Charlie Rose Speaks to Tim Geithner
By Larry Doyle on March 11, 2009 at 1:27 PM in American Consumers, Auto Industry, Bank Bailouts, Bank Nationalization, Banking Institutions, Barack Obama, Commerce, Congress (House & Senate), Credit Risk, Current Affairs, Economy, Equity Markets, FINRA, Lobbyists, Mortgages, Obama Administration, Republicans, Sense on Cents (Larry Doyle blog), Tim Geithner, Wall Street
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***Cross-posted from my blog, Sense on Cents. Come by and visit!
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I will provide my insights and perspectives on Charlie Rose’s interview of Treasury Secretary Tim Geithner last evening. The interview has been broken down into 6 separate clips, with my commentary preceding each clip.
Part 1
In this clip, Geithner wears both the political and policy hats. While promoting the Obama agenda initially (housing, education, healthcare, energy), he then turns toward the specifics of unlocking the consumer credit securitization markets via the TALF (Term Asset Backed Securities Loan Facility). This facility attempts to restart the securitization market and model which I wrote was broken back on November 12th (The Wall Street Model Is Broken…and Won’t Soon be Fixed). That market provides approximately 40% of the financing to a wide array of consumer finance markets. Geithner attempts to portray a measure of confidence and aggressiveness. The market has currently responded with a vote of no confidence.
Part 2
Geithner addresses further specifics about the TALF and the public/private partnership that would be connected to the effort. The specifics of this public/private partnership are not addressed but, in essence, the government would provide financing (loans) for private entities to purchase asset-backed securities currently clogging bank balance sheets. Geithner does not provide specifics on the terms of the loans and MORE IMPORTANTLY does not address the fact that the government will likely share in the losses on these securities going forward. I believe many private investors are salivating at the potential for this program. Our Economic All Star John Mauldin commented that this partnership is the equivalent of government money coming in the front door and going to hedge funds out the back door. Mauldin proposes a suspension of the “mark to market” accounting rule that forces banks to mark these securities to depressed levels in the presence of no buyers.
Geithner defends his aborted initial delivery on his grand plan as “mismanaged expectations.” He also inaccurately describes mortgage rates as being close to 5%. The “mortgage mirage,” in which many people can not get a mortgage, has 30 year conventional mortgage rates closer to 5.5% and Jumbo rates in the 7% range, but virtually inaccessible.
Part 3
Geithner is forceful in this clip in stating that the government will stand behind the 20 largest banking institutions. These banks represent approximately 70% of the banking industry and – without using the phrase – Geithner is saying they’re “too big to fail.” He defends the capital injected as ultimately being in the best interests of the economy and taxpayers. He rails on the mismanagement and gross compensation practices at many of these institutions. He appreciates the anger and outrage of responsible people who are sufferring from the damage caused by those who have been irresponsible. All good.
When addressing the need for global regulatory changes as well as domestic regulatory changes, I suggest Secretary Geithner listen to former Australian Prime Minister and Treasurer Paul Keating who undressed him this past weekend. Keating opines that the IMF and World Bank will see a massive shift in power to the surplus economies of the East from the debtor economies of the West. Here at home, when Geithner talks about focused accountability, let’s see if he and the Obama administration effect the necessary changes in the corrosive influence of lobbyists as well as addressing the incompetence displayed at the SEC and FINRA.
Part 4
Geithner attempts to make the case that investors, both foreign and domestic, will continue to invest in our country and our U.S. government debt if they have confidence. The administration has the obligation to maintain that confidence. The first step in maintaining the confidence is displayed in the budget proposed by President Obama. Geithner puts his political hat back on in promoting the Obama agenda as being economically sound, laced with fiscal discipline, and promoting their moral obligation.
Investors are less sure about Geithner’s feelings and have voiced their indecision by exiting the markets since this budget was proposed.
Geithner further addresses the necessity for individuals, corporations, and governments to live within their means. Investors have roundly responded that they believe this administration and Congress are doing anything but living within their means given the undisciplined spending in the Stimulus plan, the budget, and the Omnibus Bill.
Geithner uses the lessons of the ’90s as justification for raising taxes going forward. He prefaces his remarks that taxes will only be raised “when the economy recovers.” Charlie Rose appropriately challeneges him on the overly optimistic economic assumptions utilized in the budget. I would ask why the base case GDP in the Bank Stress Test of 2% growth in 2010 is not the same level of GDP used in Obama’s budget. The budget assumes 3.2% !!
Part 5
In this clip, Geithner is largely wearing his political hat. He defends the Administration’s vetting process as he staffs Treasury. He further pushes the Obama agenda. In regards to criticism he has experienced, he responds that it is purely part of the job.
On the auto front, he dodges the question of bankruptcy.
Charlie Rose then questions him on what he has learned so far in his role as Treasury Secretary. Geithner responds that many may not know that he spent a large part of his career at Treasury serving under Robert Rubin and Larry Summers. He holds them in very high regard and seems to promote that respect for them is universal. He does not address that Rubin was at the core of the lack of regulatory oversight that we have had for the last decade, as well as being the prime architect of the massive systemic risk that Citibank has developed.
When asked if he could see the problems developing that now envelop our economy, Geithner ducks in stating that most people missed it.
Part 6
Geithner remarks that both capitalism and our financial system have already changed and will continue to change as the necessary regulatory systems are put in place.
Geithner further adds that he is confident America will respond to this crisis because it is not a question of ability but a question of will. He believes this Administration possesses the will to make every necessary move to restore our economy.
In my personal opinion, it is also most definitely about ability as well. Do we have the measure of integrity and quality in our elected officials? Chuck Hagel, Leon Panetta and others have railed on the corrupt system of lobbying, campaign contributions, and persistent fundraising that has polluted our country and the process of government. While the Obama Administration has spoken about addressing parts of these issues, their actions and policy proposals to date indicate otherwise.
I found the Geithner interview to be interesting, while not exactly enlightening.
He is both politician and policy maven. To this point, the markets have graded him as decidedly mediocre. Although, to be fair, Washington as a whole is graded no better.
LD
Video provided by CheneyWatch.org for NoQuarterUsa.net YouTube channel
(Release: November 13)
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This fool shows over and over how Obama and his teams of academics is moving towards and embracing centralized control of the economy and Washington itself. Did anyone catch how the “Great One” is now putting earmarks under his control? He fully supports all government earmarks and will personally examine any earmarks that benefit private institutions. So Obama is grabbing control of the legislative process within DC after instituting a procedure for dominating the allocation of federal dollars on a state and local level(Remember the stipulations in the stimulus? The ones that force state’s to amend laws in order to qualify for short term $ )
I am not defending earmarks or private earmarks but remember Obama is a master of the political game and is establishing precedent for future moves today. His actions today are in preparation for a power grab in the future. Finally remember that capitalism is the most democratic form distribution mankind has developed. It is not perfect and inequality exists but ultimately it is far better than the government determining what is and isn’t fair.
I writing up a presentation I’m making about the crisis and when I’m done I’ll post it here. The title is “How Specialization, Regulation and Politicization brought down American Capitalism” I hope to clearly show how over time the complexity of our system led to a series of regulations that where politicized over time to grant competitive advantage to those with influence and power; leading to the corrosion and ultimate destruction of trust and credibility in our financial, political and economic infrastructure.
I thought the definition of earmarks was that such appropriations for projects originated in the legislature and not the executive. Obama taking “over earmarks” no longer makes them earmarks.
I agree but the fact that he wants to eliminate all earmarks except those he thinks are “worthy” will ultimately erode the power of the legislature. The legislative branch is in charge of determining spending priorities not the executive.
Nice summary and very informative.
I am somewhat skeptical of this “economic team” as are many others. I still don’t understand how many of these educated idiots “did not see this coming”. It is definitely the “group think” that is beyond delusional. It is truly beyond logic. I an no great understander here when it comes to the economy. However, we have a 14 trillion dollar economy of which over two-thirds is consumer driven. When the American public went into negative net worth, does not that logically mean that the major economic driver of your economy just went belly-up?
A lot of economists saw this coming, but none, or only a handful of them, were Keynsian-type economists. They’re the type that think we just need to get consumers consuming again, and everything will be great. It doesn’t matter if America actually produces anything, or whether what we produce is produced at a competitive price.
And they think this consuming can be started by ’stimulus’ of the road-building variety.
But if their base assumptions are wrong, then their prescriptions will be wrong.
They didn’t see a problem with inflating a credit bubble, providing cheap money to everyone from homebuyers that want to buy a McMansion they can’t really afford to companies like Starbucks or Marble Slab that wanted to put a store every 100 yards and on every corner to sell $5 coffee or $7 ice cream.
The above examples and a thousand more beside represent misallocations of wealth that, for the most part, was borrowed from non-Americans. Like the money all the NASDAQ investors put into Pets.com and the like, this wealth has already evaporated. Gone. Home prices (sans inflation) are NOT going back up. That was fake, and that money is GONE. Starbucks is not going to keep all of those stores open. They’re shutting down excess stores, and a lot of other commercial real estate is going to drop in value just like the home values did. This is playing out still, and we haven’t even gotten half way through the adjustments.
Many of the needed adjustments have been prevented from taking place. GM NEEDED to go bankrupt, if that was required legally in order for them to force a reworking of all labor contracts. There is no way for GM to make cars profitably using workers who almost can’t be fired, who make twice what equivalent American workers make elsewhere, who have utterly unrealistic benefits and pensions, and who insist it takes twice as many of them to do what other companies get done with half as many people. I believe that when GM last had record car sales, they still couldn’t turn a profit, and when they last did turn a profit, it was due to the financing side, GMAC, IN SPITE of the losses on the manufacturing side.
The economy is simply not going to be fixed by producing more consumer credit so that Americans can more easily afford to go into greater debt to buy ever more expensive union-made cars.
capitalism is the most democratic form distribution mankind has developed. It is not perfect and inequality exists but ultimately it is far better than the government determining what is and isn’t fair.
Yeah, all true. But, capitalism has been hijacked, and re-distributed to banksters who threaten to bring the house down if we don’t pay their price.
It doesn’t really work if the risks are “managed” so that the taxpayers bear all the costs, and the profiteers get all the benefits.
This bunch has given new meaning to “moral hazard.” And, “confidence” as well. After all, the phrase “con man” comes from “confidence” doesn’t it?
Many of the problems with big corporations are the same we see with big government. Getting bigger initially results in better coordination, more efficient goal setting, and an economy of scale. But as expansion continues, there eventually comes a point where those advantages are lost to a widening range of disconnections, as decision makers increasingly lose touch with far removed, on-the-ground realities. The disconnect can become so complete that people calling the shots are totally insulated from the consequences of their own decisions. Witness the current situation, where CEOs continue to receive outlandish compensation packages while the businesses they manage go down the tubes.
When staggering life fortunes can be had in a year based on bonuses that reward short-term corporate profits, why would we expect a CEO to make decisions looking at the profitability and viability of that corporation 5 or 10 years down the road?
What’s evolved during the last decade or so seems more like a perversion of capitalism than capitalism itself.
All true.
But at the very foundation is the Fed, which controls the ‘money supply’. Greenspan and Bernanke have kept interest rates too low for too long. It all gets back to that, because that is the basis of the “cheap credit”.
http://www.youtube.com/watch?v=2K__ZsDH3Qw
http://www.youtube.com/watch?v=k2DRrsv4Des
I meant to add that we have a ‘form’ of capitalism, but the accusation that ‘free markets’ led to this is laughable. (Cynic didn’t make that accusation, but we hear it constantly, so I wanted to add that point.) Central planning in the form of the Fed and a politicized ‘regulatory system’ that is heavy-handed in one area, and turns a blind eye in another is what caused this. (But the regulatory system is irrelevant if the Fed didn’t do what they did first.)
Bernanke addressed the CFR on Tuesday 3/10, and he explained that the crises began as a result of global economic imbalances: the US and some other countries borrowed too much money, spent it, and didn’t have enough savings, and there were other countries that saved a lot of money and had excess savings, and loaned that money to the US, and the US blew that money, that the ‘free-market’ and the government didn’t take action to make sure the money was invested well.
Well, first, one of the ways a true free-market would make sure the money is invested well is that it would set the cost of money, the interest rate based on availability of real savings, be it ours or a foreign investor, and it would also be set based on a real expectation of return on investment. But when Bernanke’s Fed sets 1% or 0% interest rates, it becomes a free-for-all. Companies like Starbucks can engage in foolish strategies. People can buy homes they shouldn’t have, even if they have the income and the down-payment.
Second, Bernanke’s prescriptions are out of line with his diagnosis. If the problem was no savings and too much debt, then why does he continue to punish and destroy savings and encourage more debt? Artificially low interest rates discourage savings by providing little return through interest bearing accounts, of course, but also by inducing inflation. (I know the govt figures claim little inflation, but I don’t think that’s what we are seeing on the ground, now, and certainly not over the past decade.)
And finally, he suggests a new government agency that looks at business cycles and makes sure booms and bust don’t get too big. WTH? I thought the Fed’s original purpose was to do just that! Does he not understand that America’s savings rate is low because the Fed has kept interest rates at a ridiculously low level, far below where a true free-market would have kept them, for far too long? That our debt is so high because borrowing was cheap? He’s saying we need a government agency to make sure the Fed doesn’t print too much money and keep interest rates too low.
So, we need a back-seat driver who tells the front-seat driver what to do? And what their attempting to drive is the so-called ‘free market’? How about we just get rid of the Fed, go back to sound money, and let the market drive itself. Then we would be a lot closer to having a free-market.
Geithner doesn’t look quite right in the head to me. Hard to explain.
It is because he leans forward and looks down while he speaks. This is usually taken as a cue that the individual is being dishonest or doesn’t believe what he or she is saying.
Great post, thaks LD.
I don’t expect Geithner to last much longer.
He’ll be thrown under the bus with Obama telling the world he was “not the Geithner he thought he knew.”
“He’ll be thrown under the bus”
I thought he was too big to flail?
Geithner will not be thrown under the bus ever! He is central to the GLobal Central Bankers plan.
Larry
Could you please comment on an article that appeared in The Nation last year on Larry Summers. It seemed to be a very negative assessment of his career so far and I thought I read something about his dealings in Lithuania that actually helped to destroy their economy after the breakup of the Soviet Union? If this article is truthful why the heck is he in charge of BO’s team? Sorry, I don’t have any link to this story.
Cath….Summers is part of the Washington think tank. Was in Rubin’s Treasury as was Geithner. Then became treasury Secretary himself before going to Harvard as Prez. He blew himself up there with the asinine statement about women’s intellect.
Supposedly a very difficult individual. Huge ego. he pissed PAul Volker off within hte first few weeks of this administration by not including Volker in meetings. Never one to keep his ego out of the process.
Also was very involved in a number of decisiosn that kept regulation oout of the derivatives market.
Smarter than all of us, we should be honored to have him serve for us. (lol)
Larry
Excellent analysis of Geithner’s interview. Needless to say, I do not trust OIAF because he constantly lies. Having you breakdown Obama’s War on Capitalism is very helpful.
Could you define the “mark to market” accounting rule and how it impacts our financial institutions?
How can we counter their misinformation and mixed messages about the economy? In other words, how can we control our own economic future while having a dictator for a President?
Aaron- Kudos to your remarks….I agree 100% that any action Obama takes is a power grab….
[...] 03/12/2009 · No Comments There is a good analysis of Tim Geithner’s interview with Charlie Rose on March 10, on PBS, by Larry Doyle over at the No Quarter blog, http://www.noquarterusa.net/blog/2009/03/11/charlie-rose-speaks-to-tim-geithner/ [...]