Archive for the ‘Treasury’ Category

Fighting the Financial Crisis, One Challenge at a Time

November 18, 2008

WE are going through a financial crisis more severe and unpredictable than any in our lifetimes. We have seen the failures, or the equivalent of failures, of Bear Stearns, IndyMac, Lehman Brothers, Washington Mutual, Wachovia, Fannie Mae, Freddie Mac and the American International Group. Each of these failures would be tremendously consequential in its own right. But we faced them in succession, as our financial system seized up and severely damaged the economy.

By Henry M. Paulson, Jr.
Treasury Secretary
Op-Ed, The New York Times

Treasury Secretary Henry Paulson addresses a gathering of corporate ...
Treasury Secretary Henry Paulson addresses a gathering of corporate CEOs, Monday, Nov. 17, 2008. (AP Photo/J. Scott Applewhite)

By September, the government faced a systemwide crisis. After months of making the most of the authority we already had, we asked Congress for a comprehensive rescue package so we could stabilize our financial system and minimize further damage to our economy.

By the time the legislation had passed on Oct. 3, the global market crisis was so broad and so severe that we needed to move quickly and take powerful steps to stabilize our financial system and to get credit flowing again. Our initial intent was to strengthen the banking system by purchasing illiquid mortgages and mortgage-related securities. But the severity and magnitude of the situation had worsened to such an extent that an asset purchase program would not be effective enough, quickly enough. Therefore, exercising the authority granted by Congress in this legislation, we quickly deployed a $250 billion capital injection program, fully anticipating we would follow that with a program for buying troubled assets.

There is no playbook for responding to turmoil we have never faced. We adjusted our strategy to reflect the facts of a severe market crisis, always keeping focused on our goal: to stabilize a financial system that is integral to the everyday lives of all Americans. By mid-October, our actions, in combination with the Federal Deposit Insurance Corporation’s guarantee of certain debt issued by financial institutions, helped us to accomplish the first major priority, which was to immediately stabilize the financial system.

Read the rest:
http://www.nytimes.com/2008/11/18/opinion
/18paulson.html?_r=1

Chances Dwindle on Bailout Plan for Automakers

November 14, 2008

The prospects of a government rescue for the foundering American automakers dwindled Thursday as Democratic Congressional leaders conceded that they would face potentially insurmountable Republican opposition during a lame-duck session next week.

By David M. Herszenhorn  
The New York Times
.

At the same time, hope among many Democrats on Capitol Hill for an aggressive economic stimulus measure all but evaporated. Democratic leaders have been calling for a package that would include help for the auto companies as well as new spending on public works projects, an extension of jobless benefits, increased food stamps and aid to states for rising Medicaid expenses.

But while Democrats said the stimulus measure would wait until President-elect Barack Obama takes office in January, some industry experts fear that one of the Big Three automakers will collapse before then, with potentially devastating consequences.

Despite hardening opposition at the White House and among Republicans on Capitol Hill, the Democrats said they would press ahead with efforts to provide $25 billion in emergency aid for the automakers. But they said the bill would need to be approved first in the Senate, which some Democrats said was highly unlikely.

Read the rest:
http://www.nytimes.com/2008/11/14/business/
14auto.html?_r=1&hp=&adxnnl=1&oref=slogin&a
dxnnlx=1226649694-VV22vNLQxrIE1qxIf8tqEQ

A Lemon of a Bailout

November 14, 2008

When you get gemons, “make lemonaide” the saying goes.  But when spending taxpayer billions for a fiscal and economic recovery plan or “bailout” that almost nobody likes, a lemon can get in the way….

By Charles Krauthammer
The Washington Post
Friday, November 14, 2008; Page A19

Finally, the outlines of a coherent debate on the federal bailout. This comes as welcome relief from a campaign season that gave us the House Republicans’ know-nothing rejectionism, John McCain‘s mindless railing against “greed and corruption,” and Barack Obama‘s detached enunciation of vacuous bailout “principles” that allowed him to be all things to all people.

Now clarity is emerging. The fault line is the auto industry bailout. The Democrats are pushing hard for it. The White House is resisting.

Underlying the policy differences is a philosophical divide. The Bush administration sees the $700 billion rescue as an emergency measure to save the financial sector on the grounds that finance is a utility. No government would let the electric companies go under and leave the country without power. By the same token, government must save the financial sector lest credit dry up and strangle the rest of the economy.

Treasury Secretary Henry Paulson is willing to stretch the meaning of “bank” by extending protection to such entities as American Express. But fundamentally, he sees government as saving institutions that deal in money, not other stuff.

Democrats have a larger canvas, with government intervening in other sectors of the economy to prevent the cascade effect of mass unemployment leading to more mortgage defaults and business failures (as consumer spending plummets), in turn dragging down more businesses and financial institutions, producing more unemployment, etc. — the death spiral of the 1930s.

Read the rest:
 http://www.washingtonpost.com/w
p-dyn/content/article/2008/11/13
/AR2008111303348.html?hpid=opinionsbox1

Bailout Lacks Oversight Despite Billions Pledged

November 13, 2008

In the six weeks since lawmakers approved the Treasury’s massive bailout of financial firms, the government has poured money into the country’s largest banks, recruited smaller banks into the program and repeatedly widened its scope to cover yet other types of businesses, from insurers to consumer lenders.

By Amit R. Paley
The Washington Post
.
Along the way, the Bush administration has committed $290 billion of the $700 billion rescue package.

Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.

“It’s a mess,” said Eric M. Thorson, the Treasury Department‘s inspector general, who has been working to oversee the bailout program until the newly created position of special inspector general is filled. “I don’t think anyone understands right now how we’re going to do proper oversight of this thing.”

In approving the rescue package, lawmakers trumpeted provisions in the legislation that established layers of independent scrutiny, including a special inspector general to be nominated by the White House and a congressional oversight panel to be named by lawmakers themselves.

U.S. Treasury Secretary Henry Paulson speaks during a news conference ...
U.S. Treasury Secretary Henry Paulson speaks during a news conference at the Treasury Building in Washington November 12, 2008. Paulson on Wednesday said he was backing away from buying troubled mortgage assets using a $700 billion bailout fund, instead favoring a second round of capital injections into financial institutions that would match private funds.(Mitch Dumke/Reuters)

Read the rest:
http://www.washingtonpost.com/w
p-dyn/content/article/2008/11/
12/AR2008111202846.html?hpid=topnews

Reversal: $700 Billion Rescue Program NOT To Buy Troubled Assets

November 12, 2008

Treasury Secretary Henry Paulson said Wednesday the $700 billion government rescue program will not be used to purchase troubled assets as originally planned.

Paulson said the administration will continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending.

By MARTIN CRUTSINGER, AP Economics Writer

 
Treasury Secretary Henry Paulson said Wednesday the $700 billion government rescue program will not be used to purchase troubled assets as originally planned. Photo: Associated Press

He announced a new goal for the program to support financial markets, which supply consumer credit in such areas as credit card debt, auto loans and student loans.

Read the rest:
http://news.yahoo.com/s/ap/20081112/ap_on_bi_ge/
financial_meltdown;_ylt=AlOjuzzp7Mg
_YNmhDJGmChes0NUE

N.Y. Fed Chief Touted for Top Treasury Post; Obama To Meet With Econ Advisors

November 7, 2008

On an Obama economic brain trust studded with high-profile heavyweights, mTimothy F. Geithner, the low-key president of the Federal Reserve Bank of New York, has emerged as a top candidate to head the Treasury Department or another top policy post in the new administration.

New York Federal Reserve President Timothy Geithner testifies ... 
New York Federal Reserve President Timothy Geithner testifies at the U.S. House Financial Services Committee about financial market regulatory restructuring in Washington July 24, 2008.(Larry Downing/Reuters)

Mr. Geithner, 47, is two weeks younger than the president-elect but has served in top Treasury and Federal Reserve positions since the late 1980s. He joined Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke to oversee the Bush administration’s effort to contain the crises in the world’s credit and financial markets.

By David R. Sands
The Washington Times
.
Mr. Obama and Vice President-elect Joseph R. Biden Jr. will hold their first press conference since the election Friday in Chicago after a meeting with the transition economic advisory board. Mr. Geithner is not listed as a member of the transition team.

The New York Fed is considered the most influential of the regional Federal Reserve Banks. By virtue of his position, Mr. Geithner serves as vice chairman of the central bank’s Federal Open Market Committee, the key body guiding monetary policy.

Like Mr. Obama, Mr. Geithner is described by colleagues as even-tempered and wonkish at times, comfortable debating abstract financial concepts and not likely to break the bureaucratic crockery as an administrator.

With the economy declining, plunging financial confidence and a $700 billion Wall Street rescue program just getting under way, the Treasury secretary selection will be one of the most critical for the new president, and one of the most closely scrutinized.

Mr. Obama’s economic advisory team during the campaign contained an unusually large number of heavy hitters, including former Federal Reserve Chairman Paul A. Volcker, billionaire investor Warren Buffett, and two Clinton administration Treasury secretaries — Robert E. Rubin and Lawrence H. Summers.

Mr. Rubin, who had been rumored to receive a top post in the new administration, told Bloomberg News on Thursday that he was not interested in returning to government.

It was Mr. Summers who boosted Mr. Geithner’s career at several points after he joined the Treasury Department’s international affairs division as a civil servant in 1988. He became a top aide to Mr. Summers and was named Treasury undersecretary for international affairs in 1999, a post previously reserved for political appointees.

Mr. Geithner left the department in 2001 and spent time as a fellow at the Council on Foreign Relations and at the International Monetary Fund before joining the New York Fed….

Read the rest:
http://www.washingtontimes.com/news/2008/nov/07/
geithner-touted-for-top-post-at-treasury/

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Obama To Meet With Economic Advisors Today

By NEDRA PICKLER, Associated Press Writer

President-elect Obama is seeking some economic advice from leaders of business, government and academia, making the struggling economy — the nation’s No. 1 concern — his first order of public business.

Obama and Vice President-elect Joe Biden were to meet Friday with 17 members of their transition economic advisory board. Members include former presidential Cabinet officials and executives from Xerox Corp., Time Warner Inc., Google Inc. and the Hyatt hotel company. Investor Warren Buffett was participating by telephone.

Obama also was holding his first news conference as president-elect after the meeting.

It was to be Obama’s first public appearance since Tuesday’s election, where exit polls showed that the economy was far and away the top issue for voters. He’s been using the time for private meetings with his transition team, receiving congratulatory phone calls from U.S. allies and intelligence briefings, and making decisions about who will help run his government.

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http://news.yahoo.com/s/ap/20081107/ap_on_el_pr/obama;_ylt=
AqXrGZ7k1XKeHU99bcehSzys0NUE

Best Analysis of Obama’s Economic Challenges, From The BBC and Peter Morici, Univ of Maryland

November 6, 2008

This is an audio feed from the BBC, Thursday, November 5, 2008. 

The second audio segment features Professor Peter Morici of the University of Maryland, which is an excellent review of the challenges facing President Elect Obama….

Listen:
http://www.bbc.co.uk/mediaselector/check/worldservice/meta/tx/wbr?nbram=1&nbwm=1&size=au&lang=en-ws&bgc=003399&ls=p23&ls=35603

Obama: Economy top priority as downturn is set to worsen

November 6, 2008

A plunge in Wall Street stocks provided a sharp reminder of the scale of the financial challenges facing Barack Obama as gloomy economic data fuelled fresh fears of a deep, prolonged US recession.

Obama owes a large slice of his electoral success to the global financial crisis. Exit polls found that 62% of voters put the US economy as their number one issue – and that 85% of Americans termed themselves “worried” about the economy’s direction.

The Guardian, UK, November 6, 2008

Yesterday, amid the celebrations, the Dow Jones industrial average tumbled more than 5%, or 486 points, to 9,139, more than eliminating Tuesday’s 300-point rise, the biggest election day gain since 1984.

Euro and US dollar banknotes in a cash register. The dollar ...

Monthly employment figures showed that 157,000 jobs disappeared during October as service sector activity contracted sharply. The numbers reinforced the bleak outlook soon to be inherited by Obama, who faces plummeting house prices, seesawing stocks, failing banks and a crisis-stricken US motor industry.

His first act will be to select a treasury secretary who will be responsible for spending a $700bn banking bail-out fund and will need to be a credible name. Candidates include the Clinton-era treasury secretary Lawrence Summers and the former Federal Reserve chairman Paul Volcker, a close economic adviser to Obama who is possibly too old at 81. A third widely tipped candidate is Timothy Geithner, president of the Fed’s New York branch, who has won plaudits for his cool-headed involvement in supporting teetering Wall Street institutions.

Even before his inauguration, Obama will be pivotal in negotiating a stimulus package to kickstart economic activity. The House speaker, Nancy Pelosi, wants a $100bn programme that would include money for states to create employment by building new transport links, schools and public facilities.

It could involve food stamps for the poor, relief for people struggling with mortgages and, possibly, a round of tax rebate cheques.

Dean Maki, an economist at Barclays Capital in New York, said the US economy was expected to contract by 2.5% in the final quarter of the year: “Given the majorities the Democrats have in both houses, it might be easier to agree on a stimulus bill. It could be passed before Obama even takes office, but he will have a role in shaping the legislation.”

Next on the list of reforms will be regulation. The US treasury has spent $250bn buying stakes to part-nationalise struggling banks. But critics say few strings have been attached to these handouts.

In a speech earlier this year, the president-elect declared that “old rules” and “old institutions” needed reform to fit the changing shape of the financial system: “Our free market was never meant to be a free licence to take whatever you can get, however you can get it.”

A potential trip-up lies in Detroit, the down-at-heel motor city. The city’s three major car-makers – General Motors, Ford and Chrysler – are losing billions of dollars every month. GM could run out of money next year unless Americans start buying cars again. The industry is pleading for a bail-out. The new president will need to show some tough love.

Key to Obama’s economic platform is a tax cut to ease the fiscal pain suffered by working-class families. Obama has pledged relief of around $500 a person, which, his campaign says, will completely eliminate income tax for 10 million Americans.

Obama’s spending plans are due to be financed through a tax rise for those earning more than $250,000 and through a windfall tax on energy companies.

In all that he does, Obama will need to be diplomatic. In an economic environment of extreme twitchiness, the new president’s intentions will be scrutinised as never before.

Critics see Wall Street bailout free-for-all

October 29, 2008

By David R. Sands
The Washington Times
.
Give away $700 billion and you tend to attract a crowd, but a growing number of lawmakers and economists are criticizing the Bush administration for extending the massive Wall Street rescue plan far beyond what they had thought were its original limits.

In the three weeks since President Bush signed the bailout bill, the Treasury Department has pledged to purchase at least $163 billion in preferred stock to boost the capital of nearly 35 national and regional banks. In addition, life-insurance companies, automakers, stockbrokers, privately held commercial banks and even hedge funds are lining up to make their pitches to an increasingly sympathetic government.

Critics fear the expanded offer will lead to a free-for-all as rival industries fight for access to the bailout funds, while the federal government faces increasingly tough choices over which private companies to help and which to ignore.

“There are already a lot of people sniffing around at this money, and it has the makings to become a real feeding frenzy,” said Bert Ely, an Alexandria-based banking consultant.

Sen. Charles E. Schumer, New York Democrat, is one of several lawmakers who has said he is worried that financial firms will use the Treasury’s capital to bolster their balance sheets or to acquire other banks instead of approving new loans.

“I remain especially concerned that, in the Treasury’s zeal to make the program easily digestible for the banks, we’re feeding them a little too much dessert and not making them eat enough of their vegetables,” he told Treasury officials and bank regulators at a recent congressional hearing.

Mr. Ely predicted that the government will impose new conditions on the bailout money as the competition for the available dollars sharpens.

“As the number of claimants grows, I think it’s inevitable that the government, and certainly the new administration, will want to put new strings on how the money gets used,” he said.

The Treasury Department and its defenders say….

Read the rest:
http://www.washingtontimes.com/news/2008/oct/
29/critics-see-feeding-frenzy-on-bailout-funds/

A decade ago, feds resisted a regulator’s warning

October 20, 2008

By Anthony Faiola, Ellen Nakashima and Jill Drew
Journal Star; Lincoln NE
and The Washington Post

A decade ago, long before the financial calamity now sweeping the world, the federal government’s economic brain trust heard a warning and declared in unison: You’re wrong.

The meeting of the President’s Working Group on Financial Markets on an April day in 1998 brought together Federal Reserve chairman Alan Greenspan, Treasury secretary Robert Rubin and Securities and Exchange Commission chairman Arthur Levitt — all Wall Street legends, all opponents to varying degrees of tighter regulation of the financial system that had earned them wealth and power.

Their adversary, although also a member of the Working Group, did not belong to their club. Brooksley Born, the 57-year-old head of the Commodity Futures Trading Commission, had earned a reputation as a steely, formidable litigator at a high-powered Washington law firm. She had grown used to being the only woman in a room full of men. She didn’t like to be pushed around.

Read the rest:

http://www.journalstar.com/articles
/2008/10/20/news/business/doc
48f91cb3c2a77935905795.txt