Mornin’ Rev,

mad props to you on finding yet another FDIC nugget

“As the pace of failures increases. . .” kinda like in labor and delivery when the doc says “you’re going to feel some pressure here”

and I concur with you on everything – shot acoss the bow, her responsiveness to consumer need, all of it

would that she and Ms Warren be driving this bus

Bair let the cat outta the bag, while the whole discussion on cnbc this morning is about the big banks paying back TARP. Bwahahahaha.

The Big Rich Banks get universal health care and the small ones get nuttin’…just exactly like the people. Who can turn this around?

No one could have anticipated . . .

It’s all about the top execs getting their outrageous compensation packages. No attention paid to the additional burden on shareholders, in the form of risk at a minimum, of replacing TARP with higher cost financing, and dilution of existing shareholders.

FDIC are the grownups in this game.

Georgia on My MInd

FDIC is working its way up the food chain, like Fitz in a legal investigation. But it will be a very long time before FDIC has enough resources and political power to investigate the larger banks.

They’re doing heroic work in smaller and medium size institutions taking out the worst of the worst in a calm, professional manner. Special kudos for the Puerto Rico weekend, which came and went with nary a mention in the MSM.

They’re building up their staff as fast as humanly possible – I wouldn’t want to be a supervisor there, telling staff they are going to lose yet another weekend coming up.

The Georgia reference relates to the state having weak banking regulation, such that everybody and his brother-in-law could open a bank, with predictable consequences.

We’re at the beginning of a long story, so settle in with your coffee and your sharp pencils.

So how will she fend off calls for her head from Summers, Geithner and Bernanke? These clowns seem to have Obamas ear and Blair does not.

Georgia banking, like Bert Lance and BCCI?

So how will she fend off calls for her head from Summers, Geithner and Bernanke? These clowns seem to have Obamas ear and Blair does not.

Three foxes in the henhouse. How bad will the slaughter in the henhouse have to be before the farmer shoots the foxes?

While the media covers the failure of the banks, that have scammed Americans for years, more Americans are falling by the wayside and losing their homes.

This is an article that is indirectly related to this post, but it essentially is saying if politicians want us to keep more of our money, stop talking about tax cuts, and nail these banks for crazy interest rates, and front loaded mortgages.

I couldn’t agree with the author, Che, more.

http://progressnotcongress.org/blog/?p=761

Gee, I’m more concerned about the deferential treatment of Obama by the press corps…/s

keep following the money…

Sorry, but this post is just silly. What FDIC is saying about expectations for continuing bank closures has nothing to do with what Treasury is saying about the stress tests or the financial system as a whole.

We basically have two parallel systems going for identifying and resolving unhealthy banks. One managed by the FDIC for the vast majority of the banks, one by Treasury for the hyper-complex, systemically important bank holding companies.

For the FDIC banks, they’re triaged into healthy, sick but with a plan for recovery, and in the ICU. The portion in the ICU is large and has been growing steadily. Some in the ICU will have to be hauled off to the morgue. And some of the sick won’t recover, find themselves in the ICU and eventually die.

FDIC hasn’t sugar-coated that process. It’s been issuing regular, credible warnings about the number of banks at each level of the triage, the large number that are in the ICU, and what’s happening to them. Given the growth in non-performing loans in the residential and commercial real estate sectors in certain regions of the country, everyone expects that we will continue to see an extremely high level of bank failures over the coming year. Peterr’s “find” on the FDIC website isn’t a “find” at all. Nothing new here guys!

For the Treasury stress-tested BHC, the stress tests are a triage exercise that’s being conducted in a much more public fashion. The difference from the FDIC-managed process is that, as a matter of policy, Treasury has announced that none of the stress-tested BHCs will be hauled off to the morgue. Most are going to be pronounced sick but with a recovery plan — and there will be different degrees of sick (e.g. Wells Fargo vs Morgan Stanley). A few will be in the ICU (Citi, BofA, GMAC). And a few will be pronounced reasonably healthy (Goldman, JPMorganChase). What FDIC expects to have to do re smaller regional or community banks which may have to be shut down is totally irrelevant to this process and to the stability of the financial system writ large.

Everybody’s free to bash Geithner and love Bair for either their policies or how they are executing those policies. But let’s make sure the bashing and bouquet tossing is “reality-based”.

“Money in the bank” doesn’t mean what it once did!

Busy times at the FDIC
http://www.fdic.gov/bank/indiv…..klist.html

The stress test is a farce, no surprise there, as the economy is close to underperforming the so-called stress conditions already.

I wasn’t opining on whether the stress tests are sufficiently rigorous. We’ll have to see how serious they were when the plans for remedial actions for each BHC are presented on Thursday. That is a totally different issue than the subject of this post which was a faux “gotcha”. Bair says we’re going to have lots more bank closures. Well, yeah. Duh! That’s what everybody expects. Nothing to do with either the stress tests or the systemic issues.

For someone who’s into being “reality-based,” there are remarkably few links in your comment.

In one sense, there *is* nothing new here. Sheila Bair has been consistent in saying that these failures are coming, only to have her concerns pooh-poohed by Treasury and the Fed as being unduly alarmist and detrimental to market confidence.

See, for instance, the differing perceptions of Bair and Geithner from this piece at the WSJ, as both were being touted last August as a possible Treasury Secretary should Obama win the November election:

Receiving the most buzz is Federal Reserve Bank of New York President Timothy Geithner, who has won plaudits from Washington policymakers for his handling of the credit crisis and the collapse of Bear Stearns Cos. earlier this year.

Multiple staff members from the House and Senate have said the chatter surrounding Geithner has become palpable as the election nears and Democrats consider the potential makeup of an Obama cabinet. Geithner’s Wall Street connections and Washington experience – he worked at the Treasury for 13 years beginning in 1988 and rose as high as undersecretary for international affairs from 1999 to 2001 – are seen as working in his favor given that the next Treasury head is likely to still be faced with the ongoing credit crisis and continued housing-market disruption. A New York Fed spokesman declined to comment on the issue.

Also in the mix is Federal Deposit Insurance Corp. Chairman Sheila Bair, who has likewise impressed Democrats – while annoying some of her fellow Republicans – by her aggressive efforts to pressure banks to deal with the record numbers of foreclosures across the nation.

Obama won, and the banks got their choice for Treasury Secretary, but Bair is the one who has to clean up their messes. Today Bair is testifying about the problems of the “Too Big To Fail” mentality that Wall Street and the Big Banks seem to promote — which will win her no friends in the Big Bank boardrooms or at Treasury. Her remarks are posted at the FDIC website.

I think the deeper message in the post is that the FDIC process seems to be honest and the Treasury the reverse.

I would agree about the parallel system although I might call it a double standard. But the two are not completely separate since FDIC is putting up the money for Geithner’s loopy PPIP.

Do you know what the status of PPIP is? I’ve completely lost track. Has it started? If not, when?

Who knows when the PPIP or the revised TALF are going to start, what with all this transparency and all. The last I heard was that Geithner was having problems finding participants for the program. Supposedly they were leary of joining when the government might put future conditions and restrictions on them.

It is hard to underestimate the attachment that top execs have to their bloated compensation packages.

Also I should note that the government’s obligation to take Prompt Corrective Action does not distinguish between the local and regionals on the one hand and banks “too big to fail” on the other. And in the case of the largest banks, this obligation is only increased. The question remains why the government does not enforce the law. But then I guess we all know the answer to that.

Thanks. That’s what I kind of thought, that it hadn’t started and for reasons that they aren’t telling.

OT – sorry.

just found out one of my clients got shot Sat night. He didn’t make it.

some days the world sucks worse than other days I guess, but I can’t stop just walking around and staring at the walls….

don’t even have the energy for a decent rant.

Man, that sucks. My condolences. Has a way of putting your world in a kind of bizarro place, doesn’t it.

yeah. He was doing so well too – on parole but had his own business up and going – big ole fun guy with a big ole booming bass voice – just wanted to be left alone.

I’m gonna call his parole officer and let her know she can let up on him now.

As if it isn’t hard enough making a go of it after release.

Yes, it’s a double standard. That was my point. And unfortunately there are all too many reasons why differential treatment is necessary.

Pace Bill Black, normal FDIC processes aren’t available for highly-complex cross-border bank holding companies that reach the Prompt Corrective Action stage. In the same speech where Bair proposes FDIC as the agency to handle a new form of BHC resolution process, she does an excellent job of explaining why the FDIC is handcuffed under current law and why even with proper authority the FDIC’s normal sale procedures aren’t practical for the complex BHCs.

On this point — the need for a new form of Congressionally sanctioned resolution authority — Bair and Geithner are pretty much on the same page. So when you ask rhetorically why the government doesn’t enforce the current law which requires it to take Prompt Corrective Action, that’s one part of the response. The current law doesn’t work.

What I’d like to know is why Barney has put off taking up Geithner’s (and Bair’s) call for new legislative authority to handle the TBTF bank holding companies. Last I heard, Barney was talking about late this year or sometime next year at the earliest. I’d sure like new procedures to be in Treasury’s back pocket over the coming year. And I agree with Bair that FDIC is the place to administer any such new authority since she’s having to expand capacity anyway to deal with the ongoing rise in smaller bank failures. I do think on systemically important institutions that FDIC should have to take into account the concerns of the other financial system managers (Treasury and Fed) in designing a resolution plan for any given systemically-important institution. But surely that sort of requirement for coordination and consensus isn’t beyond the capacity of our legislators or bureaucrats to handle.

As for the FDIC link to the stess-tested BHCs you mentioned, it’s not just the PPIP (which I expect to be found mostly unworkable because of the difficulty in achieving Goldilocks pricing and so expect to fade into insignificance). Many of the BHCs are major (although not exclusive) beneficiaries of the FDIC’s new debt-issuance guarantees. So yes, the FDIC already has to be monitoring actively the financial status of the BHCs it guarantees. And good on Geithner for insisting that any bank that’s paying FDIC for debt-guarantees can’t pay back the TARP funds. The squeals and shrieks from the TARP-banks who have been pounding their chests and proclaiming their robust independence from government largess, like Goldman, are heart-warming.

I agree about the TARP paybacks and that the BHCs are using it as an excuse to slip what few constraints and oversight they have.

But I have to admit I am skeptical when Bernanke, Geithner, or Bair invoke legal limits on what they can and can not do. If you look at their interventions or how many of their big programs are structured, they simply don’t square with existing law or the Constitution. AIG execs were informed their company had been purchased to the tune of 79.9% by the US government. Treasury goes to the Fed to do end runs around Congressional budgeting authority for programs whose losses will ultimately funnel back to Treasury and the taxpayer. I notice too that this sense of restraint tends to show up when they really didn’t want to do something anyway, or at least not right now.

This is something I criticize Obama for so it is not an isolated technique. When Obama wants something he goes full throttle to get it. When he doesn’t, all kinds of insuperable obstacles emerge. Given how often this happens I don’t think it is an incidental correlation.

Sure, they can do pretty much what they want when they swoop in with huge piles of money where losses have already pretty much wiped out the right side of the balance sheet as they did with AIG. They can then make decisions re who to pay and how much to pay, based not just on contractual preferences but systemic stability concerns (including concerns about the growing fragility of the insurance industry).

But they don’t have enough money to handle the other big BHCs without imposing big haircuts on bondholders, and Congress isn’t going to give them any more funds. Which forces Treasury to put the BHCs into an FDIC-type resolution if they’re going to force the sickest into “nationalization” or “pre-privatizaton” or whatever label one wants to use.

However, the standard FDIC process, which is to sell the failed bank’s operations and deposits to another bank and then take its time cleaning up the left-over mess, isn’t available to the big, complex BHCs. First, there aren’t big enough healthy buyers to swallow the remaining BHCs — the WaMus and Wachovias have already been handled and there’s no more take-over capacity. Second, we’d just be creating a new, even bigger, TBTF institution. Third, how do we handle the non-core operations and the cross-border messes. And fourth, if you think the Chrysler hedge funds put a wrench in the spokes of that deal, just imagine the unmitigated mess of conflicting interests in those BHCs, especially where we’ve got cross-claims between parent and subsidiary, between subsidiaries, off-balance-sheet SIVs and so on and so on. Without a better legal roadmap for resolution, we’d have Chrysler to the tenth power with all the uncertainty feeding back into a fragile financial system. Claims by critics that all it takes is to set up a good bank and bad bank are so much handwaving.

Now, all of this suggests that both regulators and the markets shouldn’t be so relaxed about the complex BHC structures that have been allowed to proliferate, often for arcane regulatory or accounting reasons. Hopefully, as the capital markets recover, BHCs with complex structures will be penalized through higher costs of funds and we’ll have improved cross-border resolution procedures.

I also hope that, as part of the “capital raising” that Citi, BofA et al will be forced to undertake after the stress tests, part of the process will be to get rid of non-core subsidiaries and clean up the capital structures that have proved to be house of cards.

Of course, we have an even worse mess in the insurance industry with all the related-party reinsurance and cross-holdings to reduce reserve requirements. But that’s a clean-up that can (cross our fingers) wait for another day.

I notice too that this sense of restraint tends to show up when they really didn’t want to do something anyway, or at least not right now.

Heh, yeah, they’re human beings. I don’t defend every decision they’ve taken. And they’ve been absolutely dreadful in their efforts to communicate the “logic” of their overall approach. Some of it’s been too clever by half, some an attempt to obfuscate, and some just bad communication.

But when we’re analyzing whether specific actions have been too aggressive or too passive, we have to take into account what their options really were and are. I think they’ve exploited some options to the fullest when they thought it was warranted and in the process rode roughshod over some pretty big toes. I think they’ve avoided some options without making an effective and candid case for why those options weren’t pursued. But I also think they’ve been legitimately constrained in not having some highly desirable options practically or legally available.

As I said I am very skeptical. Since the government is what is keeping bondholders from losing pretty much everything, it should have a lot of leverage over them. Instead the opposite is true. I can only think this is because those in government aren’t trying very hard. Lehman happened 7 1/2 months ago. That something like a Lehman could happen should have been on everyone’s screen a year ago or more. Geithner (as well as Bernanke) has certainly been in a place where he could see what was going on and think about how to deal with it. But we just aren’t seeing it.

Paulson had his 3 page plan. Geithner’s was two. These guys just aren’t serious. If Geithner or Bernanke needed new legislation to resolve the BHCs, then they should be proposing it. They aren’t. Even after all this time there is no coherent plan or even the glimmers of one. They don’t want the power to restructure banks or take on bondholders because they don’t want to do these things. They want to pump money (that is needed more elsewhere and could be used more productively) to prop up the old system without restructuring or meaningful reform.

This is substantially different from having a problem but not having the tools to fix it. You could still get the tools. Here the problem is that they don’t care what tools they have because they wouldn’t use them anyway.