Tag Archives: Timothy Geithner

Is 9% Unemployment the New Norm?

28 Wednesday Jul 2010

Posted by in economy, Obama, Obama administration, Politics, Unemployment

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Considering this:

“Nearly half of the unemployed—45.9%—have been out of work longer than six months, more than at any time since the Labor Department began keeping track in 1948…Overall, seven million Americans have been looking for work for 27 weeks or more, and most of them—4.7 million—have been out of work for a year or more.”

And this:


How do you get to this?:

“Treasury Secretary Timothy Geithner said the economy has now recovered sufficiently for government to begin to make way for private business investment.

Mr. Geithner’s comments on Sunday, which echo previous sentiments expressed by President Barack Obama, reflect a turning point in the government response to the worst economic downturn since the Great Depression, a period marked by deep federal intervention in the financial, housing, auto and other industries.

“We need to make that transition now to a recovery led by private investment,” Mr. Geithner said Sunday on NBC’s “Meet the Press.”

Led by private investment? Corporations are sitting on nearly $2 trillion of profits now and unemployment is still hovering around 10%. Just when is this private investment going to kick in and start hiring?

“A survey last month of more than 1,000 chief financial officers by Duke University and CFO magazine showed that nearly 60 percent of those executives don’t expect to bring their employment back to pre-recession levels until 2012 or later — even though they’re projecting a 12 percent rise in earnings and a 9 percent boost in capital spending over the next year.”

“2012 or later” huh? Something else significant is scheduled for 2012, isn’t it? Conspicuously convenient timing for the unemployment picture to start improving if you ask me.

Why aren’t corporations hiring now? The Chamber of Commerce claims it’s because of the “onerous regulations” being placed on them by the Obama administration. Now if one had a conspiratorial mind one might think that big business wants to keep the unemployment numbers high through 2012 so that they get a Republican Congress this year to be followed by a Republican president in 2012 who would cancel all those “onerous regulations.” One might think that, and one would be right, in my opinion.

Sadly, the administration seems to be willing to accept 9% or higher as the new norm:

“The White House said Friday it expects that unemployment will stay at or above 9% until 2012, but at the same time forecast that the economy will grow by at least 4% in 2011 and 2012.”

To whom it may concern at the White House:

If you seriously think that the economy has “recovered sufficiently” so that the government can get out of the way and let private investment take over on job creation; if you’re willing to accept unemployment at 9% or above through 2012; schedule the moving vans for the morning of January 20, 2013.

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Why Tim Geithner Opposes Elizabeth Warren as Head of the CFPB

20 Tuesday Jul 2010

Posted by in bailout, economy, financial reform, financial regulation, Obama administration, Politics, too big to fail, Wall Street

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Elizabeth Warren should be a no-brainer as President Obama’s choice to head the newly-created Consumer Financial Protection Bureau (CFPB). She is a long-time advocate for the rights of consumers, the person most responsible for the Bureau’s inclusion in the recently-passed financial reform legislation, and its most notable and vocal supporter. She has this crazy notion that a consumer protection agency should actually…you know…protect consumers against the abusive practices of the big banks.

As chair of the TARP oversight committee Warren regularly clashed with what those banks consider to be in their best interests, as well as those in the administration who make a habit of carrying the banker’s water, namely Treasury Secretary Timothy Geithner. Which is why it wasn’t surprising when Huffington Post reported last week that Geithner opposed Warren’s nomination.

Then came this, a piece by John Talbott (also in the Huffington Post) on Sunday. The reason for the treasury secretary’s opposition:

“The [financial reform] bill has been written to put a great deal of power as to how strongly it is implemented in the hands of its regulators, some of which remain to be chosen. The bank lobby will work incredibly hard to see that Warren, the person most responsible for initiating and fighting for the idea of a consumer financial protection group, is denied the opportunity to head it.

But this is not the only reason that Geithner is opposed to Warren’s nomination. I believe Geithner sees the appointment of Elizabeth Warren as a threat to the very scheme he has utilized to date to hide bank losses, thus keeping the banks solvent and out of bankruptcy court and their existing management teams employed and well-paid.”

The “scheme” to which Talbott refers began with Geithner’s predecessor as Treasury Secretary, Hank Paulson, and is being continued by Geithner and his partner in crime in the Obama administration, Larry Summers. In short it goes like this:

The $700 billion in TARP money was originally supposed to go to get bad loans, the so-called toxic assets, of the bank’s books. Immediately after TARP was passed, Paulson did a 180 and decided to use it as a direct cash infusion into the big banks rather than buying bad loans. (Nothing to do with him being a former Goldman CEO, I’m sure).

That left the banks with trillions of dollars of toxic assets still on the books, where they remain today. Geithner’s plan is for the banks to:

“…earn their way out of their solvency problems over time so the banks are continuing to slowly write off their problem loans but at a rate that will take years, if not decades, to clean up the problem.

And this is where defeat of the nomination of Elizabeth Warren becomes critical for Geithner. For Geithner’s strategy to work, the banks have to find increasing sources of profitability in their business segments to balance out their annual loan loss recognition from their existing bad loans in an environment in which they continue to recognize new losses in prime residential mortgages, commercial real estate lending, sovereign debt investments, bridge loans to private equity groups, leverage buyout lending and credit card defaults.

The banks have made no secret as to where they will find this increase in cash flow. They intend to soak their small retail customers, their consumer and small business borrowers, their credit card holders and their small depositors with increased costs and fees and are continuing many of the bad mortgage practices that led to the crisis

[…]

It is exactly these types of unwarranted fees on small consumers and poorly designed products that Elizabeth Warren will fight against as head of the new consumer finance protection group. And it is why Geithner sees her as so threatening. Unless the banks are allowed to raise fees and charges on their smaller consumer customers, Geithner’s and Summers’ scheme for dealing with the banking crisis by hiding problem loans permanently on the banks’ balance sheets will be exposed for what it is, an attempt at preserving the jobs of current bank executives at the cost of dragging out this recovery needlessly for years in the future.”

After much thought and careful consideration (which took about 1.5 seconds) I have a suggestion for how President Obama can resolve this conflict. Warren’s in, Geithner’s out. Problem solved.

The Geithner Solution to Regulatory Failure: More Authority for Regulators

08 Saturday May 2010

Posted by in bailout, economy, Financial Crisis, Politics, too big to fail, Uncategorized, Wall Street

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Sure, federal regulators (like the former head of the New York Federal Reserve pictured at left) were inept, incompetent, and inadequate when it came to their ability to first foresee and then to take proper pre-emptive action based on all the red flags that were waving leading up to the financial crisis.

Sure, they may have overlooked the dangers of subprime mortgages, of major financial institutions being leveraged 30 to 1, and of those financial institutions becoming so interconnected through the packaging, re-packaging, and re-re-packaging of toxic securities and selling them back and forth that the failure of one could lead to the failure of all.

Hey, just minor oversights. No need to think they don’t deserve to keep their jobs, or better yet, be given more authority. Treasury Secretary Geithner seems to think so:

“During an appearance on Capitol Hill, Geithner acknowledged failures in the Federal Reserve Bank of New York’s supervision of Citigroup and other large banks, said regulators were “not conservative enough” when it came to overseeing banks’ leverage ratios and criticized capital requirements as not having done a “good enough job” as a buffer against risk.

He also said that regulators like himself could have done more to prevent the worst financial crisis since the Great Depression…To ensure these kinds of failures are avoided in the future…Geithner wants to leave it up to federal regulators — the same ones that presided over the housing bubble, oversaw extreme risk-taking by banks and other financial firms, and tried (yet failed) to contain a subprime crisis from mushrooming into a financial meltdown.

[…]

In short, Geithner said he wants to give regulators more authority, leaving it up to them to exercise their best judgment.”

No thanks, Tim. We’ve seen what leaving crucial decisions up to the “best judgment” of federal regulators leads to, from Wall Street to the Gulf of Mexico.

TARP Inspector General Could Have Geithner In His Sights

29 Thursday Apr 2010

Posted by in AIG, bailout, economy, Financial Crisis, Goldman Sachs, Politics, too big to fail, Wall Street

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Timmy might have bigger problems than his inability to use Turbo Tax. Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program, or SIGTARP, is looking into filing charges in the New York Fed’s handling of the AIG–Goldman Sachs monkey business. From Bloomberg:

“The TARP watchdog has…criticized Treasury Secretary Timothy F. Geithner in reports and in congressional testimony for his handling of the process by which insurance giant American International Group Inc. was saved from insolvency in 2008, when Geithner was head of the Federal Reserve Bank of New York.

The secrecy that enveloped the deal was unwarranted, Barofsky says, adding that his probe of an alleged New York Fed coverup in the AIG case could result in criminal or civil charges.

In Senate Finance Committee testimony on April 20, Barofsky said SIGTARP would investigate seven AIG-linked mortgage-related securities similar to Abacus 2007-AC1, the instrument underwritten by Goldman Sachs Group Inc. that is at the center of a U.S. Securities and Exchange Commission lawsuit filed against the investment bank on April 16. “

All I want for Christmas (or Memorial Day, or the 4th of July, or Labor Day, or…) is a REAL Treasury Secretary, not a Wall Street lackey who is susceptible to whiplash every time Jamie Dimon or Lloyd Blankfein make a sudden move. Barofsky, make my wish come true.

Financial Crisis Round-Up

04 Sunday Apr 2010

Posted by in bailout, economy, Financial Crisis, financial reform, financial regulation, Politics, too big to fail, Wall Street

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The constraints of time, due in large part to my newly-arrived copy of 13 Bankers, doesn’t allow extensive commentary on any of these posts from around the financial blogosphere, but all are deserving of a closer look:

Speaking of 13 Bankers, co-author Simon Johnson has a piece at Baseline Scenario on how a combination of political savvy and public relations acumen make JPMorgan Chase CEO Jamie Dimon “The Most Dangerous Man in America.”

Mike Whitney’s “Timothy Geithner is a Sniveling Scamster” at The Market Oracle describes how President Obama’s new mortgage modification program is “just another stealth bailout” for the banksters.

Tyler Durden at Zero Hedge comments on  Kansas City Fed President Thomas Hoenig’s extensive interview with Shahien Narisirpour of the Huffington Post.

Robert Reich’s “The Fed in Hot Water” on the belated admission of its taking tens of millions of bad loans off Bear Stearn’s books in order to facilitate their takeover by JPMorgan Chase.

Susan P. Koniak, George M. Cohen, David A. Dana and Thomas Ross in a New York Times op-ed entitled “How Washington Abetted the Bank Job” on the D.C buck-passing in regards to the regulators who were either incompetent or complicit (I choose the latter) in the Lehman Brothers Enron-like bookkeeping scam.

Speaking of inept, incompetent, or complicit so-called regulators, a McClatchy article asks, “Where was Moody’s board when top-rated bonds blew up?”

Herbert Lash at Reuters on the “Wall Street cabal” blocking derivative reform.

Finally, Rick Berman at Politico on the “Debt Disaster Dead Ahead.”

Another Kabuki Dance on Consumer Financial Protection Agency

07 Sunday Mar 2010

Posted by in Congress, Democrats, Financial Crisis, financial regulation, lobbyists, Obama, Politics, special interests, Wall Street

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If there’s anything transparent in this administration of “openness and transparency” it’s the way the well-rehearsed and often-repeated three-act Kabuki theater plays out their alleged attempts at any major reform on any particular issue. It’s as easy to see through as a pane of glass and as easy to see coming as a freight train. Here’s how it goes, again and again:

Act I.  The president professes to want (but doesn’t actually want) real reform on a given issue. The House passes a bill containing real reform. The Senate at first seems to embrace it, but then claims ‘woe is us, we can’t pass it without Republican votes.’

Act II. The legislation is watered-down in search of bi-partisan support that the administration and the Senate leadership knows they aren’t going to get in spite of the watering-down.

Act III. What started out as “reform” becomes so weakened as to be of no real affect. Thus, the original goal of the president and his former colleagues and current accomplices in the Senate is achieved–give the appearance of doing something while actually doing nothing.

The latest example is on the creation of the Consumer Financial Protection Agency. In July of last year:

“The Obama administration…proposed legislation for a financial oversight agency designed to protect consumers and investors from unscrupulous deals…The White House sent Congress a 152-page draft bill to create the Consumer Financial Protection Agency, which it says would offer greater consumer protections for such financial products as mortgages, credit cards and loans by establishing simpler and more transparent rules and regulations.

“Consumer protection will have an independent seat at the table in our financial regulatory system,” Treasury Secretary Timothy F. Geithner said.”

At the time, Senate Banking Committee chairman Chris Dodd “called the administration’s bill a “bold and aggressive plan” to defend against a future financial crisis.”

In December the House passed a sweeping financial reform bill which contained an independent consumer protection agency.

Fast forward to Thursday of last week:

“Creating a powerful and independent consumer agency, which is strongly opposed by the financial industry and Republicans, has been the major roadblock in drafting a bill that could pass in the Senate…Dodd has been searching for months for a bipartisan compromise, a move made more urgent after a Republican, Scott Brown, won the special Massachusetts Senate election in January, giving the GOP enough votes to block any Democratic legislation. After negotiations with Sen. Richard C. Shelby (R-Ala.) reached an impasse, Dodd began working with Sen. Bob Corker (R-Tenn.).

The “compromise” reached by Dodd and Corker would take away the independence of the agency and instead making it an arm of the Federal Reserve. This despite the fact that Dodd himself said 4 months ago that Fed’s record on consumer protection was an “abysmal failure,” and more recently, “criticized the Fed’s previous inaction as a main reason for creating such an entity, noting that the central bank took 14 years before enacting rules in 2008 to protect consumers from unscrupulous mortgage lending.”

And where does the Obama administration come down? It appears to be the usual fence-straddling:

“Treasury Secretary Timothy F. Geithner and Valerie Jarrett, a senior White House advisor, met Wednesday with representatives from consumer, labor and other organizations that support a strong, stand-alone consumer agency and told them that “strengthening consumer protections remains a central objective of our financial reform efforts,” according to an administration official.

Although Geithner and Jarrett said they would not accept a bill unless it included a consumer agency with “real independence,” they did not specifically rule out housing it in the Fed or another agency.”

But appearances can be deceiving. With a little reading between the lines one can see what the administration really wants. Geithner is the former president of the New York Fed, Valerie Jarrett is a former member of the board of directors of the Chicago Fed. It seems to be too much of a coincidence that these were the two administration representatives to the negotiations. I would surmise that the president wants the agency in the Fed.

Why? It follows the script–giving the appearance of doing something–creating a consumer protection agency, while actually doing nothing–putting the agency inside the Fed, whose track record on enforcing any kind of regulation is, to use Sen. Dodd’s word, abysmal.

Mission accomplished. The peasants are appeased and the corporate masters are not angered. The campaign contributions continue to flow, and business as usual continues.

Rubin May Testify Before Financial Crisis Commission

27 Saturday Feb 2010

Posted by in economy, Financial Crisis, Obama, Politics, Wall Street

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One of the architects of the financial meltdown, and the Godfather of the Obama economic team, might have some ‘splainin’ to do. From Bloomberg:

“Robert Rubin, the former U.S. Treasury secretary who later advised Citigroup Inc. as the bank piled up subprime-mortgage losses, may soon face his first public grilling on the 2008 financial crisis.

The Financial Crisis Inquiry Commission investigating the worst economic slump since the Great Depression, plans to ask Rubin to testify in April, said two people with knowledge of the commission’s decisions.

Ask? How about subpoena?

“Rubin’s reputation dimmed  after the U.S. bailed out New York-based Citigroup with $45 billion and AIG had to be propped up because of losses on derivatives. When Rubin was President Bill Clinton’s Treasury secretary, he fought efforts to regulate derivatives.”

His reputation dimmed? Barack Obama didn’t get that memo:

“[Obama] named Rubin to be an economic adviser during the 2008 presidential campaign, and two Treasury protégés, Lawrence Summers and Timothy Geithner are top officials in the White House. Summers, 55, is chief economic adviser and Geithner, 48, is Treasury secretary.”

And that’s not all:

“Just below Summers is Jason Furman, who worked for Rubin in the Clinton White House and was one of the first directors of Rubin’s Hamilton Project.

And as head of the powerful Office of Management and Budget, Obama named Peter Orszag, who served as the first director of Rubin’s Hamilton Project.”

…to serve alongside Furman at the NEC [Obama hired] management consultant Diana Farrell, who worked under Rubin at Goldman Sachs. In 2003, Farrell was the author of an infamous paper in which she argued that sending American jobs overseas might be “as beneficial to the U.S. as to the destination country, probably more so.”

…Over at the Commodity Futures Trading Commission, which is supposed to regulate derivatives trading, Obama appointed Gary Gensler, a former Goldman banker who worked under Rubin in the Clinton White House. Gensler had been instrumental in helping to pass the infamous Commodity Futures Modernization Act of 2000, which prevented regulation of derivative instruments like CDOs and credit-default swaps that played such a big role in cratering the economy last year.

The "Gang of Eight" on the Senate Banking Committee

02 Tuesday Feb 2010

Posted by in Congress, Democrats, economy, Obama, Republicans, Uncategorized, Wall Street

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Since the “Gang of Six” in the Senate Finance Committee worked out so well, and produced such outstanding results (sarc) in writing health care reform legislation, why not just repeat the process in the Senate Banking Committee as they tackle reforming the financial industry? More openness and transparency from our elected officials in Washington:

“For two months, four pairs of Senate Banking Committee members — each with one Democrat and one Republican — have been meeting behind closed doors to reach a bipartisan compromise on regulatory reform.”

Here are the 8 senators involved, along with the amounts each has taken from financial industry PACs:

Chris Dodd, (D-CT) $3,124,237
Richard Shelby (R-AL) $2,171,369
Mark Warner (D-VA) $330,800
Bob Corker (R-TN) $426,750
Jack Reed (D-RI) $1,554,449
Judd Gregg (R-NH) $709,941
Chuck Schumer (D-NY) $1,629,295
Micheal Crapo (R-ID) $1,237,955

That’s a grand total of $11,184,796. And these are the people who are going to reform the financial system? That’ll be the day. But as good as things are for this new “Gang of Eight.” they’re about to get better:

“…the president’s new proposals have already provoked a sharp increase in the volume and energy of the lobbying on regulatory reform, with more chief executives stepping over their government relations staff to request personal meetings with lawmakers. The big banks, the lobbyists say, have become increasingly alarmed that the legislative process may move in unexpected directions outside their control.”

Well, we certainly have to put a stop to that. Can’t have anything going on that the banksters can’t “control,” can we? Speaking of banksters:

“...Jamie Dimon, chief executive of JPMorgan Chase had lunch with Mr. Obama last Tuesday, and then met separately on Friday with the Federal Reserve chairman Ben Bernanke and the Treasury secretary, Timothy Geithner.”

No doubt to discuss who they like in Sunday’s Super Bowl.

Geithner, Paulson, and Bernanke at the Oversight Committee Hearings

29 Friday Jan 2010

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Putting different pieces of testimony from yesterday’s hearings before the House Committee on Oversight and Government Reform, it’s easy to see how the New York Federal Reserve’s “backdoor bailout” of Goldman Sachs and other large banks, via insurance giant AIG, became such a convoluted mess–nobody knew anything about it. Least of all the people who were allegedly in charge– Larry, Moe, and Curly former Treasury Secretary Hank Paulson, Fed chairman Ben Bernanke, and then head of the New York Fed and present Treasury Secretary Timothy Geithner.

“Henry Paulson, who was Treasury secretary at the time, told the House of Representatives Oversight and Governmental Affairs Committee that he had no role in the negotiations that settled the banks’ insurance-like contracts, called credit default swaps, with AIG for 100 cents on the dollar..”

Geithner: “I had no role in making decisions regarding what to disclose about the specific financial terms.. and payments to AIG’s counterparties.” To which Rep. Dan Burton replied:

“U.S. Federal Reserve Chairman Ben Bernanke said on Wednesday he was not directly involved in negotiations with the counterparties of insurance giant AIG, having delegated the duties to the New York Fed.”

“It stretches credulity for us to believe that you had no role in this and didn’t know anything about it when your attorneys and people that worked for you were sending emails all around the place and you were the head of the Fed and you didn’t know anything about it. It just doesn’t make any sense to me and I think a lot of my colleagues feel the same way.”

One thing is clear, though. Despite the Three Stooges being completely in the dark, Government Goldman Sachs made out like bandits in the entire sordid affair. I’m sure it’s strictly coincidental that:

“Paulson is an ex-Goldman chief executive, Geithner’s chief of staff previously worked for Goldman, and Dan Jester, a Treasury point man in the AIG bailout, is a Goldman alum.”

That surely had nothing to do with this:

“An unredacted document obtained by the Huffington Post list the damage in detail. Goldman Sachs alone, for instance, got $14 billion in government money for assets worth $6 billion at the time — a de facto $8 billion subsidy, courtesy of taxpayers.”

But yet Geithner testified yesterday that, “In the end, the prices paid for the securities were their fair market value.” Fair to who, Tim?

Geithner also testified that time was of the essence in bailing out AIG, that there was no time to negotiate terms which might be more favorable to the Fed. But yet:

“Neil Barofsky, the special inspector general tracking the use of taxpayer bailout funds…disclosed this week that he’s opened investigations into the Fed’s candor about the matter, recalled that Paulson, Bernanke and Geithner leaned weeks earlier on failing investment bank Bear Stearns to accept $2 a share to turn over its assets to banking goliath J.P. Morgan Chase.”

I guess there aren’t enough Bear Stearns friends in high places.

Paul Krugman: “What Do You Mean We”?

01 Monday Dec 2008

Posted by in Election 2008, Obama, Politics, Uncategorized

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With all due respect to Timothy Geithner, Lawrence Summers, and the rest of President-elect Obama’s economic team, there is one name I would like to have seen included on that list–that of Nobel prize winning economist Paul Krugman.

Here’s why. From a Krugman op-ed piece in the New York Times recently:

“A few months ago I found myself at a meeting of economists and finance officials, discussing — what else? — the crisis. There was a lot of soul-searching going on. One senior policy maker asked, “Why didn’t we see this coming?”

There was, of course, only one thing to say in reply, so I said it: “What do you mean ‘we,’ white man?”

Seriously, though, the official had a point. Some people say that the current crisis is unprecedented, but the truth is that there were plenty of precedents, some of them of very recent vintage. Yet these precedents were ignored. And the story of how “we” failed to see this coming has a clear policy implication — namely, that financial market reform should be pressed quickly, that it shouldn’t wait until the crisis is resolved.

About those precedents: Why did so many observers dismiss the obvious signs of a housing bubble, even though the 1990s dot-com bubble was fresh in our memories?

Why did so many people insist that our financial system was “resilient,” as Alan Greenspan put it, when in 1998 the collapse of a single hedge fund, Long-Term Capital Management, temporarily paralyzed credit markets around the world?

Why did almost everyone believe in the omnipotence of the Federal Reserve when its counterpart, the Bank of Japan, spent a decade trying and failing to jump-start a stalled economy?

One answer to these questions is that nobody likes a party pooper. While the housing bubble was still inflating, lenders were making lots of money issuing mortgages to anyone who walked in the door; investment banks were making even more money repackaging those mortgages into shiny new securities; and money managers who booked big paper profits by buying those securities with borrowed funds looked like geniuses, and were paid accordingly. Who wanted to hear from dismal economists warning that the whole thing was, in effect, a giant Ponzi scheme?”

Put more succinctly by Upton Sinclair:

“It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

Mr. Krugman’s conclusion, and one I hope is heeded by the Obama administration, is that now is the time not only to focus on the short-term crisis, but to make the long-term fixes that will prevent the next one from occurring.