Monday, May 12, 2014

Geithner Tales in His New Book Versus Reality

James Freeman writes at WSJ:
In Stress Test, Mr. Geithner argues that, though he understood that Bear {Stearns] "was not that big—only the 17th largest U.S. financial institution at the time"—its failure could have been catastrophic because "there were too many other firms that looked like Bear in terms of their leverage" and had similar exposure to devastating housing losses.

But that's not what he was saying at the time, according to transcripts of the Fed's Federal Open Market Committee. At a meeting on March 18, 2008, a few days after the Bear rescue, Fed governor Kevin Warsh said that financial institutions were undercapitalized. In other words, they had too much leverage and too much exposure to potential losses. Mr. Geithner objected, saying: "It is very hard to make the judgment now that the financial system as a whole or the banking system as a whole is undercapitalized. . . . But based on everything we know today, if you look at very pessimistic estimates of the scale of losses across the financial system, on average relative to capital, they do not justify that concern."

Regardless of the story Mr. Geithner is telling now, there remains the question of why exactly America couldn't survive without a firm like Bear Stearns, which held no taxpayer-insured deposits. Mr. Geithner tells the story of Warren Buffett approaching him at a conference shortly after the rescue to offer congratulations. "I was sort of hoping you wouldn't do it, because then everything would have crashed and I would have been first in line to buy," said Mr. Buffett, according to the book. "It would have been terrible for the country, but I would've made a lot more money." A scenario in which Mr. Buffett is snapping up bargains doesn't sound like Armageddon.


  1. Can this guy - or any of these guys (Paulson etc) explain, at all, WHY THEY BAILED OUT all of these banks? Please? Do they themselves know, or was it like in the South Park episode where they threw a chicken onto a game board, and saw which part of the game board it ambled over to? Gosh what a mess.

    1. why they bailed out all these banks? Because who would pay for the 'access' Paulson and Geithner had acquired while in government? who would give them that fat job once they passed through the revolving door back into the crony side of things.

  2. Global debt enters terminal velocity mode: Why central banks have no intention of slowing their public and private debt binge.

    Central banks around the world are following one core mission. That mission revolves around expanding debt to goose equity markets and attempting to solve a debt crisis with more debt. Even the more conservative European Central Bank bowed down to easy digital money printing by announcing they too would follow in the footsteps of the Fed and Bank of Japan. Global banking is now fully addicted to non-stop debt. Every dollar of debt is having a smaller impact on what it can do to the real economy. The Fed’s balance sheet is now well over $4.3 trillion and while talks of tapering are made in public, there is no visible action being taken to show this is the intended goal. At the core of the global crisis was an expansion built on too much debt. Banks attacked this issue as one of liquidity but in reality this was a crisis of solvency. Banks never dealt with writing down assets but have decided to use modern day inflation methods to boost banking profits at the expense of working class families. Global debt has now reached a terminal velocity mode and central banks have no choice but to continue to expand their balance sheets.

    Central banks follow one mandate

    Some people act as if the crisis never happened. US stock markets are at record levels and those with access to wealth continue to get richer. The policies that are creating a massive low wage economy in the US are also part of the other side of the coin expanding debt based bubbles. It is no coincidence that items financed by debt (i.e., college, housing, cars, etc) are seeing inflation many times higher than that of wages. In fact, wages are stagnant. Central banks realize that keeping interest rates low through whatever means necessary is the only endgame for their current charade.

    tim's farce...

  3. One of the revelations of the book is apparently that little Timmy was bullied into telling lies by Obama, so it's not his fault he was less than 100% truthful at various points.