Geithner Delays TARP II Speech

A closer look at this brings an obvious solution to the shortcomings in the Stimulus compromise to the fore. Read the story Geithner Delays Bank-Rescue Speech to Keep Focus on Stimulus by Catherine Dodge and Greg Stohr. It is very revealing.

"Feb. 8 (Bloomberg) -- Treasury Secretary Timothy Geithner postponed his unveiling of the administration's plan to shore up the financial industry as officials focus on getting approval for their separate economic stimulus plan in the Senate."

Geithner Delays Bank-Rescue Speech (continued)

"The Senate votes on Monday, and economic officials administration-wide will be working and consulting with senators throughout the day," the Treasury said in an e-mailed statement in Washington today. "Secretary Geithner will postpone the release of the administration's Financial Stability and Recovery Plan until Tuesday to allow for that to happen."

--SNIP--

"There's a desire to keep the focus right now on the economic recovery program, which is so very, very important," Lawrence Summers, director of the National Economic Council, said on ABC's "This Week" program today. "If there was ever a moment to transcend politics, this is that moment," he said.

--SNIP--

Increasing Credit

Summers said Geithner's proposal will stabilize the banking system and increase the flow of credit.

"The focus is going to be on increasing the flow of credit and doing it with transparency, with accountability for those who receive support, and with a kind of consistency that, frankly, we haven't seen so far," he said. "There will be support for banks so that they remain stable, and are in a position to lend."

The T.A.R.P. II program, from all first blushes (since we haven't seen it yet) sucks. In fact, it more than sucks...it's an offense to virtually all Democratic sensibilities everywhere.

The truth is, like T.A.R.P. I, it's another toothless piece of crap supported by the "anything-but-nationalization-of-our-banks" crowd, and it is the definition of insanity--at least Albert Einstein's definition of it: 'Insanity is repeating the same action and expecting a different result.'

Based upon recent reports of what's going to be contained in the program, originally set for introduction to Congress tomorrow, there are loopholes in it through which practically anyone could drive a Mack truck, sending it back into that special interest ditch (from where it originated and into which the financial services industry drove T.A.R.P. I) otherwise known as a bottomless pit of unaccounted-for, supposed salvation for an unbridled lending industry gone-wild, where nobody--Dems and Republicans alike--seems to be able to get a saddle on it, even now.

The primary reason, IMHO, that T.A.R.P. II really sucks? It's based upon the false notion that many of our major bank's balance sheets are honest. They're not! One need not look any further than Jonathan Weil's commentary from Bloomberg from this past Thursday, February 5th: Citigroup Hides Mystery Meat In Balance Sheet. I diaried about this, indicating that up to 55% of Citi's shareholder equity may be comprised of fiction, per Weil's comments regarding same.

The Wall Street Journal, of all sources, in an earlier version of the T.A.R.P. II story, early yesterday morning, spilled the following telltale beans (if you read between the lines, where I've highlighted some interesting words in the piece, too): Bailout Talks Turn to More Equity Stakes.

February 6, 2009 Wall Street Journal

Bailout Talks Turn to More Equity Stakes
by Deborah Solomon w/Jon Hilsenrath Contributing

WASHINGTON --

...The discussions are still fluid and much could change. But efforts to create a so-called bad bank to purchase distressed assets and to insure other assets against future losses appear less central to the administration's thinking...

--SNIP--

The evolving discussions reflect the difficulties facing the Obama administration as it endeavors to come up with a new look for the maligned financial bailout. It wants to create a comprehensive plan that appears different from the one crafted by the Bush Treasury, but is running into many of the same thorny questions encountered by former Treasury Secretary Henry Paulson, such as how to value the bad assets owned by banks.

The administration has also been wrestling with how to help resolve the financial crisis while not appearing to bail out banks at the expense of taxpayers. The administration has been trying to find the balance by crafting programs that use taxpayer dollars but on terms that don't make it seem like a giveaway, including the executive-pay curbs announced this week. At the same time, in order to revive the financial system, the administration needs to create a program that encourages banks to participate.

That tension has been one of the complicating factors in creating a so-called bad bank to buy up toxic assets from financial institutions. To help banks the U.S. needs to pay a high enough price for the assets. But lawmakers are already angry about accusations that Treasury overpaid for assets and the Obama administration wants to avoid being seen as bailing out banks at the expense of taxpayers. If the government pay too little, banks would have to take further losses.

--SNIP--

Fed and Treasury officials have said since announcing the TALF program in November that it could be expanded to include other asset classes.

--SNIP

A report issued by the Treasury Department's inspector general Thursday warned the TALF program was potentially vulnerable to private-sector fraud unless it included tough safeguards.

Yes, we have Geithner and Summers putting broad swaths of lipstick on the ugliest of pigs: "Cash for Trash."

That Treasury Department inspector general not only warned that "the TALF program was potentially vulnerable to private-sector fraud," (talk about understatements of the year) she explained how T.A.R.P. I was, in reality, a $78 billion giveaway to banks, who received $78 billion more than the market value of the assets that the Treasury Department purchased from them for that...crap! 30% of the funds, pissed away... a giveaway to Wall Street of the most blatant kind. Here's the ugly detail from Time Magazine: TARP Oversight Report.

So, using a Bloomberg piece from yesterday to describe the latest iteration of the T.A.R.P. program, that was originally set to be announced by Geithner on Monday: "U.S. Weighs New Tests of Banks' Health, Fed May Expand Program."

"U.S. Weighs New Tests of Banks' Health, Fed May Expand Program
By Dawn Kopecki and Rebecca Christie

"Feb. 6 (Bloomberg) -- The Obama administration is considering subjecting banks to a new test to determine whether they have enough capital as part of the rescue plan to be unveiled by Treasury Secretary Timothy Geithner next week, people familiar with the matter said."

Exactly how can the government do anything if the financial services numbers are not to be believed? (If you read this entire article, you'll see that someone else doesn't believe these banks' balance sheets, either!)

The article continues:

The Treasury may increase its stake in lenders that are judged short of capital, the people said on condition of anonymity. Should extra taxpayer funds result in a majority ownership by the government, officials would then decide whether to liquidate the institutions, place them into receivership or retire the companies' assets over time, they said.

This paragraph, above, represents a tunnel-sized hole through which our government and the financial services sector could drive a fleet of trucks. We obtain the toxic assets. And, then we "...retire the companies' assets over time."

Lovely. So, let me get this right. Taxpayers could be on the hook for this money for....a decade? Sounds like "cash for trash" to me!

And, make no mistake about it, "The Bad Bank" isn't going away anytime soon. It'll just be lower-key, and maybe they'll call it something else, or place it under the auspices of another agency...like the F.D.I.C. Yeah! (Just read my highlighted words in the Wall Street Journal article, up above.) That's the ticket...as the Bloomberg story explains another option on the table now:

Still on the table are efforts to deal with the toxic assets clogging banks' balance sheets. The options include government guarantees and the creation of a so-called bad bank, possibly financed by the sale of debt backed by the Federal Deposit Insurance Corp.

"A lesson from past experience with banking crises around the globe is that the removal of bad assets from bank balance sheets, along with the injection of new capital, is needed to restore health to the banking system," San Francisco Fed President Janet Yellen said in a speech today.
--SNIP--
"They need to get credit flowing again," said Kenneth Rogoff, a professor at Harvard University and a former chief economist at the International Monetary Fund. "To do that they need to clear the decks somehow. The financial system is just dead in the water."

I say let's bury the dead! Or, if we bring them back to life, it should be on our terms, not theirs.

Officials have for weeks talked about how to overhaul the four-month-old $700 billion financial-rescue program, which Congress has criticized for failing so far to restart lending to consumers and businesses.

--SNIP--

Still, addressing the deteriorating investments is critical to repair the financial system and allow lenders to begin extending credit again, economists say.

Yellen, who served as White House Council of Economic Advisers chairman in the Clinton administration, warned that "as long as hard-to-value, troubled assets clog their balance sheets, banks find it difficult to attract private capital and to focus on new lending."

Sounds a bit like blackmail to me, IMHO. But they're in no position to bargain with us, now are they?

Either the banks that are teetering on the edge of oblivion (I was going to say: "insolvency," but they've been insolvent for a dog's age already...you know who I'm talking about: Bank of America, Citigroup, et al), are forced to accept TARP funds at mark-to-market rates and writedown their losses, accordingly--not blow them off on the taxpayer--or we shut them down and get on with business that represents the best interests of....the taxpayer!

You remember them right? That's YOU!

But, I keep coming back to that $80+ billion in social spending and infrastructure programs that the compromise folks "worked out" (i.e.: compromised out of the Stimulus bill) for us, which, basically, eviscerated state-related assistance in the Stimulus bill which may be passed tomorrow, with all of its flaws, instead.

We could get that money from the $78 billion the banks just ran off with in T.A.R.P. I.

So, it's no wonder that Treasury Secretary Geithner is holding off on his announcement about T.A.R.P. II, originally slated for Monday. Because any conversation regarding that will include discussion of the totally blown $78 billion (30% of all funds spent to date), as well....and that's almost precisely the amount of the truly important funding that's been compromised out of the Stimulus bill, which may be up for a vote as early as tomorrow, too.

So, if we don't get that $78 billion back from the banks out of the T.A.R.P. I funds, let's just minus that amount from whatever they agree to hand over to Wall Street in T.A.R.P. II.

Now that's what I call responsible budgeting! What do you think?

By of bobswern's diary Daily Kos.