Who passed the Geithner plan?
Is that it, then? You know, the “Public Private Investor Partnership” that the Treasury Secretary introduced on Monday. Are we doing that?
The plan involves the Treasury, FDIC, and Federal Reserve putting hundreds of billions, perhaps more than a trillion dollars, at risk. That should require some sort of Congressional approval, right?
I remember the whole TARP debate last fall. I thought that was a terrible plan. I faxed my senators and representative several times, and urged them not to pass it. I was gratified, and for a brief moment optimistic, when the bill was initially rejected in the House. I felt like it was a miscarriage of democracy that Congressional leaders staged a do-over on that vote, reintroducing substantially the same plan and passing it just a few days later. That battle was lost, but this is a democracy and I am an engaged citizen. There would be other battles, I thought.
In my view, the Geithner’s PPIP includes two mechanisms intended to ensure that “private investors” offer substantially inflated bids for “legacy” assets, and the net cost of the plan will be comparable to that of TARP. I might be wrong about that, but I might be right. Much of the risk will be due to loan guarantees offered by the FDIC. Is there any legal basis for using the FDIC this way? Aren’t the laws describing how the FDIC is and is not supposed to behave?
And isn’t Congress supposed to have the power of the purse? A loan guarantee is a contingent liability, a cost in real terms. Can the US Treasury spend money without Congressional approval, as long as it promises to spend only if a coin flip comes up heads? That’s exactly what the Geithner plan (along with the scandalous but already active “Temporary Liquidity Guarantee Program” program) does. Is that even Constitutional?
FDIC is a full-faith-and-credit agency of the Federal government. There’s been a lot of commentary trying to explain the recently high CDS spreads on US sovereign debt. After all, wouldn’t the government just print money to pay its debt rather tha default? Well, here’s a scenario: Suppose the FDIC’s loan guarantees come badly acropper, putting taxpayers on the hook for hundreds of billions of dollars. Suppose FDIC is short the cash, and has to come to Congress for an allocation. Given that neither Congress nor the public ever signed on to all these guarantees of bank assets, and that in fact FDIC is behaving in a manner precisely contrary to the laws under which it is chartered, the level of anger might be high enough that the public might just say no. Welcome to the world of full-faith-and-credit default.
Maybe that’s why Chris Dodd wants Congress to give the FDIC a $500B loan commitment. Maybe it explains the apparently limitless appropriation of “such sums as are necessary” to the FDIC that Justin Fox noticed in a proposed bill that would actually authorize these sorts of liability guarantees. (The bill would also authorize FDIC receiverships of systemically important non-banks — yay! But it leaves out the “least cost resolution” stuff from the traditional FDICIA, and would give the Treasury Secretary and the FDIC complete discretion over whether firms are to be taken over or just bailed out in any of a number of ways.)
It seems to me that committing hundreds of billions of taxpayer dollars should still be considered a serious business. It seems to me that if Congress wouldn’t approve the Geithner plan, in a democracy, that ought to have some meaning, and not just get written off as populist outrage and then extralegally ignored.
So I’ll ask again, who passed the Geithner plan? What deliberative assembly gave the plan a pass? What’s that you say? The stock market went up by nearly 500 points when it was announced on Monday? Oh. I guess the buys have it, then.
If I remember right, the treasury is spending money allocated from the second TARP allocation, and the loans are coming from the TALF (or somewhere else — I don’t really know from where) with guarantees provided by the FDIC. somehow this is OK as the TARP money was approved by congress, the FDIC insures bank losses anyway and ‘should’ come from the banks (highly suspect though), and the TALF money is not at risk…
so through a clever shell game the taxpayer is shouldering considerable risk and making bets with negative expectation (eg subsidies).
but anyway — i don’t like the plan but i am not sure that the outcome of congressional deliberations would be any better. and have members of congress been outwardly critical? or have they just been yammering about AIG bonuses instead, giving this program political cover?
March 27th, 2009 at 7:05 am PDT
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Most people are still thinking about the Constitution as if it is the rule of law. It stopped mattering much as soon as people who wrote it passed away. With each passing generation, it became less and less important especially during “crisis” situation. It has always been subverted when people in charge felt the need to do so, in small ways and big. So, no the programs are not legal. No, the Fed does not have authority to buy private/guarantee private enterprise’s assets or make non-recourse loans. Ditto for Treasury and FDIC. But that won’t stop the people in DC. They are on a mission. They believe that they are trying to preserve a great nation.
If only they could remember their history. Greatest of nations have fallen and gone extinct. This one is no different as it is still ruled by man. This one is beginning its transition from democracy to oligarchy. I am captivated by people’s response to this crisis because most think US has always been a democracy while some think we are still a republic.
March 27th, 2009 at 8:45 am PDT
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Let’s take a step back.
Can someone tell me what legal authority the FDIC had to insure bank bonds last fall?
I keep reading through the law and I can’t find anything that allows the FDIC to insure anything other than bank deposits.
USC
FDIC Law
Once that question is answered, then we can proceed to discuss the legal basis for the FDIC to loan money to non-banks for the purpose of purchasing assets from banks (I can’t seem to find this authority in the statute either).
March 27th, 2009 at 8:51 am PDT
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It looks a lot like Geithner is proposing that the Fed and FDIC act illegally, by giving gifts of underwater non-recourse loans (Fed &ultra vires doctrine) and guarantees of such loans (FDIC &constitution). The loans and guarantees look like they’re intended to be underwater by allowing collusion.
If you want to view the Federal Reserve member banks as private corporations, then it seems like a violation of the ultra vires case law that a corporation lacks power to do things it is not legally authorized to do and the Federal Reserve Act does not seem to authorize the Federal Reserve to make gifts. McCormick vs. Market National Bank, 165 U.S. 538 (Supreme Court on ultra vires acts being illegal and void). If you want to view the Federal Reserve member banks as government entities, it seems like a violation of the Constitution because only Congress is authorized to spend money. Article I, section 9, clause 1. United States v. MacCollom, 426 U.S. 317, 321 (1976).
In particular note that the Federal Reserve Act authorizes member banks to “To exercise by its board of directors, or duly authorized officers or agents, all powers specifically granted by the provisions of this Act and such incidental powers as shall be necessary to carry on the business of banking within the limitations prescribed by this Act.” 12 USC 4.4.7. This seems to only give member banks the power to do things authorized by the Federal Reserve Act.
And the reason the loans sound like they’ll be underwater is that Geithner hasn’t laid out rules strictly prohibiting entities holding bad assts from bidding on their own assets, colluding with each other to cross-purchase each other’s assets, or colluding with unrelated buyers in a kickback scheme to use those unrelated buyers as sham purchasers.
March 27th, 2009 at 9:32 am PDT
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At least the Federal Reserve Act has the “in unusual and exigent circumstances” clause that gives them some legal cover. I can find no corollary in any of the law surrounding the FDIC.
March 27th, 2009 at 9:43 am PDT
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Obama Seeks JPMorgan, Goldman, Citigroup Support on Bank Plan
Bloomberg story
ridiculous and shameful
March 27th, 2009 at 9:59 am PDT
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Ex-chief economist of the IMF: “Break the financial oligarchy that is blocking essential reform”.
Business innovation scholar Clayton Christensen: “[Industry] regulations ultimately change *in reaction to* the innovators’ success in those markets”.
Enter NYC’s $3M for funding next-gen banks:
http://www.facebook.com/group.php?gid=56315044445
March 27th, 2009 at 11:10 am PDT
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did anyone write their representatives in 03-07 in outrage of what was happening? tea parties anyone? or you were too busy slamming your dicks on the table what a great nation you have? trips to cancun, flatscreens?
let me put it to you this way. this is the hailmary. if this doesn’t fly, you face 3 years+ of depression that will lead to more serious stuff. the time to do something was then, not now. let them work this under the table and pray it works by fooling the chinese.
March 27th, 2009 at 11:27 am PDT
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The rule of law in the United States has been corrupted since its founding, and in an exponential fashion. What we are living through is the steep part of the curve, so to speak- the part a man couldn’t walk up without falling back.
One thing you can be sure of- the process of rights violations will continue to escalate until the people are completely enslaved, or the politicians and their cronys’ heads are on pikes along the road.
March 27th, 2009 at 11:47 am PDT
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It’s a fabulous question. Unfortunately, congress has practiced ceding its authority for quite a few years. Practice makes perfect. The Democrats are just doing what they saw the Republicans do under Bush. Somehow, they have forgotten they have the power to control everything, through appropriation.
Jefferson and Franklin went through heated, and almost violent, debates with Adams and Hamilton to make sure the powers of the President were limited only to what congress allowed him to have. It is why Washington did so little while in office. After a few years, he just gave up fighting congress, and Adams realized the best way to get congress to give Washington what he needed was to go directly to individual congressmen to initiate the proposals. Hence, the beginning of “lobbying.”
It is that very “lobbying” that now controls our government. And only those with the ability to pay the formalized lobbying structure have any voice in our system.
March 27th, 2009 at 11:50 am PDT
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Here is a simple explanation of the Geithner plan that shows how all it is going to do is let the banks clear their books and stick it to the taxpayer. I highly recommend you want this.
March 27th, 2009 at 12:22 pm PDT
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Geithner’s plan explained
March 27th, 2009 at 12:25 pm PDT
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Raivo Pommer
raimo1@hot.ee
Der Dresdner Bank Krise
Die Spitzenmanager der Dresdner Bank haben 2008 trotz Milliardenverlusten weit mehr verdient als jeder andere Bankvorstand in Deutschland. Laut Geschäftsbericht des mittlerweile zur Commerzbank gehörenden Instituts kassierten die zeitweise neun Vorstände gut 58 Millionen Euro und damit mehr als doppelt so viel wie im Vorjahr. Größter Posten waren Abfindungen von mehr als 24 Millionen Euro – keiner der Dresdner-Vorstände wird nach der Integration des Instituts in die Commerzbank weiterbeschäftigt.
Zum Vergleich: Die Vorstände der Commerzbank verdienten im vergangenen Jahr 4,3 Millionen Euro, die der Deutschen Bank 4,5 Millionen Euro. Weltweit
ist eine hitzige Debatte über Bonuszahlungen an Banker entbrannt, die für Milliardenverluste verantwortlich sind (siehe auch Boni-Streit: AIG geht in Deckung). In den Vereinigten Staaten wird gar über eine Strafsteuer nachgedacht, um die Gelder bei staatlich gestützten Instituten wieder zurückzuholen.
March 27th, 2009 at 12:47 pm PDT
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Is there anything stopping healthy banks from choosing to drop out of FDIC and set up their own private deposit insurance? The likely debt that FDIC will accrue from this plan would take years of banking system profits to pay off, if it would be possible at all, right?
March 27th, 2009 at 12:56 pm PDT
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BTW, borrowers want to take part of the deal, if they pay their loans:
http://www.FairPPIP.org
March 28th, 2009 at 2:10 am PDT
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I believe what Geithner is proposing is to change the law. So if his proposals are passed by Congress, all the observations noted above will be moot. Of course, if challenged in court, it will go to the Supreme Court.
March 28th, 2009 at 6:59 am PDT
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The U.S. was designed as a democratic republic which, of course, is a recipe for corruption. The oligarchy has increased their influence with contributions in direct to candidates/incumbents and in the speaker circuit. Congress responds to the oligarchs, not their voting constituents. While Johnson may indeed be correct about the necessity for breaking the financial oligarchy, where does the political will for such an act spring? The current (and preceding) administration(s) may attempt to fool the Chinese in terms of financial shenanigans, but ultimately the greater fools will be U.S. citizens subjected to the loss of value of their currency.
April 5th, 2009 at 7:43 am PDT
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raivo pommer-www.google.ee
raimo1@hot.ee
GM-Aktien
gaben mehr als sieben Prozent nach. Nach den Worten von GM-Chef Fritz Henderson bevorzugt der Konzern eine außergerichtliche Restrukturierung, schließt aber im Notfall auch eine Insolvenz nicht aus. GM wollte sich nicht weiter zu der Sache äußern.
Investor – dringend gesucht
Die US-Regierung hatte die Restrukturierungspläne von GM und Chrysler mitsamt deren Bitte um weitere etwa 22 Milliarden Dollar Staatshilfen jüngst als unzureichend zurückgewiesen.
Sie hatte GM 60 Tage Zeit gegeben, ein neues Sanierungskonzept vorzustellen.
Opel sucht indes dringend einen Investor, um sich von der ums Überleben ringenden US-Mutter teilweise zu lösen.
April 8th, 2009 at 9:05 am PDT
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raivo pommer-www.google.ee
raimo1@hot.ee
EURO KRISIS
Der Kurs des Euro EURUS.FX1 hat sich am Mittwoch im Nachmittagshandel stabilisiert. Zuletzt wurden für die Gemeinschaftswährung 1,3242 US-Dollar gezahlt, nachdem der Euro im frühen Handel noch bis auf 1,3145 Dollar gefallen war. Die Europäische Zentralbank (EZB) hatte den Referenzkurs am Mittag auf 1,3231 (Dienstag: 1,3255) Dollar festgesetzt. Der Dollar kostete damit 0,7558 (0,7544) Euro.
Zunächst hatten schwächelnde Aktienmärkte den Euro belastet. “Als die Aktienkurse im Zuge der Bekanntgabe der ersten Ergebnisse für das erste Quartal 2009 ins Trudeln gerieten, nahm die Risikoaversion zu und schon ging es für den Euro abwärts”, erklärten die Experten der HSH Nordbank die Kursentwicklung. “Möglicherweise hält das Protokoll der letzten Sitzung des geldpolitischen Ausschusses der US-Notenbank Fed noch etwas Neues bereit”, so die HSH Nordbank und hofft auf eine Begründung für den Ankauf von 300 Milliarden Dollar an Staatsanleihen. Die Auswirkungen auf den Devisenmarkt sollten sich den Experten zufolge allerdings in Grenzen halten.
Devisenexperte Klaus Gölitz von M.M. Warburg verwies ebenfalls auf die Aktienmärkte als Impulsgeber. “Derzeit ist Euro/Dollar ein Spiegelbild des DAX und des Futures auf den Dow Jones . Mit der Erholung der Aktienmärkte ging es auch für den Euro wieder etwas nach oben”, sagte Gölitz. Insgesamt sei die Grundstimmung aber relativ ruhig. Die Positionen auf dem Devisenmarkt seien seit dem G20-Gipfel relativ ausgewogen und die Volatilität sei vor dem langen Osterwochenende deutlich zurückgekommen.
April 8th, 2009 at 5:30 pm PDT
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raivo pommer-www.google.ee
raimo1@hot.ee
Deflation hits Ireland
Ireland’s consumer prices fell 2.6 per cent in March from a year ago, the sharpest rate of deflation since 1933, when the world was struggling through the Great Depression, official figures showed yesterday.
The March rate accelerated from an annual deflation rate of 1.7 per cent in February, the Central Statistics Office said. The report said there was no change in prices from February to March, which are now at August 2007 levels.
Ireland’s deflation began in January and reflects the country’s sudden fall into a deep recession.
The country last suffered from deflation in 1960.
Although lower prices can help spending and exports, deflation can be damaging for an economy if prices enter a downward spiral – consumers hold off buying items on expectations they will become cheaper, pushing retailers to cut prices to encourage spending, and so on.
Finance Minister Brian Lenihan, when announcing an emergency budget on Wednesday to trim 3.25 billion ($7.32 billion) from Ireland’s ballooning deficit, said the Government expected deflation to average 4 per cent in 2009.
April 11th, 2009 at 8:45 am PDT
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raivo pommer-www.google.ee
raimo1@hot.ee
NOKIA INDIA
Gearing up to meet the challenges of next generation mobile services – 3G, the world’s largest handset maker, Nokia, today announced a
slew of new services like music online and location based services to be made available on its new phones, to be launched shortly.
“We are moving away from just devices to devices plus services plus solutions. With the 3G mobile services set to make advent by the middle of next year, we feel that revenue from non-voice services is bound to increase significantly,” Nokia India Ltd Vice-President and General Manager D Shivakumar told reporters here.
Asked whether Nokia is planning to acquire some of the content providers to enhance services, Shivakumar said “there is no plan for any acquisition but it will be done through a collaboration with the innovators.”
He, however, said that there would be significant investment in ramping up the facilities but declined to give details.
In fact, Nokia called upon Indian mobile and web application developers to create innovative consumer applications exclusively for the upcoming handset N97.
April 12th, 2009 at 4:22 pm PDT
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