Geithner and the Finance Club -- Morgenson

Long and detailed. Troubling? Somehow, not. We have to trust somebody.


http://www.nytimes.com/2009/04/27/business/27geithner.html?hp

Reich Says We're Not Even at the End of the Beginning

Let alone the beginning of the end.

http://robertreich.blogspot.com/2009/04/why-were-not-at-beginning-of-end-and.html

Asian Stocks Soar! Kristof Still Sober

Kristof is always worth reading. His piece today starts this blog, just because I don't know how to place it correctly.

His is a downer, but the rest of the news today is great.

http://www.nytimes.com/2009/04/02/opinion/02kristof.html

The picture:

http://www.nytimes.com/2009/04/02/technology/02netbooks.html?adxnnl=1&hpw=&adxnnlx=1238662987-/crzCYcHrDg/KKEiQ+kiTw

The article:

http://www.nytimes.com/2009/04/03/business/03markets.html?_r=1&hp

OK it started with the housing report yesterday.

To my way of thinking it was the Geithner interview with Katie Couric last night which told me that the markets would be ok today. He's getting his mojo! Instead of looking weak he's looking shrewd. His thin, bent frame adds to the mystique. Let's face it. He has the best minds behind him, including his own mind.

So today is so important to the world. G-20 looks good!

Then there is the sterling job Obama is doing wherever he goes and he says the world will be united at G-20 today! And Michelle. There is hope in the world!

Then today the FASB is going to issue amendments to Rule 157 to relax mark-to-market regulations. "Back into the tent. Same game!" (see joke at end of this blog).

Back into the market for me at the open. As per prior blog, being labelled a "pattern day-trader" I was forced to put up a total of $25,000 or retreat from the trading field. Results since opening account February 17th: -$344) A once-in-a-decade day is coming today!

Joke:

Setting: Memorial Day party of the poker
crowd:

"Dad, can seven-year old girls get
pregnant?"

"No dear."

"OK kids, back in the tent. Same
game!"

Norcera -- Likes Geithner's Plan Announced Last Week

http://www.nytimes.com/2009/03/28/business/28nocera.html?pagewanted=1&8dpc

Comments on Krugman on Geithner

Get your math and calculus books out!
http://krugman.blogs.nytimes.com/2009/03/23/geithner-plan-arithmetic/

and another view through a general editorial in the NYT this morning:

http://www.nytimes.com/2009/03/24/opinion/24tue1.html?_r=1

AIG Bonuses and the Comments Thereon

They were British; only they know how to unwind the derivatives; they have the leverage:

http://www.nytimes.com/2009/03/17/business/17bailout.html

And the following editorial is plain vanilla but essential to read:

http://www.nytimes.com/2009/03/17/opinion/17tue1.html?_r=1

But Andrew Ross Serkin says it best!


They built these bombs and are the only ones who know how to defuse it! If they leave the firm they will trade against AIG's book and destroy the system that way!


Dealbook
The Case for Paying Out Bonuses at A.I.G.

comments
By ANDREW ROSS SORKIN
Published: March 16, 2009
Do we really have to foot the bill for those bonuses at the American International Group?
Post a Comment »

It sure does sting. A staggering $165 million — for employees of a company that nearly took down the financial system. And heck, we, the taxpayers, own nearly 80 percent of A.I.G.
It doesn’t seem fair.
So here is a sobering thought: Maybe we have to swallow hard and pay up, partly for our own good. I can hear the howls already, so let me explain.

Everyone from President Obama down seems outraged by this. The president suggested on Monday that we just tear up those bonus contracts. He told the Treasury secretary, Timothy F. Geithner, to use every legal means to recoup taxpayers’ money. Hard to argue there.
“This isn’t just a matter of dollars and cents,” he said. “It’s about our fundamental values.”

On that last issue, lawyers, Wall Street types and compensation consultants agree with the president. But from their point of view, the “fundamental value” in question here is the sanctity of contracts.

That may strike many people as a bit of convenient legalese, but maybe there is something to it. If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right.

As much as we might want to void those A.I.G. pay contracts, Pearl Meyer, a compensation consultant at Steven Hall & Partners, says it would put American business on a worse slippery slope than it already is. Business agreements of other companies that have taken taxpayer money might fall into question. Even companies that have not turned to Washington might seize the opportunity to break inconvenient contracts.

If government officials were to break the contracts, they would be “breaking a bond,” Ms. Meyer says. “They are raising a whole new question about the trust and commitment organizations have to their employees.” (The auto industry unions are facing a similar issue — but the big difference is that there is a negotiation; no one is unilaterally tearing up contracts.)

But what about the commitment to taxpayers? Here is the second, perhaps more sobering thought: A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it.
A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave — the buzz on Wall Street is that some have, and more are ready to — they might simply turn around and trade against A.I.G.’s book. Why not? They know how bad it is. They built it.
So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company. In the end, we may actually be better off if they can figure out how to unwind these tricky investments.
Not that any of this takes the bite out of paying these bonuses. For better or worse — in this case, worse — someone at A.I.G. decided this company needed to sign bonus agreements last year to keep people before the full extent of its problems became clear.
Now we can debate why A.I.G. felt it necessary to guarantee seven executives at least $3 million apiece when the economy was clearly on shaky ground. Perhaps we will find out these contracts were a bit of sleight of hand to enrich executives who knew this financial Titanic had hit the iceberg. But another possible explanation is that A.I.G. knew it needed to keep its people.
That is the explanation offered by Edward M. Liddy, who was installed as A.I.G.’s chief executive when the government effectively nationalized the company last fall. (He is being paid $1 a year.)
“We cannot attract and retain the best and brightest talent to lead and staff” the company “if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” he said.
There’s some truth to what Mr. Liddy is saying. Would you want to work at A.I.G.? Sure, maybe for $3 million. But not if you could go somewhere else for even more — or even much less.
“The jobs are terrible,” said Robert M. Sedgwick, an executive compensation lawyer at Morrison Cohen who represents a number of employees of banks that have taken government money. “You have to read about yourself in the paper every day. These people are leaving as soon as they can.”
Let them leave, you say. Where would they go, given the troubles in the financial industry? But the fact is, the real moneymakers in finance always have a place to go. You can bet that someone would scoop up the talent from A.I.G. and, quite possibly, put it to work — against taxpayers’ interests.
“The word on the street is that A.I.G. employees are being heavily recruited,” Ms. Meyer says.
Of course, if taxpayers had not bailed out A.I.G., these contracts would not be worth anything. Andrew M. Cuomo, the attorney general of New York, made the point on Monday, when he subpoenaed A.I.G. for the names of the people who received the bonuses. If A.I.G. had spiraled into bankruptcy, its employees would have had to get in line with other unsecured creditors.
Mr. Cuomo wants to know who A.I.G.’s lucky employees are, and how they have been doing at their jobs. So here is a suggestion for him. Get the list, and give those big earners at A.I.G. a not-so-subtle nudge: Perhaps they will “volunteer” to give some of their bonuses back or watch their names hit the newspapers. But in the meantime, despite how offensive and painful it might be, let’s honor the contracts.

Thank you Andrew Ross Serkin. This article is why you are a separate category on my blog.

A Contract is a Contract -- AIG

Disgusting!
http://www.nytimes.com/2009/03/15/business/15AIG.html?_r=1&hp

And further disgusting: We don't know the names of those counterparties being bailed out along with AIG, who are not innocent and therefore could not have won a breach of contract suit:

http://www.nytimes.com/2009/03/15/opinion/15sun1.html

Krugman -- Dithering by the Geithner Team

http://www.nytimes.com/2009/03/06/opinion/06krugman.html?_r=1

Cramer Supports Geithner on Cramer's 64th Birthday

This video is good:

http://www.cnbc.com/id/15840232/?video=1029422652&play=1

Trillion Dollar Baby -- Dowd

Yikes! to Geithner:

http://www.nytimes.com/2009/02/11/opinion/11dowd.html

Editorial Wants Timothy Geithner to "Explain"

Lehman and AIG.

I can: the Chinese would have been hurt by AIG.

http://www.nytimes.com/2008/12/15/opinion/15mon1.html?pagewanted=1&_r=1

And This Must Be Read

http://us1.institutionalriskanalytics.com/pub/IRAMain.asp

These Are Extraordinary Times

All the king's horses

All the king's men

* * *

Were gathered Friday night...

U.S. Gives Banks Urgent Warning to Solve Crisis
writePost();
new_york_times:http://www.nytimes.com/2008/09/13/business/13rescue.html

By ERIC DASH
Published: September 12, 2008
This article was reported by Jenny Anderson, Edmund L. Andrews, Vikas Bajaj and Eric Dash and written by Mr. Dash.
As Lehman Brothers teetered Friday evening, Federal Reserve officials summoned the heads of major Wall Street firms to a meeting in Lower Manhattan and insisted they rescue the stricken investment bank and develop plans to stabilize the financial markets.
Timothy F. Geithner, the president of the New York Federal Reserve, called a 6 p.m. meeting so that bank officials could review their financial exposures to Lehman Brothers and work out contingency plans over the possibility that the government would need to orchestrate an orderly liquidation of the firm on Monday, according to people briefed on the meeting.
Flanked by Treasury Secretary Henry M. Paulson Jr. and Christopher Cox, the chairman of the Securities and Exchange Commission, he gathered the executives in person to impress on them the need to work together to resolve the current crisis.
Mr. Geithner told the participants that an industry solution was needed, no matter what, and that it was not about any individual bank, according to two people briefed on the meeting but who did not attend. They said he told them that if the industry failed to solve the problem their individual banks might be next.
A spokesman for the New York Federal Reserve Bank in New York confirmed the meeting but declined to provide details on the discussions. The Wall Street executives included the following chief executives: Lloyd Blankfein of the Goldman Sachs Group, James Dimon of JPMorgan Chase, John Mack of Morgan Stanley, Vikram Pandit of Citigroup and John Thain of Merrill Lynch. Representatives from the Royal Bank of Scotland and the Bank of New York Mellon were also present. Lehman Brothers was noticeably absent from the talks.
The meeting was reminiscent of the circumstances that preceded the near-collapse 10 years go of Long Term Capital Management. At that time, William J. McDonough, then the president of the New York Fed, summoned the heads of big Wall Street banks to the Fed to stop the failure of L.T.C.M., a hedge fund firm that had made big bets on esoteric securities using borrowed money and which had already lost $4.5 billion.
The bankers ended up committing $3.65 billion to save L.T.C.M., though Bear Stearns, the hedge fund’s clearing broker, refused to contribute to the investment. Traders from the banks wound down the fund over time, averting what might have been big losses across the financial system. But the fallout from a failure of Lehman Brothers could be even more severe, given the firm’s much larger size and its entanglements with trading partners around the globe.
Policy makers fear its losses could ripple through the financial industry at a time when banks and securities firms are trying to overcome $500 billion in write-downs.
One observer briefed on the situation described the session as a “game of chicken” between the government and the heads of the major banks.
Bank of America and two British firms, Barclays and HSBC, have expressed interest in bidding for Lehman Brothers, according to people briefed on the situation. But they have indicated that their bids are contingent upon receiving support from the government, just as it did with the rescues of Bear Stearns, and the government-sponsored agencies, Fannie Mae and Freddie Mac.
But Mr. Paulson and Mr. Geithner made it clear to the company, its potential suitors and to the meeting participants on Friday that the government has no plans to put taxpayer money on the line. The government is deeply worried that its actions have created a moral hazard and the Federal Reserve does not want to reach deeper into its coffers. Instead, Mr. Paulson and Mr. Geithner insist that Wall Street needs to come up with an industry solution to try to stabilize Lehman Brothers and calm the markets.
Still, some of the other Wall Street banks, facing billions of dollars in losses themselves, have resisted this approach. They argue that Lehman Brothers overreached and brought its current troubles on itself. If there are no bidders for Lehman Brothers, these banks say they can collect their collateral and liquidate the troubled firm’s assets. In this high-stake game, they may also be trying to call the government’s bluff, knowing that if push came to shove, it would provide financial support.
Mr. Geithner, who led the session, firmly stood his ground. He told the banks that this was about fixing the system and preventing the crisis from worsening.
By the time Lehman’s shares went into a spiral this week, Fed and Treasury officials were convinced that Lehman posed far fewer real risks than Bear Stearns had back in March. The confidence by Washington officials stemmed from the fact that, after the Bear Stearns collapse, they obtained stronger regulatory powers that gave them the ability to peer into the activities and risk exposures of institutions on Wall Street.
Fed officials, for example, are now embedded at each of the big Wall Street investment banks and have at least some capacity gauge the firms’ exposure to hedge funds and other big players, as well as their positions in financial derivatives and other opaque markets. Fed and Treasury officials have also been taking the daily pulse of executives and traders on Wall Street for months, and much of that discussion has been about Lehman.
Officials detected a rising number of defections by Lehman’s institutional customers to other firms, but nothing near the panic that caused Wall Street executives to bombard Mr. Paulson with dire warnings about a Bear Stearns collapse in March.
Fed officials also saw few signs that fears about the future of the investment bank were spilling over to fears about its customers and trading partners.
And in practice, taxpayers could still end up on the hook for at least as much money as they were in the case of Bear Stearns. Lehman’s successor will still be able to borrow from the Fed’s new lending program for major investment banks, which the Fed created in response to the collapse of Bear Stearns in March. If Lehman were to borrow money and then default on its loans, the Fed’s losses would reduce the amount of money it turns over to the Treasury.
For political and economic reasons, both the Federal Reserve and the Treasury Department are loath to save financial institutions from their own folly.
But as the housing crisis has deepened, they have abandoned free-market orthodoxy, fearing that the collapse of institutions like Bear Stearns or either Fannie Mae or Freddie Mac could cripple the financial markets, and perhaps the economy itself.
One of the biggest differences between the challenge facing Lehman and the one that faced Bear Stearns is the availability of the Fed’s emergency lending program for investment banks.
When confidence evaporated in Bear, with major hedge funds pulling their prime brokerage accounts, Bear’s financing ran out almost overnight, creating a panic situation. Lehman has had the power to plug any cash shortfalls by borrowing from the Fed, though it has not actually borrowed any money from the program since March.
Edmund L. Andrews reported from Washington, and Jenny Anderson, Vikas Bajaj and Eric Dash reported from New York.