Geithner hopes for short-lived intervention
By Krishna Guha in Washington
Copyright The Financial Times Limited 2009
Published: April 22 2009 14:23 | Last updated: April 22 2009 14:23
http://www.ft.com/cms/s/0/a5c342fa-2f40-11de-b52f-00144feabdc0.html
The US government wants its interventions in the banking system to be as short-lived as possible, Tim Geithner said on Wednesday.
Speaking at the Economic Club of Washington ahead of the outcome of bank stress tests, the US Treasury Secretary said: ”We are designing our financial programmes so we can reverse them as soon as practical and avoid the risks that come with sustained government intervention in the financial system.”
Citing ”encouraging signs” in the economy and markets, Mr Geithner nonetheless warned global policymakers against pulling back their efforts to support global growth.
Mr Geithner said this was not simply a severe version of a normal recession, but an ”abrupt correction of financial excesses” that had overwhelmed the self-correcting mechanisms of the economy and demanded ”extraordinary policy responses.”
Calling the global growth pattern of the mid-2000s unsustainable, the Treasury secretary said it was essential to prepare the foundations for a more balanced global recovery.
”We must set ourselves on a path so that one country or group of countries does not consume in excess while another set of countries produces in excess.”
He said policymakers had to pay more attention to the ”composition and quality of growth within and across nations”.
Mr Geithner called for a ”co-operative effort to lay the foundations for more stable national financial systems”. He added that ”our aim is to promote a race to the top.”
He said the government was mindful of the ”critically important” need to reduce the deficit in the medium term, ”so that recovery is not impaired by concerns about excessive borrowing in the future”.
Geithner admits ‘mixed’ bail-out results
By Tom Braithwaite in Washington
Copyright The Financial Times Limited 2009
Published: April 21 2009 16:40 | Last updated: April 21 2009 16:40
http://www.ft.com/cms/s/0/b8701a20-2e84-11de-b7d3-00144feabdc0.html
Tim Geithner acknowledged that evidence of improved liquidity as a result of the bank bail-out was “mixed”, but defended the $700bn troubled assets relief programme against charges that it gave an easy ride to the financial sector.
Appearing before a Congressional oversight panel on Tuesday, the Treasury secretary said interbank lending, corporate issuance and credit spreads showed signs of a thaw in credit. “To date, frankly, the evidence is mixed,” he said.
Asked why executives at banks that received money from the Tarp fund had not been asked to resign when Rick Wagoner, chief executive of General Motors, was asked to step aside, he said: “What is necessary in each specific case is a judgement we’re going to have to make.”
Senior officials at the Federal Deposit Insurance Corporation have considered possible replacements to Vikram Pandit, chief executive of Citigroup, the FT learnt this week.
Mr Geithner, whose political fortunes have recovered since early performance doubts, appeared before the panel hours after the publication of a report by a separate Tarp watchdog, which was critical of aspects of the programme.
The report from the special inspector-general for Tarp says Mr Geithner’s department is falling short in tracking public money used in the bail-out, even as he prepares to steer the financial rescue in new and controversial directions.
“In light of the fact that the American taxpayer has been asked to fund this extraordinary effort to stabilise the financial system, it is not unreasonable that the public be told how those funds have been used by Tarp recipients,” says the quarterly report from Neil Barofsky, the Tarp special inspector-general.
Treasury officials have questioned the value of demanding detailed explanations for use of funds, given that they are designed to improve the broad health of banks’ balance sheets and thus stimulate lending.
The watchdog’s criticism comes days before the completion of stress tests, which could pave the way for the strongest banks to pay back Tarp money and the weakest to be instructed to seek more capital.
A senior administration official told the Financial Times that the government’s preferred equity stakes in banks could be converted to common equity, which would help shore up balance sheets without the need to ask Congress for more resources.
Although both preferred and common equity are classified as Tier 1 capital, bank analysts have tended to focus on common equity in the current crisis, which is the foundation of the capital structure and has been seen as a better gauge of health.
Capital could also come from private equity raising – as initiated already by Goldman Sachs – and from recycling Tarp funds returned by healthier banks, the official said. The Obama administration is keen to avoid returning to Congress to ask for more Tarp money, which would be politically difficult.
Mr Barofsky warns in the report that not enough has been done to guard against fraud in a scheme designed to encourage investors to buy “legacy” assets from banks.
He says that the Treasury “should dispense with rating agency determinations” on mortgage-backed securities, which lay at the root of the financial crisis, and should instead screen each security to assess its value.
The report reveals “almost 20” criminal investigations into possible fraud in the programme are under way.
Neel Kashkari, the outgoing head of the Tarp, says in a letter to Mr Barofsky included in the watchdog’s report that the Treasury is considering modifications to programmes that will be used to buy legacy assets.
However, he emphasises that they are an essential part of the recovery strategy, saying the goal is “to restart markets for these assets to support the flow of credit that is absolutely vital to our economic recovery”.
Geithner faces critical report on bail-out
By Tom Braithwaite in Washington
Copyright The Financial Times Limited 2009
Published: April 21 2009 05:01 | Last updated: April 21 2009 08:14
http://www.ft.com/cms/s/0/b624ae92-2de0-11de-9eba-00144feabdc0.html
Tim Geithner, US Treasury secretary, will face lawmakers in Congress on Tuesday, hours after publication of a report that criticises aspects of the bank bail-out and days before stress test results that could lead to the government taking larger stakes in the financial sector.
His appearance before the congressional oversight committee comes after increasingly confident public performances and tentative signs of improvement in parts of the economy.
But a report from the independent watchdog for the $700bn (€540bn, £470bn) troubled asset relief programme (Tarp) says Mr Geithner’s department is falling short in tracking public money used in the bail-out even as he prepares to steer the financial rescue in new and controversial directions.
“In light of the fact that the American taxpayer has been asked to fund this extraordinary effort to stabilise the financial system, it is not unreasonable that the public be told how those funds have been used by Tarp recipients,” says the quarterly report from Neil Barofsky, the Tarp special inspector-general, which is due to be published on Tuesday.
Treasury officials have questioned the value of demanding detailed explanations for use of funds, given that they are designed to improve the broad health of banks’ balance sheets and thus stimulate lending.
The watchdog’s criticism comes days before the completion of stress tests, which could pave the way for the strongest banks to pay back Tarp money and the weakest to be instructed to seek more capital.
A senior administration official told the Financial Times that the government’s preferred equity stakes in banks could be converted to common equity, which would help shore up balance sheets without the need to ask Congress for more resources.
Although both preferred and common equity are classified as Tier 1 capital, bank analysts have tended to focus on common equity in the current crisis, which is the foundation of the capital structure and has been seen as a better gauge of health.
Capital could also come from private equity raising – as initiated already by Goldman Sachs – and from recycling Tarp funds returned by healthier banks, the official said. The Obama administration is keen to avoid returning to Congress to ask for more Tarp money, which would be politically difficult.
Mr Barofsky warns in the report that not enough has been done to guard against fraud in a scheme designed to encourage investors to buy “legacy” assets from banks.
He says that the Treasury “should dispense with rating agency determinations” on mortgage-backed securities, which lay at the root of the financial crisis, and should instead screen each security to assess its value.
The report reveals “almost 20” criminal investigations into possible fraud in the programme are under way.
Neel Kashkari, the outgoing head of the Tarp, says in a letter to Mr Barofsky included in the watchdog’s report that the Treasury is considering modifications to programmes that will be used to buy legacy assets.
However, he emphasises that they are an essential part of the recovery strategy, saying the goal is “to restart markets for these assets to support the flow of credit that is absolutely vital to our economic recovery”.
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