Tuesday, March 24, 2009

Report from FFI

By Robert Wenzel

It's a small group. Most weddings have more people attending. But the heavy hitters are all here at FFI. Last night as the meetings began, Treasury Secretary Geithner sat at a table with Australia's Prime Minister Kevin Rudd. At the same table were George Soros and Robert Rubin, in intense conversation. A table over sat Carlyle's David Rubenstein, with former SEC Chairman Arthur Levitt on one side of him and Roger Altman of Evercore Partners on the other side.

A row of tables back was bank analyst Meredith Whitney, and in the back row of the small room was author, Nassim Nicholas Taleb. It was a suit and tie crowd, except for Taleb who came sans tie, and like a true black swan was the only one to then take off his jacket. After a Giethner Q&A, Taleb was also the only one to leave. He left 5 minutes into Rudd's speech.

The staff is super attentive, I asked one staff member where the press room was. She smiled and said, "I'll be glad to take you there." She then walked me the three and a half feet to the press room.

The talk of yesterday's events was the impressive performance by WSJ's Alan Murray in questioning Geithner. I heard at least three others comment on his no punches pulled questioning.

Murray asked Geithner right out of the gate if Geithner thought banks would be willing to sell assets that weren't completely marked down. Geithner danced around the question, but on further Murray probing signalled that the Treasury was willing to pump more money into any bank that needed further capital--including if it is a result of liquidating assets via the Treasury plan. I took this to me that the Treasury is protecting all major banks currently standing, from failure.

From Geithner's comments, it's clear there's more regulation of the financial sector coming. You would have to think the people in the room will have major input on what the regulations will look like. Geithner also mentioned the upcoming G-20 meetings and the fact that any changes in regulation will have to be global in nature. My thought, the One World financial plan is near.

Geithner appeared much more relaxed at this Q&A then he has appeared during press conferences. After the Q&A, he shook hands with Rubin, Soros, Rubenstein and Altman. Meredith Whitney approached him, they spoke for a minute and he left.

Prime Minister Rudd followed at the podium. He backed up Geithner's call for global financial regulation and the importance of the up coming G-20 meetings. A questioner asked him about reports yesterday that China’s central bank proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

Rudd quite aggressively dismissed the notion saying that he had received his copy of the G-20 agenda and there was nothing on it about discussing a new international reserve currency. As EPJ readers know, I have been pointing out for some time there is a strong movement to replace the dollar and the U.S. seems to be part of the movement, thus, Rudd's comments seem to becoming out of left field- or, perhaps from fear of more influence from Australia's major trading partners China and Japan.

Following, Rudd's speech, I had the opportunity to speak one on one with a number of the participants.

I asked Carlyle's David Rubenstein what he thought of Geithner's plan. He told me his people were briefed on the plan on Sunday, but the devil was in the details, and his people were still looking it over. He told me that Carlyle needed an internal rate of return of 20% on the plan. He seemed genuinely concerned that Congress might, down the road, attempt to take profits away from participants. I took this as a talking point that we will be hearing more about in the future. Something like, "We need to allow P3 participants to make a profit with protection that will prevent Congress from taking profits away down the road."

How insider is this plan? I asked Altman if he was going to participate. He told me he can't that it is only open to firms with $10 billion or more. His firm does mostly consulting and has only $2 to 3 billion available for investments.

As for the plan, he reminded me that in the 1980's when the Resolution Trust Corp was formed it took a year before there was any significant participation. He then added, "But,of course, this is getting a lot more publicity." Which may go a bit to Obama's point that things move faster these days.

Altman also told me that he thought there will be more reluctance by banks to liquidate some of their bad loans versus their mortgage securities.

I then spoke with Princeton University professor Alan Blinder, who was Vice Chairman of the Federal Reserve from June 1994 until January 1996. I asked him if he thought Fed money printing would cause inflation down the road. He said, no that "I'm not one of those who thinks inflation is going to be way out of control.". I then told him I am one of those who does think inflation is going to go out of control. I asked him if he knew of any other period in the history of the Federal Reserve when the Fed had increased the money supply at a 15% rate. He seemed to think about it for a minute and then switched the topic a bit and said, "You should be talking about the monetary base which is even going up faster." I said I'd rather look at money supply which is actually money in the economy. He agreed. He then sort of shrugged and said that he could see inflation, "maybe going to 5%." I replied, "Alan, I'm going to quote you on that, but I'm going to have to beat you up about it." He left agreeing that we would revisit the issue in a year or two to see who was right. So we are both correctly on record, my view is that, given the incredible money printing that Bernanke is doing, inflation will easily be over 10%.

Robert Wenzel is Editor & Publisher of EconomicPolicyJournal.com and Target Liberty. He also writes EPJ Daily Alert and is author of The Fed Flunks: My Speech at the New York Federal Reserve Bank and most recently Foundations of Private Property Society Theory: Anarchism for the Civilized Person Follow him on twitter:@wenzeleconomics and on LinkedIn. His youtube series is here: Robert Wenzel Talks Economics. More about Wenzel here.

1 comment:

  1. Rudd made his pro-IMF position known in Australia before he went to the US. But there may be some non-economic motivations here.

    Rudd is looking for a temporary elective seat on the UN Security Council. The tenure for non-permanent UNSC members is only two years. Rudd is a former diplomat so this "brass ring" may mean something to him, despite the Australian voters and taxpayers complete disinterest in the whole thing.

    It is not clear that his pro-US pro-IMF position is actually in Australia's interests. At least if you consider Australia's trading position.

    China is Australia's export market, supporting a global monetary regime that devalues Chinese purchasing power is presumably not in Australia's interests.

    The US is Australia's major supplier. Forestalling changes to the global monetary system that allows the US to continue to act as 'the reserve currency' and thus export it's inflation to nations, including Australia, does not make sense.

    The US desire to hang on to reserve currency status would tend to forestall devaluations of the US dollar is thus not in Australia's interest either.

    That chief executives often pursue policies contrary to the interests of the nations they rule should come as no surprise to Americans.