Tim Geither In Profile

According to various news sources, Tim Geithner will be nominated as Treasury Secretary by Barack Obama. An official announcement is expected Monday.

Judging by his actions it does not appear Giethner believes in free markets. For him, the government needs to stand by with buckets and buckets of money.

According to reports, in 1997 he was instrumental in pushing then Treasury Secretary Rubin to OK a bailout of South Korea.

Geithner also was reportedly behind the $29 billion guarantee against losses that the Fed made to JP Morgan when JPM purchased Bear Stearns. The guarantees against losses, it should be noted was in addition to the fact that JPM stole Bear Stearns at a huge discount from its liquidation value.

His interventionist credentials are pretty well established on Wall Street. Here's Larry Kudlow's thinking on Geithner ans the next tranche of the $700 Billion Paulson boondoggle:

As for the TARP bailout story, it is generally believed that Geithner is a strong interventionist. And so we can expect him to move toward raising the second $350 billion tranche of the originally authorized $700 billion package by Congress

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Geithner graduated from Dartmouth College with a bachelor’s degree in government and Asian studies in 1983 and from the Johns Hopkins School of Advanced International Studies with a master’s in International Economics and East Asian Studies in 1985, according to his official bio on the New York Fed site.

He joined the Treasury in 1988 and worked in three administrations, serving as Under Secretary of the Treasury for International Affairs from 1999 to 2001 under Treasury Secretaries Robert Rubin and Larry Summers.

He also worked for Kissinger Associates for three years.

He become New York Fed president in 2003. In that capacity, he worked as the vice chairman and a permanent member of the Federal Open Market Committee, the group responsible for formulating the nation's monetary policy.

One side note. Geithner graduated from the International School of Bangkok, Thailand. His father appears to be a possible CIA agent and is listed by the New York Times as the "program officer in charge of developing countries for the Ford Foundation."

Geithner falls under the Robert Rubin wing of Goldman Sachs influence, as he worked for Rubin when Rubin was Treasury Secretary.Geithner also serves as chairman of the G-10’s Committee on Payment and Settlement Systems of the Bank for International Settlements. He is a member of the Council on Foreign Relations and the Group of Thirty.

But it is his interventionist bent that could prove we have a major inflationist at Treasury. One Obama confident relates a recent conversation between an associate and a Fed official, in which the latter complained, "Christ, Geithner wants to save everybody."

More money hand outs to Wall Street, no wonder the market jumped 500 points on news of the Geithner selection.

It's Not A Frozen Credit Market, It's A Sane, Getting Back To Basics, Credit Market

JPMorganChase Chairman Jamie Dimon on a conference call yesterday:

The [mortgage] origination business, and I think it's true for a lot of people in the industry, ...people have gone back to old fashioned 80% LTV, real verified income, more disciplined appraisals, and then in some areas they won't even go to 85% LTV because of expected home decreases so we are not at 85% in California, Nevada, or Florida we're at 65. So that's why it's down. I think it's true for us and everybody else.

Big Banks Get $125* Billion Cash Going Away Gift From Paulson and the Bush Administration

Please sit down before you read this. If you have high blood pressure or heart trouble don't even try to read this, find a decent sports page instead, this is not for you.

Approximately half of the first $250 billion tranche of money approved by Congress for the mortgage crisis will end up in the hands of the "healthy" big banks.

"For the good of the American financial system," Treasury Secretary Paulson has told the big banks they must take his $125 billion (Give or take a billion or two) handout, reports NYT.

Citigroup and JPMorgan Chase were told they would each get $25 billion; Bank of America and Wells Fargo, $20 billion each (plus an additional $5 billion for their recent acquisitions); Goldman Sachs and Morgan Stanley, $10 billion each, with Bank of New York Mellon and State Street each receiving $2 to 3 billion. Wells Fargo will get $5 billion for its acquisition of Wachovia, and Bank of America the same for amount for its purchase of Merrill Lynch. So much for bailing out the mortgage market.


Here's the kicker: The shares will not be dilutive to current shareholders, a concern to banking chief executives, because perpetual preferred stock holders are paid a dividend, not a portion of earnings. In other words, all current shareholders are protected, unlike Lehman, Bear Stearns, Fannie Mae and Freddie Mac shareholders.

No matter how they frame this,the truth is this is a roughly $125 Billion going away gift from the Bush Administration to Wall Streets elite.

UPDATE: The exact terms of the funding have been released by Treasury. For the first five years, the dividend on the preferred stock will be only 5%, not 10%. The full terms on the funding can be found here.

*Note I initially put the headline handout number, and number in the story, at $135 billion. The handout number is a bit unclear, so to be conservative I have lowered the total handout estimate to $125 billion

They Are Getting Ready To Divvy Up The Lucre: US Summons Only Super Elite Bankers To A Meeting

The Bush administration summoned executives from leading banks to a meeting in Washington Monday afternoon to work out details of the $700 billion plan.

And, as they say in Chicago, "If you are not at the table, you are on the menu."

For the record those expected at the table are:

Goldman Sachs CEO Lloyd Blankfein, Morgan Stanley CEO John Mack, Citigroup CEO Vikram Pandit, JPMorgan Chase & Co. CEO Jamie Dimon, and Bank of America Corp. CEO Kenneth Lewis were all asked to attend. There was some speculation that Paulson might have expanded the invitation to at least three other CEOs from various regional banks, people said.

The FDIC directly examines and supervises about 5,250 banks and savings banks, and Paulosn invites at most 8 bankers to discuss how to divvy up $700 billion?

"It was expected that whatever comes out of the meeting will be used to put the finishing touches on the plan," AP reported its sources as saying.

"Private Sector Solution to AIG's Situation Is Dead"

CNBC is reporting that a private sector solution to AIG's situation is dead. It looks like some type of government bailout will occur.

This should come as no surprise. We called it a dead deal when it was announced. However, what should come as a surprise (and alarm)is the Fed even asking Goldman Sachs and J. P. Morgan to attempt to raise $70 to $75 billion for AIG in this market.

This is scary in that it shows the Fed has no sensitivity to the markets at all. We repeat, Bernanke is C-L-U-E-L-E-S-S.

-Robert Wenzel

Tone Deaf Federal Reserve Caused The Last 200 Point Drop In The Dow

A brief lull in market moving news is only now allowing us to catch a breath long enough to point out that the Fed caused the last 200 point drop in the market, yesterday.

The last drop came immediately after the Fed asked Goldman Sachs and J.P. Morgan Chase "to help make $70-$75 billion in loans available to AIG." WTF?

Is the Bernanke Fed totally tone deaf?

Earlier in the day,yesterday, the Fed Funds rate shot up to 6%, as banks were hoarding cash and just didn't want to lend to one another. The Fed had to inject $70 billion to force the Funds rate down to its 2% target. So we have a scenario where banks aren't even lending to one another, there are whispers that even Morgan Stanley and Goldman may not be able to withstand the panic,and the Fed goes out and asks Goldman and MorganChase to find $70 to $75 billion for AIG. I repeat the Fed had to inject funds because banks weren't loaning to one another and, in this crisis environment, the Fed asks Goldman and MorganChase to scratch up $70 to $75 billion for a firm on the brink of failure. C-L-U-E-L-E-S-S.

That's when the market tacked on the last 200 point drop in yesterday's 500 point decline.

-Robert Wenzel

Brother, Can You Spare $70 to $75 Billion?

The Fed has asked Goldman Sachs and J.P. Morgan Chase "to help make $70-$75 billion in loans available to AIG." according to WSJ.

File under: Not going to happen.

AIG's shares closed down 61% at $4.76 at 4 p.m. Monday. The insurer's stock has lost 90% of its value so far this year.

-Robert Wenzel

Ten Banks Commit to $70 Billion Borrowing Facility

Ten of the world's biggest banks on Sunday committed to establish a $70 billion borrowing facility to bolster worldwide liquidity.

Each bank has committed to fund $7 billion for the collateralized facility, and any one of the 10 banks would be permitted to borrow up to one-third of the total facility, the banks said in a joint statement. The financing may grow "as other banks are permitted to join," they said.

The 10 banks are Bank of America Corp, Barclays Plc, Citigroup Inc, Credit Suisse Group, Deutsche Bank AG, Goldman Sachs Group Inc, JPMorgan Chase & Co , Merrill Lynch & Co , Morgan Stanley and UBS AG.

Note: Interesting that Merrill is on the list, since they were just bought/bailed out by B of A.

-Robert Wenzel

Heavy Bank Refinancng Will Keep Pressure On Rates

According to Dealogic, borrowing needs for the top 10 banks from maturing bonds total $27bn in August, $52bn in September, $23bn in October, $20bn in November and $86bn in December. Raising these funds by simply getting investors to rollover maturing money into new debt instruments will be much more difficult given the nervousness by investors over bank liquidity issues. As a result, borrowing costs will be very high.

Last week, financial groups including Citigroup, JPMorgan Chase and American International Group borrowed almost $20bn in new long-term debt, paying some of the highest interest rates ever in order to lock in funding.

Citigroup has more than $5bn of maturing bonds in August, but this climbs to $12.8bn in December. Bank of America, with $7bn maturing in August, also faces higher refunding needs in December, with $9bn of maturing bonds.

Mohamed El-Erian, co-chief executive of Pimco, the asset management group, told FT “If banks keep borrowing at these levels, you will get a repricing of credit for the whole economy.”

JPMorgan To Pay 8.625% for $1.6 Billion

JPMorgan Chase on Thursday raised $1.6bn in hybrid securities to bolster its balance sheet but had to pledge to pay a high interest rate to lure investors. Bankers close to the deal said JPMorgan's issuance of preferred debt, a security that is a mixture of equities and bonds, paid an annual interest rate of 8.625 per cent.

More JPMorgan Writedowns

JPMorgan Chase incurred losses of about $1.5 billion since July, according to the bank.

JPM said trading conditions have "substantially deteriorated" in the third quarter compared with that of the second, and spreads on mortgage-backed securities and loans have "sharply widened"

JPM was forced to write down the value of its $33 billion in mortgage-backed securities as prices continued to drop in July, according to FT.

As of June 30, JPMorgan held an aggregate $19.5 billion of prime and Alt-A mortgage exposure, $1.9 billion of subprime mortgage exposure, and $11.6 billion of commercial mortgage-backed securities (CMBS) exposure, a recent filing showed.

"These mortgage exposures could be adversely affected by worsening market conditions, further deterioration in the housing market and market activity reflecting distressed sellers," the company said.