let the banks fail.  After that, the Feds and investors can step in to help rebuild our economy.  Until they let that happen, though, we’re just in for more pain, more recession, and more government failure.

More Reasons the Bailout was a Bad Idea

January 27, 2009

As if we didn’t have enough reasons to show us the TARP bailout has been an utter distaster, a few more popped up this morning that aren’t as obvious.

The first is that the headlines all read this morning that Citigroup was buying a $50 million plane with taxpayer money.  It turns out that it really ordered the plane in 2005 and that using it would cut costs for the company.  They also were financing it by selling other planes.  Now, they’ll still have to spend millions of taxpayer dollars cancelling the order.

This is exactly the kind of double standard that is set up by the bailouts.  You can’t spend any money to improve your business because if you do, you are wasting money.  I’m not sure how much efficiency this plane would gain Citi, but $50 million is only .014% of the $350 billion they can’t find.

So now, in the eyes of the public, the reason we can’t find the bailout money is because of wasteful companies buying private jets.  This is the scapegoat the new administration needs so they can place the blame on the companies,  not the failed policies the new Treasury Secretary promoted.

This leads us to another example of the failure of the bailout.  This morning, Tim Geithner, the new Treasury Secretary mentioned above, placed new rules against lobbying for TARP funds.

Wasn’t it just a few months ago that the Treasury basically forced the largest banks in the nation to take the TARP funds?  If they did not want them, why would they lobby for them?  Maybe Geithner’s new rules prevent the banks from lobbying against getting government money.  You will have to take it, no questions asked.

Again, a great example of the new administration showing how they’re cracking down on lobbying and adding transparency (that was said with sarcasm, by the way).  This is just political grandstanding and fooling the public into thinking real “change” is happening.

These lobbying rules will also have no effect on the lobbying efforts that are going on for the new stimulus package though.  That one has politicians and lobbyists lined up, trying to get money for any projects within their districts.

Also, these rules have the unintended consequence of encouraging closed door, secret meetings like the one Bank of America had with the Treasury.  By outlawing lobbying, the banks will go to more secretive and shadier tactics.  

The whole idea of bailouts and the TARP were horrible from the start.  The House had it right the first time, when they voted against it.  Now we are living in a world where we, the people, have to just live with this garbage day after day.  

A President who really promotes change would have assessed the situation with unbiased eyes, realized how the TARP is not working, and had an action plan ready to go day one.  Instead, Obama’s team is saying it will take months to get up and running and just adding more crap on top of the stinking TARP.  We need real fixes, not patch jobs on what was a horrible idea from the start.

An Honest Mistake? Puh-lease!

January 14, 2009

After finding out about all of Treasury Secretary appointee Tim Geithner’s unpaid taxes yesterday, all of these so-called tax experts are now rushing to his defense.  Read about it in the NY Times.

The experts claim that Geithner made an “honest mistake” and that many international employees make the same mistake.  So, from that, I understand there are a lot of idiots working for international companies.

Seriously, if you or I get a paycheck without ANY taxes deducted we know that we have to pay something.  We might not know the exact form, but we all know what a 1099 is and that means we are responsible for paying our taxes.

To claim that this is an honest mistake is just saying, “most people don’t get caught.”

And it’s not like this was only for one year.  This was from 2001-2004.  That’s four years worth of tax returns where Geithner AND his crappy accountant missed this.  It wasn’t for a small amount either!  Maybe $34,000 isn’t a lot of money to Geithner, but for most of us, it’s a pretty big amount.

Also, he had some of the penalties waived by the IRS!  Imagine if this had happened to you or me.  We don’t pay our taxes for 4 years and then tell them, “it was an honest mistake,” you think they’re going to say, “oh, that’s ok, we’ll waive the penalties”?

All the excuses just reek of elitism.  “Oh, it’s not that much” and “it’s just an honest mistake” and “so many INTERNATIONAL workers make the same mistake” don’t sit well with me.  The officials of our Country should be honorable and have moral values.  Instead, Geithner is already a crook.  If he had fessed up and taken responsiblity and resigned, he and Obama would still have their dignity.  Instead, it’s just another sign of how messed up our government really is.

Obama’s Picks Not Very Impressive

January 13, 2009

Today, there were Congressional hearings to question some of President-Elect Obama’s cabinet picks.  Let’s just say like Obama, these guys haven’t really lived up to the hype.

First was Steven Chu, who is supposed to head the Department of Energy.  He previously had said that he thought we should tax gas to keep it in the $4 range to encourage alternative fuels and deter us from using too much gas.  Using taxes as a deterrent almost never works, just look at cigarettes.  What we really need to do is let the markets work and stop getting in the way.  If we stopped our subsidies for the automakers and the lobbying efforts of oil, gas, and car companies, we would have developed these fuels already.  Of course, he backed off his comments.

He had also said that coal was his “worst nightmare,” but changed his tune in front of Congress, saying the result of more coal use was a just a “bad dream.”  We have such abundant coal reserves, that we need to focus on clean coal technology and ways to convert coal to fuel.  We have been so strapped to the oil companies for so long, that we stopped any sort of innovation in other fuel sources until now.  Finally, the market is demanding innovation, and we are finally evolving.

Next up was Tim Geithner, the pick as the new Treasury Secretary.  Word comes out that he didn’t pay $30,000 in taxes on his self-employment income for almost all of the 2000’s.  Geithner did pay these right before he was nominated by Obama, but had penalties waived by the IRS.  Obama’s new Press Secretary played it off, saying that it was an “honest mistake.”  Seriously, everyone knows when you have to file a 1099.  Even the head of the New York Federal Reserve should know this!  What a joke!  At least we know this guy’s a crook before he takes office so when he screws up the economy even more, we’ll only have ourselves to blame.

His housekeeper also had her US working documents expire for the last few months she worked for him.  To me, this is a little more forgivable, since she did have her papers and they expired.  If you’re in a political position, you should probably watch for these things a little more, but this looks more like an honest mistake than not paying your taxes for years.

To me, if these are two of people who are supposed to be leaders in our country, we’re in trouble.  So much for all this “change” Obama promised.  Instead, they’re just more politicians and crooks, just like the current administration.  The worst part of all is that these guys are going to get credit for the recovery and all the new green jobs, when it all happened in spite of them.