Geithner: TARP to End Soon
Treasury Secretary Timothy Geithner told Congress it was the administration’s intent to “end the $700 billion financial bailout program soon.”
The Associated Press quoted Geithner as suggesting that the government was “close to the point at which we can wind down this program” and end it. The “substantial resources” left in the TARP fund would be then applied towards the national debt.
But does it really matter when TARP ends?
The government, first under Bush/Paulson, now under Obama/Geithner, has set a horrific precedent. Banks, Investment houses and speculators are well aware that the Federal government stands ready to intervene when the screw ups are large enough.
That was one of the lessons of the Bailouts of Bear Stearns and Lehman Brothers. Don’t just mess up, bankers learned . . . but make sure your cock ups are so enormous as to threaten the entire economic system. The perverse moral hazard of the 2008 Bailouts is that it is very likely to encourage greater risk taking in the future, once the current era fades into distant memory.
~~~
At the same time, the Britain and the European Union governmentsseemed to find a compromise on a new financial oversight framework. A system made of three new authorities to supervise banking, insurance, and securities will be organized.
The EU will also create a “Systemic Risk Board” to look for major threats to the economy, including major bank problems and the existence of asset bubbles.
>
Sources:
Geithner Expects Bailout Program to End Soon
Associated Press, December 2, 2009
http://www.nytimes.com/2009/12/03/business/economy/03derivatives.html
Compromise With Britain Paves Way to Finance Rules in Europe
STEPHEN CASTLE
NYT, December 2, 2009
http://www.nytimes.com/2009/12/03/business/global/03eubank.html
De.li.cious
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December 3rd, 2009 at 6:53 am
The systemic risk panel also coincides with the end of Britain’s model of relatively light regulation — a sentiment increased by the appointment of a Frenchman, Michel Barnier, as the European internal market commissioner, whose portfolio includes financial regulation.
December 3rd, 2009 at 8:19 am
I listen and try to comprhend, what I hear is, “Kush, signing Kush saves all”, okay, from Jerry MacQuire.
“Growth, getting Growth saves all.” This premise has two components, one we will grow, and two we will be better with government debt better next time.
No. 2, we have never ever done. No. 1, I’ve been asking that question for 2 years, and I see none, bupkiss.
The more I learn, and research, it was not the 2nd Great Depression they were avoiding, but the truth of the fact that all banks were and are insolvent, and that the US Government was next.
When you continue you’re reserach you find many more rats in the woodpile.
As I listen to Geitner speak, imho, he whole heartedly 100% believes in the Hope of Growth, and it seems to me he has not contemplated the other side and what happens, or if he does he refuses to acknowledge it or think about it.
On a side note, the more I learn about Blankfeins, GS’s CEO, the more I’m convinced his goal is, was and has been, corner commodities market anyway they can……………be damned as to the effect of others.
December 3rd, 2009 at 8:19 am
Any comments on Bank of America paying back its Tarp money? I’ll be honest, I never saw it coming this quickly…that has to be a good sign of something….right?
December 3rd, 2009 at 8:31 am
Yes, they announce night before Ben and Tims and Obama’s big public appearances. As it stands, it is an intention, not a fact……………….next year option arms will blow up, let’s see how things go then.
December 3rd, 2009 at 8:44 am
“Banks, Investment houses and speculators are well aware that the Federal government stands ready to intervene when the screw ups are large enough.”
“The perverse moral hazard of the 2008 Bailouts is that it is very likely to encourage greater risk taking in the future, once the current era fades into distant memory.”
no doubt BR-
the Fed/Treasury got their back
December 3rd, 2009 at 8:56 am
“. . . once the current era fades into distant memory.”
__________
Distant memory for us is about a year and a half.
December 3rd, 2009 at 9:04 am
http://www.timesonline.co.uk/tol/news/politics/article6942504.ece
Yes BR, and Sarkozy made a devastating speech in France about the Anglo-Saxon model being responsible for the crisis, old school French-English sneering, De Gaulle style.
Michel Barnier is hardly an extremist, he’s always been level headed, the problem with English bankers is that they want to self regulate, sounds familiar?
December 3rd, 2009 at 9:21 am
>>As I listen to Geitner speak, imho, he whole heartedly 100% believes in the Hope of Growth, and it seems to me he has not contemplated the other side and what happens, or if he does he refuses to acknowledge it or think about it.
in for an ounce in for a pound they say. you are right tori we’ve seen this skit before and when you think about it who in their right minds in business particularly wall street who lives and dies on the effectiveness of their risk management strategies would leave such a gaping hole in the approach? this ball of yarn is going to unwind its just going to take longer given the massive war chest the USG holds. the baton will be expected to be passed to ‘business as usual’ via the growth/debt model early next year and the Fed is going to try and fade out of the picture. color me a skeptic but i don’t see the hand off going as planned.
December 3rd, 2009 at 9:28 am
But I thought TARP was going to yield a modest positive return for US taxpayers. Anybody else remember that line?
December 3rd, 2009 at 9:52 am
great recession is over folks, bankofbailoutamerica is paying back tarp.
what happens if the banks come back for more bailout money? the second great recession brought to you by the immoral hazard.
December 3rd, 2009 at 10:17 am
ZH posted this earlier: http://www.zerohedge.com/article/four-scenarios-2010
Deutsche Bank’s four world economic scenarios for 2010. This is #4, which they assign a 10% probability to:
This is the nightmare scenario of Deflation or in less extreme terms perhaps a double-dip. Given that much of the world is currently still in negative YoY inflation territory it is difficult to completely rule out even if we do live in a fiat currency system and even if inflation is expected to return to positive territory in early 2010. For deflation to be sustained we would probably need an exogenous event to hamper the authorities ability to continue to successfully fight this credit crisis. Such events could be a fresh banking crisis arising, a political backlash encouraging immediate increases in economic regulation or withdrawal of stimulus, or possibly a Government bond/currency sell-off that forces the authorities to aggressively reign in stimulus for fear of a sovereign crisis. A Sovereign crisis outside the Developed world could also encourage this scenario as there would be a flight to quality into Developed market bond market in spite of the fact that these markets have their own large fiscal issues. Bond yields would eventually rally strongly but risk assets would experience a very poor year. As time progresses this scenario becomes less likely as the system gradually repairs itself and the authorities are allowed more time to inflate the global economy. As we discuss in scenario 3, the more likely risk scenario is inflation, especially as time progresses.
The part I put in bold worries me. This is where sovereigns are most likely to lie to people with more green shoots nonsense and baked economic stats because they “know better” than the citizens. Regulation and reducing stimulus would strangle global growth, so the bankers’ party line goes.
Bad craziness, folks. Bad craziness.
December 3rd, 2009 at 10:51 am
Don’t just mess up, bankers learned . . . but make sure your cock ups are so enormous as to threaten the entire economic system.
That was only half of the lesson. The other half (see AIG) is to make your big mess so complex and opaque that they have to keep the perpetrators around to unwind it.
And, of course, “unwinding” means to bundle up the few valuable assets and sell them at a bargain price to the investment firm you will be working for 6 months down the road.
December 3rd, 2009 at 11:24 am
BofbailoutA and tarp: ” Mitsubishi UFJ (MTU) is also placing $12 billion in additional common stock, the biggest share sale by a Japanese financial institution ever. (And in that regard, I wouldn’t view the Nikkei’s 10% rally over the past five business days as just pure coincidence. Check out the US markets leading up to and following May 6, when the stress-test results were announced and banks first issued stock).” http://bit.ly/7i4jaw
December 3rd, 2009 at 11:29 am
I loved the page break!
“The US is going down in a boat ON FIRE with bailouts, moral hazards, debt, corporate socialism! AHHH-meanwhile in the EU…”
December 3rd, 2009 at 12:48 pm
It’s fine to save the company, but it has to be done the right way – and we need clear legislation to say exactly how such a company will be “saved” in the future. Anybody making more than 800K/year (total compensation) should be fired and have a 3 year clawback of any and all compensation in excess of 200K/year. Shareholders should be wiped out 100% and bonds all converted to shares in the “new” company. The governments “bailout” investment should be carrying an interest of inflation +5%, and after 2 years be convertible to stocks (at the lowest market price recorded 3-6 month after the bailout. If the company pays back the money before the 2 years that’s fine, if not “we the people” have a business decision to make.
December 3rd, 2009 at 1:46 pm
@ investorinpa
Its magic or just the luck of good timing, isn’t it? Just at the time when they need to pay through the nose to get a new CEO, B of A reachs the point of being able to pay back the taxpayers and get out from under compensation restrictions. Without needing a new CEO, TARP repayment wouldn’t have even gotten a second thought.
December 3rd, 2009 at 3:11 pm
[...] TARP’s moral hazard not going away anytime [...]
December 3rd, 2009 at 4:26 pm
investorinpa
When senior management has the choice between screwing themselves by remaining under bonus and salary restrictions, or screwing the shareholders by risking and/or diluting their equutiy – it’s a no brainer.