Thursday, May 7, 2009

Is the Government About to Guarantee Money that Banks Attempt to Raise to Meet Stress Test Demands?

PEU/Report details part of an interview Treasury Secretary Geithner gave to Charlie Rose . Pay attention to the Geithner dance and obfuscation when it comes to exactly what this government "backstop" will be all about (MY emphasis):

Tim Geithner: And some banks are going to have to raise additional capital, and they'll have a bunch of different ways that they can do that.

Charlie Rose: The argument would be how much capital that they should have to raise.

Tim Geithner: That's right.

Charlie Rose: Because they've got to raise it within a six month period, and they've got to have a plan within a one month period.

Tim Geithner: They have to work out a plan, get that plan agreed to by their supervisors, and they have to go execute that plan. And they're going to have a period of time to do that. And the government will stand behind that process, so that we want the world to know that we will make sure there is enough capital there in the system. And so, we'll provide a backstop to these institutions as they go out and raise private capital.

Tim Geithner: It's up to the banks themselves to figure out how they're going to raise this money. And it's in our interests that they're able to do this from private sources. We're going to help reinforce and backstop it, but the important thing is that they go do it?

Charlie Rose: What kind of guarantees are there for private capital that comes to these banks?

Tim Geithner: Well, they're -- again, they'll have to make the judgment about where they think they'll get the best return on their capital. But for a temporary period, to help protect the overall economy, the Fed and the FDIC are providing important temporary guarantees. Because again, banks require the ability to fund themselves. That's central to banking, and we want to make sure the markets have confidence in their ability to meet their commitments, get access to liquidity and those things. And so for a temporary basis, the government has to do that.
Hmm, backstop. Let's put it this way, with a government "backstop", Michael Jackson would be able to raise money for his zoo.

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