Geithner: "We saved the financial system..."

[GRG55]

"...but lost the country doing it"

The Treasury Secretary seems to have finally woken up to at least one obvious reality...the Dems now "own" TARP, at least in the eyes of the voters. Too bad they are still in deep denial about its costs and validity...

From the FT:

Democrats concede Tarp is no vote winner

By Tom Braithwaite in Washington
Published: October 3 2010 20:02 | Last updated: October 3 2010 20:52

Swaying in front of the television cameras, a pale Tim Geithner announced the next phase of the US financial rescue effort. Critics and investors deemed the Treasury secretary’s performance unsettling and his plan half-baked.

That was February 2009. Last week, a much more self-assured Mr Geithner declared the programme of capital investments into banks, stress tests on their balance sheets and liquidity-boosting schemes by the US Federal Reserve had been perhaps the most cost-effective financial crisis response ever...

...Mr Geithner now says that the troubled asset relief programme should cost less than $50bn out of an original $700bn.

Lee Sachs, a former senior Treasury official who orchestrated the second part of the rescue, is more bullish still. “As a financial matter, is the result better than expected back in the depths of the crisis? Absolutely,” he says. “I think the taxpayer at the end of the day will break even and may do better.”...

[seanm123]

Re: Geithner: "We saved the financial system..."

TARP was perhaps the greatest bait and switch of all time. The Bill was signed into law by U.S. President George W Bush on October 3, 2008 and was baited and sold to the public and Congress as a plan designed to buy up subprime mortgages.

Only a short time later on Oct 14th the US Treasury makes the greatest switch of all time. Switching sub-prime mortgages for Preferred Stock in Financial Companies!

"Today the Treasury Department's plan for the Troubled Asset Relief Program (TARP) under the Emergency Economic Stabilization Act (EESA) was taken in a drastic new direction that was not even near the forefront of discussion when the bill was passed. Utilizing the catch-all definition of "troubled assets" under Section 3(9)(b) of the EESA, which permits the Treasury Secretary to buy "any other financial instrument that the Secretary after consultation with the Chairman [of the Federal Reserve] determines the purchase of which is necessary to promote financial market stability," Secretary Paulson announced today (here and here) that the first $250 billion of TARP money will be used to purchase preferred stock in U.S. Banks."

I wonder if the History books will even reflect this program as a bait and switch?

[sunskyfan]

Re: Geithner: "We saved the financial system..."

What is amazing is that these guys don't even get that when they say that TARP may make the tax payers money is the damage TARP itself has done to the entire economy and culture in the long run. Moral Hazard is the definition now of how we do business. Does your stomach turn when you think of Wall Street? Well, now it should turn when you think of main street. Congratulations boys.

And ...

Yes, it was a bait and switch. The whole thing was BS. Save the financial system? Give me a break. What is amazing to me is you have a huge herd of people who think 911 was an inside job due to insider trading, we traced the flash crash to a fly farting at a Kansas trading firm, and yet nobody questions the veracity of the government/wall street narrative on September 2008 including TARP.

[Slimprofits]

Re: Geithner: "We saved the financial system..."

and yet nobody questions the veracity of the government/wall street narrative on September 2008 including TARP

hyperbole

[sunskyfan]

Re: Geithner: "We saved the financial system..."

Hyperbole? Really, where is the investigation? Where is the "Tom Keene 911" like investigative committee? Where is the "Warren Commission" like report? Where are the "Iran Contra" like hearings?

[ASH]

Re: Geithner: "We saved the financial system..."

I wonder if the History books will even reflect this program as a bait and switch?

It was a bait-and-switch in the best interests of the tax-payer. Their first plan was to buy bad assets like MBS with the TARP funds, which would have been an unmitigated disaster. Same deal with PPIP (a proposed application of TARP funds)... which we don't hear about anymore. Instead, they got efficient: the Federal Reserve monetized a much bigger chunk of MBS (QE1) so the Treasury didn't have to buy the MBS, and they relaxed mark-to-market rules, solving most of the capitalization problem immediately, and reducing the size of the necessary intervention. Then the TARP funds were spent on the remaining (reduced) set of problems that couldn't be either delayed, or printed away.

Now the Fed has to worry about getting the MBS off its balance sheet, but since the money to buy the MBS was printed, no one is really hurting. Imagine if the Treasury had borrowed $700B to buy MBS, and was sitting on that instead of its smaller position in shares.

[Slimprofits]

Re: Geithner: "We saved the financial system..."

Hyperbole? Really, where is the investigation? Where is the "Tom Keene 911" like investigative committee? Where is the "Warren Commission" like report? Where are the "Iran Contra" like hearings?

My mistake. I thought you were talking about regular folks, not the FedGov.

[thriftyandboringinohio]

Re: Geithner: "We saved the financial system..."

...and they relaxed mark-to-market rules, solving most of the capitalization problem immediately....

I'm not sure that action solved that problem; it just created an official policy to continue ignoring it.

[ASH]

Re: Geithner: "We saved the financial system..."

I'm not sure that action solved that problem; it just created an official policy to continue ignoring it.

I should have qualified my words. "Solving the immediate capitalization problem... immediately."

As I see it, we traded an abrupt collapse of a lot of big banks for a drawn-out period of balance sheet repair. Yes, there is still a problem -- and the regulatory policy was indeed to ignore the market price of a bunch of bad assets -- but if the losses the banks will eventually take on those assets is spread out over a long enough period of time, the banks won't fail. The way I see it, an acute and terminal problem was converted into a chronic and manageable problem.

[c1ue]

Re: Geithner: "We saved the financial system..."

The way I see it, an acute and terminal problem was converted into a chronic and manageable problem.

Perhaps you might elucidate which problem was converted into which problem in this statement?

From my view, we converted an opportunity (Definancialize the government and economy, remove TBTF leeches on the system, spend some money and mind share on PC economic stuff) into a problem (permanent FIRE TBTF leeches on the system)

[ASH]

Re: Geithner: "We saved the financial system..."

Perhaps you might elucidate which problem was converted into which problem in this statement?

From my view, we converted an opportunity (Definancialize the government and economy, remove TBTF leeches on the system, spend some money and mind share on PC economic stuff) into a problem (permanent FIRE TBTF leeches on the system)

Ah yes -- I'm specifically writing from the "mainstream" perspective of the authorities and FIRE industry, whose interest it is (and was) to keep "the system" going. Generally speaking, bureaucrats aren't meant to be revolutionaries. So from a bureaucrat's standpoint, it was a given that their job was to keep the existing system going, rather than taking the opportunity for root-and-branch reform of the system. I'm just saying that the way they ended up keeping the system going was a lot better for the tax-payer than their initial plan.

As I've commented elsewhere, it would have been better to let FIRE burn itself to the ground, and then build something more in the public interest from the ashes. But those aren't the instructions the bureaucrats got.

[sunskyfan]

Re: Geithner: "We saved the financial system..."

No worries. But, most regular folks accept the official reality given to them by the government. Agreed, there are a lot out there who get that what happened was basically wrong. I guess not a critical mass though .

[sunskyfan]

Re: Geithner: "We saved the financial system..."

Sorry Ash. I think the story that the problem was terminal and was going to cause an economic "collapse" was fear mongering by the folks who manipulated the system to cover their ass and/or gain more wealth. Yes, their world was going to collapse but not mine nor was most of the US or world or Mar's economy for that matter. We are still left with leverage driven by bay-boomer expectations of pensions, retirements, and health care that can't be supported. No truth or discovery has emerged from Sept 2008 just fatalism bleeding from the moral hazard wound that it caused.

[ASH]

Re: Geithner: "We saved the financial system..."

Sorry Ash. I think the story that the problem was terminal and was going to cause an economic "collapse" was fear mongering by the folks who manipulated the system to cover their ass and/or gain more wealth. Yes, their world was going to collapse but not mine nor was most of the US or world or Mar's economy for that matter. We are still left with leverage driven by bay-boomer expectations of pensions, retirements, and health care that can't be supported. No truth or discovery has emerged from Sept 2008 just fatalism bleeding from the moral hazard wound that it caused.

No argument here. I guess I was unclear. See my response to c1ue. "Terminal" is a reference to specific individual banks -- not some grand statement about TEOTWAWKI.

I seem to be confusing people today by trying to make a couple of narrow points, rather than big picture pronouncements.

1. The financial authorities are bureaucrats who are charged with maintaining and preserving the status quo. The decision to let the sucker burn to the ground, and build something better in its place, is something for elected leaders -- not their technocratic servants.

2. Neither the vested interests of the FIRE industry, nor the existing power structure, wanted a lot of financial institutions to suddenly fail. Therefore, the response to the crisis was always framed in terms of "how do we prevent these institutions from failing?" -- not "how do we remake the system to better serve the public interest?".

3. Given that the financial authorities were trying to prevent a lot of banks from failing all at once, the way they first went about things was going to be worse for the American tax-payer than what it eventually morphed into.

[ThePythonicCow]

Re: Geithner: "We saved the financial system..."

rather than taking the opportunity for root-and-branch reform of the system.

root-and-branch hell ... I'd like to see some serious strip mining, the kind the levels entire mountains <grin>.