Geithner-Bernanke Hearing

By Big Tent Democrat, Section Economy
Posted on Tue Mar 24, 2009 at 10:13:53 AM EST
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CNN.com is running the Geithner-Bernanke hearing before Barney Frank's committee. The focus is on AIG, nothing much yet on the Geithner Plan. I actually have a lot of sympathy for Geithner and Bernanke on the AIG bailout last fall. The situation then was incredibly volatile and there simply was not time or the legal mechanism to put AIG into receivership. It is true that no negotiations took place with counterparties to AIG contracts. I think the AIG ship has largely sailed (you could of course impose a surtax on those counterparty payments and no, that would not be a Bill of Attainder). The real issue is what we do going forward. The Geithner Plan and its serious flaws.

In short, I am not one to rail against Geithner and Bernanke about AIG. I will rail against the Geithner Plan. UPDATE - as always pols are pols, Maxine Waters wasting time grilling Geithner about his CoS being a former Goldman Sachs person. The issue is not who worked for who. It is what they are going to do.

More . .

Bernanke repeats the stigma line on why we need more to maintain secrecy of participants in the TARP plan. This rationale simply no longer holds water. The entire financial industry is stigmatized now. It actually is counterproductive as instead of allowing for explication and information to be disseminated, the secrecy has tarred the entire industry. It would be much better to get all the information out. Sunlight is the best disinfectant.

I also question whether the institutions themselves can avoid disclosing their participation to the markets. This seems to me to clearly be a material event requiring disclosure under SEC regulations.

Let me say that no one can doubt that Bernanke and Geithner are smart, capable individuals. It just seems to me that they are too wedded to the idea that Wall Street, as it exists today, must be saved. They seem incapable of considering the idea that the interests of the country do not necessarily align with the idea that Wall Street must be put back together as it exists today.

Speaking for me only

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Geithner-Bernanke Hearing | 40 comments (40 topical)

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Format is horrible... (5.00 / 1) (#1)
by santarita on Tue Mar 24, 2009 at 10:35:43 AM EST

I understand that there is a time problem with so many Congressmen wanting their 5 minutes in the sun but questions are being asked and answers are being cut off. The counterparty payment issue was raised but not fully answered because of the time restrictions.

And Michelle Bachman's questions on Constitutionality get the award so far for the most egregious waste of time.

Welcome to House committee hearings (5.00 / 1) (#2)
by andgarden on Tue Mar 24, 2009 at 10:37:16 AM EST

I only ever watch the chairman's questions, and then the recap later.


Occasionally, there are gems.. (5.00 / 1) (#11)
by santarita on Tue Mar 24, 2009 at 11:02:42 AM EST

during the hearings. That's why I watch when possible but also do something else while they Congressmen blather.


I would love to hear (5.00 / 4) (#23)
by samtaylor2 on Tue Mar 24, 2009 at 11:24:32 AM EST

the unedited conversation between Bernanke and Geitner about this committee. I can imagine it going one of two ways

Option #1- Jesus, these guys are so stupid. If we elected to the house with any brains we might not be in such a mess.

Option #2- Jesus, thank god we don't elect people to the house with any brains, otherwise we couldn't get away with any of this.


: The only reason I have to laugh (5.00 / 2) (#26)
by Militarytracy on Tue Mar 24, 2009 at 11:28:19 AM EST

today is this comment!

Well, not sure it's that simple. (5.00 / 1) (#3)
by dk on Tue Mar 24, 2009 at 10:39:55 AM EST

as always pols are pols, Maxine Waters wasting time grilling Geithner about his CoS being a former Goldman Sachs person. The issue is not who worked for who. It is what they are going to do.

If your point is that the CoS should not be disqualified from serving simply because of his former position at Goldman Sachs, I would tend to agree with you (assuming he was not involved in any unethical and/or illegal practices while working there). However, I would also imagine that his former position caused him to develop close professional and, probably, personal relationships with people in that industry now, and that therefore some extra attention to should be paid to make certain that he does not play favorites, etc. (as apparently Geithner and others did by allowing the AIG bonuses...and yes, I understand that that was only a symptom of a larger problem).

I see it as somewhat analagous to the MSM and A-list bloggers who party and play with the politicians they cover. It doesn't necessarily mean that they still can't maintain a certain distance and objectivity necessary to do a good job, but it does mean that the public has to scrutinize them more.

I see your point (5.00 / 1) (#4)
by Big Tent Democrat on Tue Mar 24, 2009 at 10:42:09 AM EST

I do not agree with it.


Of course, it could well be (5.00 / 1) (#5)
by dk on Tue Mar 24, 2009 at 10:46:45 AM EST

that Maxine Waters is just grandstanding and does not really care about the concerns I raised. To that, though, I would say I don't really care. The important thing, in my opinion, is to keep a close eye on the former wall street players in government to make certain they aren't too biased toward their friends to the detrminent of those who need help the most.


: Waters has been out there (5.00 / 2) (#19)
by inclusiveheart on Tue Mar 24, 2009 at 11:18:08 AM EST

lately basically raising the same point about Geithner's allegiance to Wall Street over and above the interests of the people. She seems to be really convinced that much of this back and forth between the officials at the Treasury/The Fed and Wall Street is so cozy that the people are not being adequately represented at their bargaining table.
Based on the comments I've heard her make prior to today, she is essentially making this same point by BTD above:

They seem incapable of considering the idea that the interests of the country do not necessarily align with the idea that Wall Street must be put back together as it exists today.
All be it, not quite as elegantly or calmly.

It's damned if you do, damned if you don't (5.00 / 1) (#6)
by Lacey on Tue Mar 24, 2009 at 10:48:39 AM EST

At least it seems that way to me. The only people really qualified to work in the upper levels of Treasure likely have significant ties to Wall Street and/or the financial sector. So, you either hire the most qualified people and deal with those relationships or, you don't and deal with less qualified people or, as has been the case lately, not enough staff. I don't know what the answer is, but that seems to be the big issue. Perhaps more oversight or, as BTD said, have a detailed explanation of where everything is going.


So you hire (5.00 / 1) (#14)
by TeresaInSnow2 on Tue Mar 24, 2009 at 11:10:38 AM EST

ethical people from that sector.

Or is "ethical Wall Street worker" one of those oxymoronic terms...


: There is no such thing (none / 0) (#18)
by Lacey on Tue Mar 24, 2009 at 11:17:11 AM EST

The only thing you can do is hire the best people available and make sure there is enough transparency, oversight and regulations in place. It's like one giant club that they all belong to - investors, politicians, bureacrats, etc.

Aren't their a lot of academics that (5.00 / 2) (#24)
by samtaylor2 on Tue Mar 24, 2009 at 11:28:04 AM EST

Understand what is going on here and haven't worked on wall street? That being said, I don't think where you worked before or who you worked for, should disqualify anyone.


: But academics may not be (none / 0) (#39)
by Lacey on Tue Mar 24, 2009 at 01:44:43 PM EST

the best choice, especially to manage a federal department. And I agree, who you worked for should disqualify you but this is politics and in politics appearance, more than substance, is often more important.

Credit Default Swaps (5.00 / 1) (#8)
by Militarytracy on Tue Mar 24, 2009 at 10:58:20 AM EST

What are we going to do about it? Bernanke doesn't even want to discuss it much, would like to create a system where they are traded. That is how big the toxic waste is.......we need a new junk market.

Point About Foreign Counterparties... (5.00 / 1) (#16)
by santarita on Tue Mar 24, 2009 at 11:14:24 AM EST

Bernanke or Geithner were asked about the appropriateness of using American taxpayer money to pay foreign counterparties. The response was that foreign counterparties also made repayments to American banks and that those counterparties had received support from their countries in order to make those payments.

This displays a little bit of the intertwined nature of the global banking system and why it is wrong to look just at one party to these transactions. It also suggests (to me, at least) that any attempt to require writedowns on bank obligations on one side may require that we agree to writedowns on obligations owed to American counterparties. This may be doable through international agreements but at what point to they become offsetting?

This seems a trivial issue to me (none / 0) (#21)
by Big Tent Democrat on Tue Mar 24, 2009 at 11:19:09 AM EST

for the rrasons you state. Capital is international - there is no real "foreign" capital.


Not Trivial When One... (5.00 / 1) (#30)
by santarita on Tue Mar 24, 2009 at 11:42:25 AM EST

talks about asking counterparties to take less than 100% of what is owed.


: Or taxing bonus recipients who (none / 0) (#37)
by inclusiveheart on Tue Mar 24, 2009 at 01:16:34 PM EST

acually aren't US citizens or working in the US. The capital is global, but the laws are still local.

Bawhahahahaha (5.00 / 1) (#28)
by Militarytracy on Tue Mar 24, 2009 at 11:38:21 AM EST

The rating agencies....we have to take what we can get when we are told something is AAA. This is all so sad. It's almost unendurable. This hearing is every horrible fact I know all balled up into an orb of dismal crap and displayed right before my face.

Has there been any Fed or Administration word (5.00 / 1) (#33)
by DFLer on Tue Mar 24, 2009 at 12:33:36 PM EST

about remedying these three government actions led to the crisis the U.S. financial system is experiencing?, as outlined in this article and discussed by many here and elsewhere.

First, major investment banks were relieved of the federal net capital rule limiting the amount of debt they could contract.
Secondly, the Glass-Steagall Act, separating investment and commercial banking, was repealed. Third, regulation of derivative securities was abolished.

I have heard nothing about this in all these plans from the powers that be. Perhaps I have missed it. Come on, Barney!

How about what Phil Gramm (none / 0) (#34)
by Militarytracy on Tue Mar 24, 2009 at 12:43:03 PM EST

wrote up and everyone voted for and Bill Clinton signed?


MT that's covered in this article (5.00 / 3) (#35)
by DFLer on Tue Mar 24, 2009 at 12:56:52 PM EST

Phil Gramm had is hands on parts 2 and 3. He engineered the repeal of Glass/Steagall in 1999, and it was signed by Clinton.

Then (mistake three) on Christmas Eve 2000, Gramm inserted into a 13,000-page annual appropriations bill the ill-titled Commodity Futures Modernization Act, which provided that derivative securities were no longer subject to any regulation.

I found this to be a good summary of what happened then, not unlike Taibi's article, without the swearing.


Made me sick reading it (none / 0) (#36)
by Militarytracy on Tue Mar 24, 2009 at 01:01:40 PM EST

to think that Gramm would have been McCain's (5.00 / 2) (#40)
by DFLer on Tue Mar 24, 2009 at 01:48:46 PM EST

choice for Treasury. Yikes


It could have been Meg Whitman.. (none / 0) (#41)
by steviez314 on Tue Mar 24, 2009 at 02:13:54 PM EST

Then we would have put the banks' toxic assets on eBay.


: Resulting in a bailout for Paypal? ;) (none / 0) (#42)
by DFLer on Tue Mar 24, 2009 at 03:49:32 PM EST

BTD, I don't know if you saw that (none / 0) (#7)
by steviez314 on Tue Mar 24, 2009 at 10:53:57 AM EST

BoA/ML strategist Richard Bernstein announced today he was leaving to start his own money management firm.

I guess yesterday's memo was his parting shot.

Indeed (none / 0) (#9)
by Big Tent Democrat on Tue Mar 24, 2009 at 11:00:42 AM EST

I thought something was a little ... (none / 0) (#13)
by santarita on Tue Mar 24, 2009 at 11:05:30 AM EST

fishy there.

Was he pushed out or did he quit on his own?

I guess I misunderstood his importance at Bank of America.


It was probably in the works for a while (none / 0) (#17)
by steviez314 on Tue Mar 24, 2009 at 11:15:20 AM EST

He came from Merrill Lynch and wasn't part of the BoA culture, and I'm sure his bonus was banged down too.

ANother equity strategist, David Rosenberg also left today too. He was from the ML side as well.

It doesn't look like Bernstein was fired becasue of this memo.


It does look like the memo (none / 0) (#22)
by Big Tent Democrat on Tue Mar 24, 2009 at 11:20:00 AM EST

could be issued because he was leaving.


I'd Give Krugman, Thoma, Johnson et al... (none / 0) (#29)
by santarita on Tue Mar 24, 2009 at 11:38:52 AM EST

more credibility than a Merrill Lynch analyst.

After listening to Cramer talking about "fomenting", I am skeptical.


: Bernstein was talking about (none / 0) (#38)
by inclusiveheart on Tue Mar 24, 2009 at 01:18:15 PM EST

nationalizing the insolvent banks in that memo - you knew that right?

My God (none / 0) (#12)
by Militarytracy on Tue Mar 24, 2009 at 11:03:25 AM EST

Our problems are so large and the answers just aren't forthcoming.

Bemused (none / 0) (#15)
by Big Tent Democrat on Tue Mar 24, 2009 at 11:13:09 AM EST

You are permanently banned from my threads.

If you wish to discuss reinstatement, please e-mail me at bigtentdemocratATyahooDOTcom.

Stigma (none / 0) (#20)
by gyrfalcon on Tue Mar 24, 2009 at 11:18:27 AM EST

"The entire financial industry is stigmatized now."

True. I wonder, though, if there isn't a functional difference between stigma in the public's eyes and stigma within the complicated counterparty relationships within the financial industry.

Smart people can admit... (none / 0) (#25)
by Dadler on Tue Mar 24, 2009 at 11:28:18 AM EST

...when they are full of sh*t, when they have made greivous errors of judgement and analysis. Neither of these two dupes would do either. They are, I argue, only "smart" in the context of a pre-conceived, now largely dead, set of paradigms about money and economies. That is, their smarts are now exposed and obsolete and, at this moment, utterly destructive to the nation.

That the pols grilling them are scarcely more "intelligent" only compounds our disintegrating fate.

We are so stupid, so incapable of real imagination on a national level (and Obama, strangely, has done NOTHING imaginative), it can only be evidence of creeping, stinking death. Hate to be so skeptical, but I have no reason for hope when men with such locked in and debunked beliefs still rule the day.

Off with their metaphorical heads.

Geithner (none / 0) (#27)
by jbindc on Tue Mar 24, 2009 at 11:32:10 AM EST

wants more responsibilty for the Secretary of Treasury, specifically, he wants the power to seize non-bank financial companies as well.

The proposed legislation will allow the government to purchase assets, guarantee liabilities, and buy an equity interest in a large array of financial services companies if they pose systemic risk to the financial system

Bemused (none / 0) (#32)
by Jeralyn on Tue Mar 24, 2009 at 11:53:13 AM EST

Stop commenting on BTD's threads or you will be banned from the site.