In case people are still trying to make sense of Tim Geithner’s statements, here an attempt to provide some help – another day of superficial answers to superficial questions:
Most U.S. banks have enough capital to keep lending but a pile of bad debts is fostering doubts about their health and slowing a recovery, U.S. Treasury Secretary Timothy Geithner said on Tuesday.
English: “The most relevant banks have absolutely no capital left but we will try to help them obscure their true numbers for as long as we can. By ‘most’ banks I am referring to the banks by number, not by relevance. This way I can make you all think that the banking industry is ‘mostly’ fine.”
Testifying before the Congressional Oversight Panel, which monitors the Treasury’s efforts to bail out troubled banks, he said toxic assets were “congesting” the U.S. financial system and hindering efforts to get credit flowing normally.
“Uncertainty about the value of legacy assets is constraining the ability of financial institutions to raise private capital,” Geithner said, adding that he hoped a public-private investment program will improve the ability to put a price on troubled mortgage and other assets.
English: “I ‘hope’ that no one will figure out that these toxic assets are worth nothing and I am confident that we will somehow be able to bail out their owners by making the taxpayer guarantee 97% of all assets acquired in the PPIP.”
Earlier, the special inspector general for the government’s bailout effort said the toxic-asset plan offered opportunities for fraud and abuse and warned it should be bolstered by tough conflict-of-interest rules.
English: The toxic asset plan WILL be abused and fraud will be rampant. We intend to act surprised once we find out.
Neil Barofsky also said subsidies for the public-private partnerships to buy assets could expose taxpayers to higher losses without matching increases in the potential for profit. He called for tough screening of investors as well as forced disclosure of ownership stakes and any dealings by the funds.
English: The taxpayer is cooked. He will lose billions, once again.
The government has injected hundreds of billions of dollars into banks to help them weather the damage from bad mortgage loans and is running stress tests on 19 of the largest banks to see whether they are prepared to deal with a further downturn.
English: The banks are getting a free ride. We intend to do everything to shield them from the real stress test, the market, no matter how much it will cost the taxpayer.
In a letter to panel chairman Elizabeth Warren, Geithner said the Treasury still has about $134.5 billion available out of an originally approved $700 billion for bolstering banks’ capital and said he wouldn’t need to ask Congress for more.
English: Geithner will ask Congress for more. Either the Treasury will do it directly, or the underfunded FDIC will collapse under the obligations of Geithner’s Public Private Investment Program and ask Congress for more funding.
STOCKS GET A LIFT
“Currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators,” Geithner said, a comment that gave stocks a lift in morning trading.
English: “Currently, by market standards the banks absolutely don’t have sufficient capital left. But we don’t care what the market says, we let the “regulators” decide. In doing so, we minimize true regulation but maintain the appearance of it.”
But he conceded there were persistent worries about the health of the banking system and said that was impeding a broader economic recovery.
“Concerns about economic conditions — combined with the destabilizing impact of distressed ‘legacy assets’ — have created an environment under which uncertainty about the health of individual banks has sharply reduced lending across the financial system,” he said.
If the stress tests — parts of which are expected to be made public next month — show some banks need to raise more capital, then they will have options for doing so.
“Those banks that need more capital will have an opportunity to raise that capital from private sources or request capital from the Treasury in the form of convertible preferred stock,” Geithner said.
English: “No matter how lousy the banks, no matter how useless, they will get money from the taxpayer, even if private investors don’t want to touch them with a 10 foot pole.”
Some of the biggest banks have said they want to quickly repay money that they received under the government’s Troubled Asset Relief Program, or TARP, in part to avoid constraints on pay set out as a condition for getting the money.
GLAD TO TAKE MONEY
Geithner said if regulators certify that a bank would be sound without government help, the Treasury would gladly take the money back.
“It helps to underscore the basic point that the institutions of our financial system are in very different circumstances,” Geithner said.
But he hedged on whether he thought it would be good for the banking system if some banks returned the TARP money early, and he specified that regulators, not he, would decide whether to take bailout money back.
English: “Banks are in a Tarp Trap. We’ll let them out at our whim. I prefer to alleviate myself of any responsibility by shifting it to the regulators, whoever they may be.”
“My basic obligation and our responsibility is to make sure that system as a whole … has the ability to provide the credit that recovery requires,” Geithner said, “So we need to make a careful judgment about what policies are going to best promote that objective.”
English: “My basic responsibility is to do everything I can to force lending again, no matter how destructive credit has been to our economy, no matter how broke we are, and no matter how sick and tired of debt individuals are.”
Some analysts question whether letting some banks return the TARP money would add to investors’ and borrowers’ doubts about dealing with banks that still need government help, potentially making them more vulnerable to failure.
In response to questions, Geithner said it will be important for people to see what stress tests on major banks show, though he did not shed any further light on how extensive the publicly issued comments on banks’ health will be.
Transparency is vital, he said, adding “Without that, they are going to live with a deeper cloud of uncertainty over their financial health than they need to.”
English: “Transparency is terrible. With it, we would remove the cloud of uncertainty that currently covers up the truth about how this fractional reserve banking system and its credit expansion has brought about our demise.”
Geithner said the scope of the current crisis is unprecedented, so the government has no guide to follow in its efforts to ease the situation. But he insisted there were some signs of progress.
“Indicators on interbank lending, corporate issuance and credit spreads generally suggest improvements in confidence in the stability of the system and some thawing in credit markets,” he said.
English: “I have absolutely no clue what is going on. I will cover it up with platitutes since none of you seem to have a problem with it.”