There is no future in the U.S. devaluing its dollar to gain an economic advantage, and the government has no intention of trying slash the dollar's value to boost exports, Treasury Secretary Timothy Geithner said. "It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity, to [be] competitive," he said. "It is not a viable, feasible strategy, and we will not engage in it." Reuters
That dog wont hunt... talk about trying to close the open barn door...Timmy the horse is gone!! OMG, I am still laughing….
Showing posts with label Geithner. Show all posts
Showing posts with label Geithner. Show all posts
Tuesday, October 19, 2010
Tuesday, August 3, 2010
Fannie and Freddie need fundamental change, another "Entitlement?"
Government-controlled mortgage giants Fannie Mae and Freddie Mac must be subjected to "dramatic" change, but this can't be done quickly while the housing market is still weak, said Treasury Secretary Timothy Geithner. He said the government will always have to provide some support to the mortgage industry to provide "reasonable security that you can borrow to finance a house even in a deep recession."
The Wall Street Journal
Interesting that the Government sees home-ownership support as another "entitlement".
The Wall Street Journal
Interesting that the Government sees home-ownership support as another "entitlement".
Tuesday, July 27, 2010
Analysis: Geithner and Bernanke differ on a tax issue
U.S. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke have been in sync on most issues during the past three years, but recent comments from the officials suggest they are on opposite sides of a tax issue, according to The Wall Street Journal. Bernanke told lawmakers that he supports continuing tax rates that expire early next year.
Geithner, on the other hand, said those tax rates should be allowed to expire.
The Wall Street Journal
Geithner, on the other hand, said those tax rates should be allowed to expire.
The Wall Street Journal
Friday, July 9, 2010
Geithner indicates good news on taxes for capital gains and dividends
Treasury Secretary Timothy Geithner said the White House wants to keep the top tax rate on dividends and capital gains at a proposed 20%.
The rate is 15%, so 20% would be a large increase, but it would be less than the 39.6% rate congressional Democrats want for dividends.
The Wall Street Journal
The rate is 15%, so 20% would be a large increase, but it would be less than the 39.6% rate congressional Democrats want for dividends.
The Wall Street Journal
Thursday, July 1, 2010
Foreclosed Homes Sell at 27% Discount as Supply Grows
From a story by Dan Levy - Jun 30, 2010 on Bloomberg News, excerpts below
"Homes in the foreclosure process sold at an average 27 percent discount in the first quarter as almost a third of all U.S. transactions involved properties in some stage of mortgage distress, according to RealtyTrac Inc."
"The average price of a distressed property was $171,971, according to the Irvine, California-based data seller."
“The discount will probably stay between 25 percent and 30 percent as lenders carefully manage the number of new foreclosure actions in order to avoid flooding the market,” Rick Sharga, RealtyTrac’s senior vice president for marketing, said in an interview.
"The discount reflects the average sales price of homes in the foreclosure process compared with the average sales price of properties not in distress. About 31 percent of all U.S. sales in the quarter were of homes in some stage of foreclosure, RealtyTrac said. "
"Home foreclosures set a record for the second straight month in May, with increases in every state, as lenders stepped up property seizures, RealtyTrac said earlier this month. Bank repossessions climbed 44 percent from a year earlier and will probably set a record in the second quarter, the company said."
You have to ask yourself: are economic conditions that much worse or have banks found another outlet to dispose of these distressed properties?
Do I smell the stink of vulture investors again? How about buying a property for a third or so less than it is worth, slapping on a coat of paint and reselling it at a 50% profit (still way below what its market value might be)? And you dont even have to watch This Old House to find out how, or even get your hands dirty...there is an unlimited supply of undocumented workers literally dying to work for less than minimum wage paid in cash under the table to do the dirty work.
Who has the kind of resources to do this? Those dastardly hedge funds? Wilbur Ross ( owner of a mortgage servicer empire with inside access to the cherries of distressed homes) Carl Icahn? George Soros ( who undoubtedly has the ear of the Administration)?
And of course, those banks are being paid by the Government (TARP remember) using our tax dollars and servicers and banks are being given free money incentives to "try" and modify mortgages. These are the same banks that bought insurance against default on these mortgages from AIG.
And they were paid out 100% by the NY Federal Reserve under Tim Geithner, on these contracts so that they possibly have already been made whole on these home mortgages that they are now foreclosing.Do they even own them anymore? Shouldnt AIG have been given the collateral?
Double dipping, nay triple dipping comes to mind. The mortgage crisis was caused by irresponsible lending...but it was legal lending for the most part.
Today it appears that a nasty unintended consequence of the bailout of the banks is very likely a collusion between Government (in its burocratic ignorance), the Too Big To Fail crowd,the uber-Rich, those nasty Wall Street Types and compliant Politicians creating legislation written by lobbyists for those same beneficiaries that is setting up another scandalous rip off of the helpless populace.
"Homes in the foreclosure process sold at an average 27 percent discount in the first quarter as almost a third of all U.S. transactions involved properties in some stage of mortgage distress, according to RealtyTrac Inc."
"The average price of a distressed property was $171,971, according to the Irvine, California-based data seller."
“The discount will probably stay between 25 percent and 30 percent as lenders carefully manage the number of new foreclosure actions in order to avoid flooding the market,” Rick Sharga, RealtyTrac’s senior vice president for marketing, said in an interview.
"The discount reflects the average sales price of homes in the foreclosure process compared with the average sales price of properties not in distress. About 31 percent of all U.S. sales in the quarter were of homes in some stage of foreclosure, RealtyTrac said. "
"Home foreclosures set a record for the second straight month in May, with increases in every state, as lenders stepped up property seizures, RealtyTrac said earlier this month. Bank repossessions climbed 44 percent from a year earlier and will probably set a record in the second quarter, the company said."
You have to ask yourself: are economic conditions that much worse or have banks found another outlet to dispose of these distressed properties?
Do I smell the stink of vulture investors again? How about buying a property for a third or so less than it is worth, slapping on a coat of paint and reselling it at a 50% profit (still way below what its market value might be)? And you dont even have to watch This Old House to find out how, or even get your hands dirty...there is an unlimited supply of undocumented workers literally dying to work for less than minimum wage paid in cash under the table to do the dirty work.
Who has the kind of resources to do this? Those dastardly hedge funds? Wilbur Ross ( owner of a mortgage servicer empire with inside access to the cherries of distressed homes) Carl Icahn? George Soros ( who undoubtedly has the ear of the Administration)?
And of course, those banks are being paid by the Government (TARP remember) using our tax dollars and servicers and banks are being given free money incentives to "try" and modify mortgages. These are the same banks that bought insurance against default on these mortgages from AIG.
And they were paid out 100% by the NY Federal Reserve under Tim Geithner, on these contracts so that they possibly have already been made whole on these home mortgages that they are now foreclosing.Do they even own them anymore? Shouldnt AIG have been given the collateral?
Double dipping, nay triple dipping comes to mind. The mortgage crisis was caused by irresponsible lending...but it was legal lending for the most part.
Today it appears that a nasty unintended consequence of the bailout of the banks is very likely a collusion between Government (in its burocratic ignorance), the Too Big To Fail crowd,the uber-Rich, those nasty Wall Street Types and compliant Politicians creating legislation written by lobbyists for those same beneficiaries that is setting up another scandalous rip off of the helpless populace.
Friday, May 22, 2009
Is Mr. Geithner speaking today?
Thank to Jack Crooks. This is a MUST READ RANT!
http://www.blackswantrading.com/files/articles/5b3a61794823258ee9df38f59319d335bsccc052209.pdf
FX Trading – Dollar Shrug! No surprise. Is Mr. Geithner speaking today? He is becoming such a joy for dollar bears, as John Ross mentioned in his closing to CC yesterday. And the dollar doom and gloom crowd is smelling blood in the water; rightly so! There are a lot of short dollar trades on it seems. We surmise Pimco has a big dollar short position given Bond King Bill Gross’s recent public musing about the US may lose its AAA rating. Comments like that shouldn’t be a surprise to anyone given the US government’s desire to take on the role of global stimulus King instead of just worrying about getting its own house in order—pathetic! Mr. Geithner says the US depends on other countries to grow and chastises them for not throwing enough of their taxpayers’ money into the “stimulus” program. Maybe he should take a look at that before he speaks…Of course the crony insiders tell us how “smart” Mr. Geithner is, and we don’t doubt his intelligence. Anyone that can avoid paying personal income taxes and still pull-off an appointment to Treasury Secretary (and run the IRS) is pretty smart. But our gripe is the fact that the guy instills negative confidence in the market place not because he lacks “leadership qualities,” as some have suggested, but because his economics seems all screwed up in my most humble opinion. We are in a gut wrenching transition in the global economy because the wildest orgy of debt the world has ever seen is over. Thus, excesses across all sectors, especially financial, must be removed from the marketplace in order for real quality long-term globally balanced growth to take hold. Instead, day after day we witness dinosaur saving from Geithner and friends, while stunningly they tell us this with a straight face (as straight as any government official possibly can) that we need to put more debt into the market in order to solve the problem of too much debt being in the market. Mr. Orwell call your office!
Now granted, few of us have toiled away at the top economic Ivy League institutions and rubbed elbows and other things against the top seers. Granted, we don’t have the luxury of feeding our ideas and inputs into the most sophisticated econometrics models imaginable built of course by the “best and brightest.” But it seems our angst grows from something the power elites don’t have—common sense. Putting more debt into a system desperately working to alleviate debt is just plain stupid no matter how the Neo-Keynesians slice or dice it. Is it any wonder why the globe is losing confidence in the dollar? It seems the guys that are supposed to be on our side consistently cow-tow to the other side. And of course, you know where I’m going here—China. It is farcical when China criticizes the US for overconsumption and not saving enough. They were enriched precisely because of the overconsumption, besides playing our multi-national “leaders” like a violin by offering cheap labor and short-term riches in turn for giving them technology which sooner or later will lead to the wiping out western business and sunk shareholder value as we know it. But that is another story for another day. The symbiotic game of China shipping containers full of stuff to the US for Federal Reserve Notes dwindling in value ended with the credit crunch. And guess which of the two formerly symbiotic players is getting crunched harder—if you said China you would have been right. But, in their Orwellian world of global chess, the Chinese pretend they are outperforming anything that moves. And their noises and lies and bluffs and fake economic numbers cannot deny the fact that if Mr. US Consumer does not get this symbiotic game of dollars for stuff going again, the Politburo may be out of a job—literally thrown out of a job, if you know what I mean. So, instead of realizing this upper hand of consumer demand the US possesses, the US government economic “leaders” agree with China that yes—it is highly important to stimulate the globe, we want 2001 again. If successful it would mean China continues to add global market share to their manufacturing behemoth and can avoid the dirty hard job of developing a domestic market.
Jack Crooks, Black Swan Capital LLC
www.blackswantrading.com
Black Swan Capital’s Currency Currents is strictly an informational publication and does not provide individual, customized
investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed
disclaimer can be found at http://www.blackswantrading.com/disclaimer.html
Please read the whole article here:http://www.blackswantrading.com/files/articles/5b3a61794823258ee9df38f59319d335bsccc052209.pdf
http://www.blackswantrading.com/files/articles/5b3a61794823258ee9df38f59319d335bsccc052209.pdf
FX Trading – Dollar Shrug! No surprise. Is Mr. Geithner speaking today? He is becoming such a joy for dollar bears, as John Ross mentioned in his closing to CC yesterday. And the dollar doom and gloom crowd is smelling blood in the water; rightly so! There are a lot of short dollar trades on it seems. We surmise Pimco has a big dollar short position given Bond King Bill Gross’s recent public musing about the US may lose its AAA rating. Comments like that shouldn’t be a surprise to anyone given the US government’s desire to take on the role of global stimulus King instead of just worrying about getting its own house in order—pathetic! Mr. Geithner says the US depends on other countries to grow and chastises them for not throwing enough of their taxpayers’ money into the “stimulus” program. Maybe he should take a look at that before he speaks…Of course the crony insiders tell us how “smart” Mr. Geithner is, and we don’t doubt his intelligence. Anyone that can avoid paying personal income taxes and still pull-off an appointment to Treasury Secretary (and run the IRS) is pretty smart. But our gripe is the fact that the guy instills negative confidence in the market place not because he lacks “leadership qualities,” as some have suggested, but because his economics seems all screwed up in my most humble opinion. We are in a gut wrenching transition in the global economy because the wildest orgy of debt the world has ever seen is over. Thus, excesses across all sectors, especially financial, must be removed from the marketplace in order for real quality long-term globally balanced growth to take hold. Instead, day after day we witness dinosaur saving from Geithner and friends, while stunningly they tell us this with a straight face (as straight as any government official possibly can) that we need to put more debt into the market in order to solve the problem of too much debt being in the market. Mr. Orwell call your office!
Now granted, few of us have toiled away at the top economic Ivy League institutions and rubbed elbows and other things against the top seers. Granted, we don’t have the luxury of feeding our ideas and inputs into the most sophisticated econometrics models imaginable built of course by the “best and brightest.” But it seems our angst grows from something the power elites don’t have—common sense. Putting more debt into a system desperately working to alleviate debt is just plain stupid no matter how the Neo-Keynesians slice or dice it. Is it any wonder why the globe is losing confidence in the dollar? It seems the guys that are supposed to be on our side consistently cow-tow to the other side. And of course, you know where I’m going here—China. It is farcical when China criticizes the US for overconsumption and not saving enough. They were enriched precisely because of the overconsumption, besides playing our multi-national “leaders” like a violin by offering cheap labor and short-term riches in turn for giving them technology which sooner or later will lead to the wiping out western business and sunk shareholder value as we know it. But that is another story for another day. The symbiotic game of China shipping containers full of stuff to the US for Federal Reserve Notes dwindling in value ended with the credit crunch. And guess which of the two formerly symbiotic players is getting crunched harder—if you said China you would have been right. But, in their Orwellian world of global chess, the Chinese pretend they are outperforming anything that moves. And their noises and lies and bluffs and fake economic numbers cannot deny the fact that if Mr. US Consumer does not get this symbiotic game of dollars for stuff going again, the Politburo may be out of a job—literally thrown out of a job, if you know what I mean. So, instead of realizing this upper hand of consumer demand the US possesses, the US government economic “leaders” agree with China that yes—it is highly important to stimulate the globe, we want 2001 again. If successful it would mean China continues to add global market share to their manufacturing behemoth and can avoid the dirty hard job of developing a domestic market.
Jack Crooks, Black Swan Capital LLC
www.blackswantrading.com
Black Swan Capital’s Currency Currents is strictly an informational publication and does not provide individual, customized
investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed
disclaimer can be found at http://www.blackswantrading.com/disclaimer.html
Please read the whole article here:http://www.blackswantrading.com/files/articles/5b3a61794823258ee9df38f59319d335bsccc052209.pdf
Wednesday, February 11, 2009
Waiting for Geithner/Godot Part Deux (2)
This courtesy of Nouriel Roubini's RGE Monitor. It is a must read for all citizen/taxpayers in the USA.
On February 10 Treasury Secretary Timothy Geithner presented the administration’s Financial Stability Plan to deal with the financial system’s toxic asset overhang and ease, if not reverse, the ongoing decline in bank lending to households and corporations. Out of the three broad options available -including nationalization, ‘good / bad bank’, backstop guarantee on ring-fenced toxic assets- the administration plan offers elements of all three.
The first program involves a mandatory ‘stress test’ for all banks with $100bn-plus assets which should also shed some clarity on the individual banks exposures and valuations of toxic assets. The Treasury’s Capital Assistance Program stands ready with preferred shares / warrants injections where needed, only this time with clear lending requirements and strict limits on dividends, stock repurchases and acquisitions next to a $500,000 compensation cap. Any capital investments made by Treasury under the CAP will be placed in the Financial Stability Trust. However, it is still unclear what the options are for institutions that are severely undercapitalized or that fail to attract public capital on a recurring basis (see e.g. Bank of America, Citigroup after the 2nd bailout.) The program aims at ensuring full transparency disclosing all relevant information on capital recipients at www.FinancialStability.gov.
The second program, the Public-Private Investment Fund (PPP), aims at setting up a new lending/guarantee facility by leveraging an initial private capital commitment with government funds to an initial scale of up to $500bn (can be expanded to max. $1 trillion.) The aim is to involve private capital on a large scale that sits currently on the sidelines while also allowing private market forces to determine the price for currently troubled and illiquid assets.
A similar experiment was tried before with the private sector sponsored M-LEC vehicle that ultimately proved unviable due to asymmetric toxic asset exposures of participating banks and due to still unresolved asset valuation issues. Commentators agree that for a similar plan to work this time, the government will have to assume a potentially substantial downside in order to induce otherwise unwilling investors to participate in view of the size of potential losses.
As we noted before, the size of the entire shadow banking system lacking liquidity is $10 trillion of which $6 trillion are assets held in the U.S. Not all of these assets will turn bad but at RGE we expect total losses on these shadow banking assets plus traditional loan losses to reach $3.6 trillion (of which $1.8 trillion borne by U.S. banks.)
One practical example is the Federal Reserve’s Maiden Lane portfolio of toxic Bear Stearns assets. If that performance is any guide, the upside left in these toxic assets might in reality be more limited than previously assumed. Cumberland Advisors reports that this particular portfolio has lost over 10% of its value, and losses are mounting. Indeed, the authors see ‘no prospect for a profit’ on this portfolio.
Renowned distressed debt experts such as Edward Altman and Martin Fridson note that the best time to invest in distressed debt is when default rates peak. Mind that high-yield default rates are set to rise to 15-20% sometime in 2010 from currently 4-5% due to very bad credit quality at the outset of the cycle.
The third program put forth by Secretary Geithner is an expanded version of the previously $200bn Federal Reserve Term Asset Backed Securities Loan Facility (TALF) program aimed at unclogging the markets for auto, student and other consumer loans. That initiative may expand to as much as $1 trillion, using $100 billion from the Treasury's rescue funds, and include aid for commercial real estate markets.
Geithner points out that securitization created about 40% of the demand for new loans extended to consumers, students, and auto buyers. The decline of securitized lending to the tune of $1.2 trillion between 2006 and 2008 leaves a hole that needs to be filled if a severe lending contraction should be prevented.
Nouriel Roubini in his latest writing It Is Time to Nationalize Insolvent Banking Systems argues that, ultimately, nationalization may be a more market friendly solution of a banking crisis: it creates the biggest hit for common and preferred shareholders of clearly insolvent institutions and – possibly – even the unsecured creditors in case the bank insolvency is too large; it provides a fair upside to the tax-payer. Moreover, it bypasses the asset valuation issue as any overpayment goes back into taxpayers pockets. “With the government starting stress tests to figure out which institutions are so massively undercapitalized that they need to be taken over by the FDIC the administration is putting in place the steps for the eventual and necessary takeover of the insolvent banks.” This might well explain some of the negative market reaction.
The Treasury has stressed that while the ongoing price correction will stimulate home demand, there is a need to reduce foreclosures, which otherwise adding to the excess overhang of homes pose the risk of price over-correction, pushing more homeowners into negative equity. The Treasury plans to announce a Housing Program in the next few weeks to help refinance mortgages and contain foreclosures by reducing monthly payments for homeowners. The program will be financed by using $50 billion from the remaining TARP funds. To increase lender participation, the plan makes it compulsory for banks using government funds under the Financial Stability Plan to participate in foreclosure mitigation. In order to stimulate home demand and help the current homeowners refinance, the Treasury and Fed will continue with their November 2008 plans use $600 billion to buy MBSs and debt of the GSEs using and reduce mortgage rates to the 4-4.5% range. More importantly, the plan will increase flexibility to modify loans under the Hope Now and FHA Programs started in 2007-08 to help increase participation and foreclosure prevention.
Efforts to stimulate demand reducing mortgage rates and offering tax incentives will be largely ineffective as they are a small factor in determining home demand relative to factors such as tighter lending standards, changing dynamics for households - job and income loss, wealth erosion, rising savings rate, and low expectations of income or asset appreciation. These factors will constrain home demand in the short run while potential buyers await further price correction and banks don’t see the viability in offering mortgage for a house whose value is expected to fall.
As a result, the government needs to focus on the supply side of the market by refinancing at-risk mortgages and preventing foreclosures that will only add to the existing overhang of houses. Moreover, government’s loan modification program should reduce mortgage principal rather than just reducing the mortgage rate or extending the loan maturity, which has been the case in past government programs. Unless the problem of insolvency among a large number of households is addressed, default on modified mortgages will also continue. Also, given the large number of homeowners with negative home equity, the program will need much larger funds - over $600 billion to $1 trillion though the actual cost might be much less, since the government will receive a share from future home appreciation. Monetary incentives for servicers are also low and ineffective. Even the number of homeowners the program plans to target, 1.5-2 million is a very small fraction of the over 12 million homeowners with negative equity. In fact, several Democrats are pushing a legislation to allow bankruptcy judges to change mortgage terms that would allow lenders to reduce the mortgage principal for primary homes and bring down monthly payments. To increase participation, they support offering monetary incentives for servicers while lenders will be entitled to a share if the homeowner sells the house and also have the government share any losses on the modified mortgage.
As we have argued before at RGE Monitor, looking at the shortcomings of past government programs such as the Hope Now, Housing Retention and FDIC programs, the new program should be mandatory for lenders in order to increase participation. The government will also need to share the cost of modifying the loan, by matching the principal or the interest rate cut in a proportionate or less than proportionate amount. By guaranteeing the loans, the government will be the senior debt holder. The new interest rate should be based on the risk assessment of the borrower and all three parties – homeowner, lenders and servicers, and the government should share the cost of modification. However, determining the extent of principal reduction based on the true value of the house, and dealing with second lien mortgages and the diverging interests of mortgage servicers will be challenging.
Under the new guidelines for compensation issued by the Treasury, firms receiving federal aid will be subject to shareholder say on pay and will be required to cap executive compensation at $500,000 with any additional compensation given out in restricted stocks which can be cashed only after the government has been repaid or the bank has satisfied repayment obligations, and met lending and stability standards. Moreover, bonuses and compensation for other top executives will also be reduced. The Treasury requires disclosure of the compensation structure and strategy, and expenditure on luxury items.
While government intervention is warranted, the compensation reform does little to align risks with rewards. Large share of the compensation can and will still be given out in restricted stocks including compensation for several traders and funds managers who are not under the lenses of the current plan. Government measures also give a green signal to those who have already received large compensation and severance packages at the troubled banks. More importantly, the measures might act a disincentive in attracting credible executive talent to these troubled institutions in the future who can help deal with the bank losses and overhaul. Wall Street compensation is determined in a competitive market with CEOs joining a firm offering the most attractive pay packages and perks. Many banks are already reluctant to seek capital injection from the Treasury or are contemplating to payback past borrowings in order to avoid government scrutiny over their compensation packages.
To reduce excessive risk-taking in the short-run, compensation, bonuses and even severance packages should be based on the long-term performance of the employee relative to the risk undertaken with large part of the payments given out in restricted stocks that can be redeemed over a longer period of time.
On February 10 Treasury Secretary Timothy Geithner presented the administration’s Financial Stability Plan to deal with the financial system’s toxic asset overhang and ease, if not reverse, the ongoing decline in bank lending to households and corporations. Out of the three broad options available -including nationalization, ‘good / bad bank’, backstop guarantee on ring-fenced toxic assets- the administration plan offers elements of all three.
The first program involves a mandatory ‘stress test’ for all banks with $100bn-plus assets which should also shed some clarity on the individual banks exposures and valuations of toxic assets. The Treasury’s Capital Assistance Program stands ready with preferred shares / warrants injections where needed, only this time with clear lending requirements and strict limits on dividends, stock repurchases and acquisitions next to a $500,000 compensation cap. Any capital investments made by Treasury under the CAP will be placed in the Financial Stability Trust. However, it is still unclear what the options are for institutions that are severely undercapitalized or that fail to attract public capital on a recurring basis (see e.g. Bank of America, Citigroup after the 2nd bailout.) The program aims at ensuring full transparency disclosing all relevant information on capital recipients at www.FinancialStability.gov.
The second program, the Public-Private Investment Fund (PPP), aims at setting up a new lending/guarantee facility by leveraging an initial private capital commitment with government funds to an initial scale of up to $500bn (can be expanded to max. $1 trillion.) The aim is to involve private capital on a large scale that sits currently on the sidelines while also allowing private market forces to determine the price for currently troubled and illiquid assets.
A similar experiment was tried before with the private sector sponsored M-LEC vehicle that ultimately proved unviable due to asymmetric toxic asset exposures of participating banks and due to still unresolved asset valuation issues. Commentators agree that for a similar plan to work this time, the government will have to assume a potentially substantial downside in order to induce otherwise unwilling investors to participate in view of the size of potential losses.
As we noted before, the size of the entire shadow banking system lacking liquidity is $10 trillion of which $6 trillion are assets held in the U.S. Not all of these assets will turn bad but at RGE we expect total losses on these shadow banking assets plus traditional loan losses to reach $3.6 trillion (of which $1.8 trillion borne by U.S. banks.)
One practical example is the Federal Reserve’s Maiden Lane portfolio of toxic Bear Stearns assets. If that performance is any guide, the upside left in these toxic assets might in reality be more limited than previously assumed. Cumberland Advisors reports that this particular portfolio has lost over 10% of its value, and losses are mounting. Indeed, the authors see ‘no prospect for a profit’ on this portfolio.
Renowned distressed debt experts such as Edward Altman and Martin Fridson note that the best time to invest in distressed debt is when default rates peak. Mind that high-yield default rates are set to rise to 15-20% sometime in 2010 from currently 4-5% due to very bad credit quality at the outset of the cycle.
The third program put forth by Secretary Geithner is an expanded version of the previously $200bn Federal Reserve Term Asset Backed Securities Loan Facility (TALF) program aimed at unclogging the markets for auto, student and other consumer loans. That initiative may expand to as much as $1 trillion, using $100 billion from the Treasury's rescue funds, and include aid for commercial real estate markets.
Geithner points out that securitization created about 40% of the demand for new loans extended to consumers, students, and auto buyers. The decline of securitized lending to the tune of $1.2 trillion between 2006 and 2008 leaves a hole that needs to be filled if a severe lending contraction should be prevented.
Nouriel Roubini in his latest writing It Is Time to Nationalize Insolvent Banking Systems argues that, ultimately, nationalization may be a more market friendly solution of a banking crisis: it creates the biggest hit for common and preferred shareholders of clearly insolvent institutions and – possibly – even the unsecured creditors in case the bank insolvency is too large; it provides a fair upside to the tax-payer. Moreover, it bypasses the asset valuation issue as any overpayment goes back into taxpayers pockets. “With the government starting stress tests to figure out which institutions are so massively undercapitalized that they need to be taken over by the FDIC the administration is putting in place the steps for the eventual and necessary takeover of the insolvent banks.” This might well explain some of the negative market reaction.
The Treasury has stressed that while the ongoing price correction will stimulate home demand, there is a need to reduce foreclosures, which otherwise adding to the excess overhang of homes pose the risk of price over-correction, pushing more homeowners into negative equity. The Treasury plans to announce a Housing Program in the next few weeks to help refinance mortgages and contain foreclosures by reducing monthly payments for homeowners. The program will be financed by using $50 billion from the remaining TARP funds. To increase lender participation, the plan makes it compulsory for banks using government funds under the Financial Stability Plan to participate in foreclosure mitigation. In order to stimulate home demand and help the current homeowners refinance, the Treasury and Fed will continue with their November 2008 plans use $600 billion to buy MBSs and debt of the GSEs using and reduce mortgage rates to the 4-4.5% range. More importantly, the plan will increase flexibility to modify loans under the Hope Now and FHA Programs started in 2007-08 to help increase participation and foreclosure prevention.
Efforts to stimulate demand reducing mortgage rates and offering tax incentives will be largely ineffective as they are a small factor in determining home demand relative to factors such as tighter lending standards, changing dynamics for households - job and income loss, wealth erosion, rising savings rate, and low expectations of income or asset appreciation. These factors will constrain home demand in the short run while potential buyers await further price correction and banks don’t see the viability in offering mortgage for a house whose value is expected to fall.
As a result, the government needs to focus on the supply side of the market by refinancing at-risk mortgages and preventing foreclosures that will only add to the existing overhang of houses. Moreover, government’s loan modification program should reduce mortgage principal rather than just reducing the mortgage rate or extending the loan maturity, which has been the case in past government programs. Unless the problem of insolvency among a large number of households is addressed, default on modified mortgages will also continue. Also, given the large number of homeowners with negative home equity, the program will need much larger funds - over $600 billion to $1 trillion though the actual cost might be much less, since the government will receive a share from future home appreciation. Monetary incentives for servicers are also low and ineffective. Even the number of homeowners the program plans to target, 1.5-2 million is a very small fraction of the over 12 million homeowners with negative equity. In fact, several Democrats are pushing a legislation to allow bankruptcy judges to change mortgage terms that would allow lenders to reduce the mortgage principal for primary homes and bring down monthly payments. To increase participation, they support offering monetary incentives for servicers while lenders will be entitled to a share if the homeowner sells the house and also have the government share any losses on the modified mortgage.
As we have argued before at RGE Monitor, looking at the shortcomings of past government programs such as the Hope Now, Housing Retention and FDIC programs, the new program should be mandatory for lenders in order to increase participation. The government will also need to share the cost of modifying the loan, by matching the principal or the interest rate cut in a proportionate or less than proportionate amount. By guaranteeing the loans, the government will be the senior debt holder. The new interest rate should be based on the risk assessment of the borrower and all three parties – homeowner, lenders and servicers, and the government should share the cost of modification. However, determining the extent of principal reduction based on the true value of the house, and dealing with second lien mortgages and the diverging interests of mortgage servicers will be challenging.
Under the new guidelines for compensation issued by the Treasury, firms receiving federal aid will be subject to shareholder say on pay and will be required to cap executive compensation at $500,000 with any additional compensation given out in restricted stocks which can be cashed only after the government has been repaid or the bank has satisfied repayment obligations, and met lending and stability standards. Moreover, bonuses and compensation for other top executives will also be reduced. The Treasury requires disclosure of the compensation structure and strategy, and expenditure on luxury items.
While government intervention is warranted, the compensation reform does little to align risks with rewards. Large share of the compensation can and will still be given out in restricted stocks including compensation for several traders and funds managers who are not under the lenses of the current plan. Government measures also give a green signal to those who have already received large compensation and severance packages at the troubled banks. More importantly, the measures might act a disincentive in attracting credible executive talent to these troubled institutions in the future who can help deal with the bank losses and overhaul. Wall Street compensation is determined in a competitive market with CEOs joining a firm offering the most attractive pay packages and perks. Many banks are already reluctant to seek capital injection from the Treasury or are contemplating to payback past borrowings in order to avoid government scrutiny over their compensation packages.
To reduce excessive risk-taking in the short-run, compensation, bonuses and even severance packages should be based on the long-term performance of the employee relative to the risk undertaken with large part of the payments given out in restricted stocks that can be redeemed over a longer period of time.
Tuesday, February 10, 2009
IN THE SPIRIT OF TRANSPARENCY
DOW JONES NEWSWIRES
Treasury Secretary Timothy Geithner received nearly $435,000 in severancefrom his previous employer, the New York Federal Reserve, and Securities andExchange Commission Chairman
Mary Schapiro $7.2 million from the privateauthority she left to join the Obama administration, the Washington Postreported Tuesday on its Web site.
Geithner disclosed $434,668 in severance fromthe New York Fed, plus between $50,000 and $100,000 in unused vacation time andcomp days.
The SEC said Schapiro will receive $7.2 million from the FinancialIndustry Regulatory Authority, the self-regulatory group she headed. Schapiro also received between $750,000 and $1.5 million in deferred compensation fromDuke Energy Corp. (DUK) in cash and stock, and a payout of $675,033 in deferredcompensation from Kraft Foods Inc. (KFT), where she was a board member.
Attorney General Eric Holder Jr. received a severance of between $1 million to$5 million from his former law firm employer.
Full story athttp://www.washingtonpost.com/wp-dyn/content/article/2009/02/09/AR2009020903274html
Treasury Secretary Timothy Geithner received nearly $435,000 in severancefrom his previous employer, the New York Federal Reserve, and Securities andExchange Commission Chairman
Mary Schapiro $7.2 million from the privateauthority she left to join the Obama administration, the Washington Postreported Tuesday on its Web site.
Geithner disclosed $434,668 in severance fromthe New York Fed, plus between $50,000 and $100,000 in unused vacation time andcomp days.
The SEC said Schapiro will receive $7.2 million from the FinancialIndustry Regulatory Authority, the self-regulatory group she headed. Schapiro also received between $750,000 and $1.5 million in deferred compensation fromDuke Energy Corp. (DUK) in cash and stock, and a payout of $675,033 in deferredcompensation from Kraft Foods Inc. (KFT), where she was a board member.
Attorney General Eric Holder Jr. received a severance of between $1 million to$5 million from his former law firm employer.
Full story athttp://www.washingtonpost.com/wp-dyn/content/article/2009/02/09/AR2009020903274html
1ST IMPRESSION OF GEITHNER PLAN
I can sum this up in one word - underwhelmed.
Equity market reaction right now has the right read on this in my opinion.
The expanded TALF is the only good piece of information I like.
STILL waiting for details.
What a disappointment.
Equity market reaction right now has the right read on this in my opinion.
The expanded TALF is the only good piece of information I like.
STILL waiting for details.
What a disappointment.
Wednesday, January 28, 2009
Geithner China Comment from Davos
The World Economic Forum, in Davos Switzerland, began today...
This is usually a huge economist boondoggle, but this year, it has a different look to it. You see, the U.S. boys and girls that normally attend, are missing this year, as they don't want it to look silly after they took bailout, TARP, and any other kind of government handout.
Right out of the starters blocks this morning, we have the economists that did show up in Davos, ripping U.S. Treasury Sec. Geithner,.. The "ripping" centers around the statement that China was "manipulating" their currency and that they should seek to allow the currency to appreciate...
"Allowing the yuan to strengthen would be "economic suicide" amid an economic slump, Stephen Roach, Morgan Stanley's Asia Chairman, told a panel in Davos, Switzerland, today. "I've never seen an economy in recession voluntarily raise their currency. It's horrible advice." (remember, that the renminbi is the official name of the Chinese currency and the yuan is the slang name... It's easier to say, and spell, so the media uses the slang name!
"Shouting from Washington to Beijing is not going to make a difference," said South Africa's Finance Minister Trevor Manuel on the same panel."
And just for the record, ever since Geithner made his call on Monday, the Chinese have basically told him what to do with his thoughts!
The Chinese officials have allowed the renminbi to weaken VS the dollar the last 3 nights! ...
Of course, I prefer the Chinese pushing the renminbi softer, than the alternative of selling their Treasuries!
This from Bill Bonner at Everbank:
" You know what gets my goat about what Geithner said? (it's important to remember that I believe it was Obama's words that Geithner spoke) It's why point the finger at China and not every other country in the world that "fixes", "pegs", and manipulates their currencies? There's a whole laundry list starting with Hong Kong, and ending with Saudi Arabia, with the likes of Japan, Singapore, and the other oil states in between... "
This is usually a huge economist boondoggle, but this year, it has a different look to it. You see, the U.S. boys and girls that normally attend, are missing this year, as they don't want it to look silly after they took bailout, TARP, and any other kind of government handout.
Right out of the starters blocks this morning, we have the economists that did show up in Davos, ripping U.S. Treasury Sec. Geithner,.. The "ripping" centers around the statement that China was "manipulating" their currency and that they should seek to allow the currency to appreciate...
"Allowing the yuan to strengthen would be "economic suicide" amid an economic slump, Stephen Roach, Morgan Stanley's Asia Chairman, told a panel in Davos, Switzerland, today. "I've never seen an economy in recession voluntarily raise their currency. It's horrible advice." (remember, that the renminbi is the official name of the Chinese currency and the yuan is the slang name... It's easier to say, and spell, so the media uses the slang name!
"Shouting from Washington to Beijing is not going to make a difference," said South Africa's Finance Minister Trevor Manuel on the same panel."
And just for the record, ever since Geithner made his call on Monday, the Chinese have basically told him what to do with his thoughts!
The Chinese officials have allowed the renminbi to weaken VS the dollar the last 3 nights! ...
Of course, I prefer the Chinese pushing the renminbi softer, than the alternative of selling their Treasuries!
This from Bill Bonner at Everbank:
" You know what gets my goat about what Geithner said? (it's important to remember that I believe it was Obama's words that Geithner spoke) It's why point the finger at China and not every other country in the world that "fixes", "pegs", and manipulates their currencies? There's a whole laundry list starting with Hong Kong, and ending with Saudi Arabia, with the likes of Japan, Singapore, and the other oil states in between... "
Gold & Commodities, encore comment
Market focus has shifted almost completely to the size and impact of the U.S. fiscal stimulus package currently under construction.
Few are considering the consequences of such reckless spending, least of all how it will be paid for.
The unspoken truth is that the Fed may eventually "monetize," or print new money to finance the Treasury Dept.'s funding needs, if necessary.
I think the assumption that this new government spending will debase the U.S. dollar at an accelerating rate is going to become apparant by year-end.
The rush to inflation hedges like gold and oil, should likewise accelerate before the year is out.
Few are considering the consequences of such reckless spending, least of all how it will be paid for.
The unspoken truth is that the Fed may eventually "monetize," or print new money to finance the Treasury Dept.'s funding needs, if necessary.
I think the assumption that this new government spending will debase the U.S. dollar at an accelerating rate is going to become apparant by year-end.
The rush to inflation hedges like gold and oil, should likewise accelerate before the year is out.
Tuesday, January 27, 2009
Geithner, Obama and China
As a follow on to my comments on this topic here is an article written by David Kotok of Cumberland Advisors that is exquisitely to the point.
This is required reading for all.
By David Kotok
Following Treasury Secretary designee Tim Geithner's public confirmation hearing, an extensive Q & A occurred in writing. We have posted a copy of the US Senate Finance Committee's 100-page text on our website. See:http://www.cumber.com/special/geithnerquestions2009.pdf.
This is must reading for any serious investor, economist, strategist, analyst, or observer. In this text you will find what is on the minds of the Senators, and you will gain insight into the policies that will be forthcoming from the Obama administration.
One telling example is found in the following quote that has already created international consternation. Geithner twice answered questions about currency and China. In so doing he has placed the Obama administration squarely in the middle of the tension between the United States and the largest international buyer and holder of US debt: China. This happened as the same Obama administration is unveiling a package that will add to the TARP financing needs and the cyclical deficit financing needs and cause the United States to borrow about $2 trillion this year. Two trillion dollars of newly issued Treasury debt -- and this is how the question was answered. Not once but twice.
Geithner (on page 81 and again on page 95) answered: "President Obama -- backed by the conclusions of a broad range of economists -- believes that China is manipulating its currency. President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China's currency practices.""Manipulation?" "Aggressively?" This is strong language. Geithner did not do this on his own authority. These are prepared answers. He is citing the new President, not once but twice.
China's response was fast and direct. China's commerce ministry said in Beijing that China "has never used so-called currency manipulation to gain benefits in its international trade. Directing unsubstantiated criticism at China on the exchange-rate issue will only help US protectionism and will not help towards a real solution to the issue."
Are we seeing the world's largest and third largest economies calling each other names in the middle of a global economic and financial meltdown?
The world is in recession. The economic growth rates in the major and mature economies are now negative numbers. In China the growth rate is at least 4 and maybe as much as 8 points below last year. All the governments of the world that are running deficits are enlarging them in order to finance stimulus packages. Their central banks are bringing the policy interest rates toward zero. Trillions will need to be borrowed by those governments. Either they will be financed by the outright massive printing of money through the central bank mechanism, or they will be financed by those in the world who have savings.
China is the largest single holder of financial savings in the world. Japan is next.
Why are we picking a fight with China?
The implied question is why are we alluding to one with Japan, whose currency is currently the strongest of the G4 majors? In a world where global finance is mostly in US dollars, British pounds, euros, and yen, this is engaging in a dangerous sport.
The pound has lost one third of its value against the dollar since the crisis began. It is destined to weaken more. The euro struggles because of the structural issue of having to conduct monetary policy in the sovereign debt of the various euro zone member countries. The gap between those sovereign interest rates has reached nearly 3% between the weakest and strongest. This is an extremely difficult task for the European Central Bank to manage.
And Japan is getting killed by the flight to the strong yen. Japan will intervene soon to weaken the yen; they have as much as said so. The yen is strengthening against the Chinese Yuan; that is Japan's largest trading partner. The yen is 1.5 standard deviations above the JPY/USD exchange rate. It is nearly 3 standard deviations above the JPY/EUR cross rate that has been established during the ten years the euro existed. And it is over 3 standard deviations above the JPY/GBP cross rate.
So that leaves the dollar likely to get stronger. Right now it is the default choice of the world. We have currency strength not because we are so desirable but because we are currently better than the others. All bad; we're not as bad as they are. Or all bad and the others are even worse.
So what do we do within 72 hours of launching the Obama administration that says it is seeking "change?" We fire the first public salvo in what could easily become a trade war or a threat to global financial integration.
What makes us so credible?
Is it our proven record of regulatory oversight of our financial markets, as demonstrated by the Madoff scandal and the SEC? Is it the way our rating agencies work so diligently to place a coveted "AAA" on paper that was peddled to the rest of the world and was found out to be highly toxic? Is it the way we honor the promises of federal agencies by having tier-one-eligible Fannie and Freddie preferred held in the US and abroad by institutions, and then essentially cause a structural default on that preferred (actually, dividend suspension)? Or is it the way the actions of Treasury and the Federal Reserve allowed a primary dealer (Lehman) to fail, thus triggering a global contagion?
C'mon? Where is the plan to restore confidence and credibility and transparency and consistent policy for the United States? And how does the Obama administration believe that launching a fight with China is beneficial?
In the 1930s the severe recession of 1929-1931 was turned into the depression of 1931-1933 because of protectionism. Every historian knows that. Every economist learns it in school. This is well-known by Geithner and even better-known by Larry Summers and Paul Volcker. They are the three members of the Obama economic troika.
The statement Geithner repeated twice was certainly known to them in advance. Why did they not temper it? What is the plan? Do they want to threaten and see if China backs down? This, too, is dangerous. Do they intend to pursue the Schumer tariff scheme? There are more questions than answers.
Lastly, Larry Summers was going to attend the World Economic Forum in Davos, Switzerland. He has cancelled. Why? Was it because he did not want to have to face the private conversations that would follow such statements as have been made by Geithner in the name of the President?
Watch Davos closely. And remember that the absence of statements is as revealing, if not more so, than the presence of them. Not one mention of trade openness appears in our reading of the 100 pages of answers to the Senate. Maybe someone else can find an affirmation of free and open trade. I cannot.
We fear protectionism. It starts with rhetoric. We now have that threat. If it is pursued, it ends badly for everyone. No one wins.
Geithner's answers are sobering. We are now in the realm of fiscal policy and national policy. This is not in the realm of the central bank; the Federal Reserve is not the player here. The Fed is doing all it can to unfreeze the financial system and restore it to functionality. If permitted to complete its task, that policy will work. If stymied or corrupted by conflicting policy in trade or federal finance, the recession will worsen and the pain will become more severe.
I couldnt agree more!! Corecap
This is required reading for all.
By David Kotok
Following Treasury Secretary designee Tim Geithner's public confirmation hearing, an extensive Q & A occurred in writing. We have posted a copy of the US Senate Finance Committee's 100-page text on our website. See:http://www.cumber.com/special/geithnerquestions2009.pdf.
This is must reading for any serious investor, economist, strategist, analyst, or observer. In this text you will find what is on the minds of the Senators, and you will gain insight into the policies that will be forthcoming from the Obama administration.
One telling example is found in the following quote that has already created international consternation. Geithner twice answered questions about currency and China. In so doing he has placed the Obama administration squarely in the middle of the tension between the United States and the largest international buyer and holder of US debt: China. This happened as the same Obama administration is unveiling a package that will add to the TARP financing needs and the cyclical deficit financing needs and cause the United States to borrow about $2 trillion this year. Two trillion dollars of newly issued Treasury debt -- and this is how the question was answered. Not once but twice.
Geithner (on page 81 and again on page 95) answered: "President Obama -- backed by the conclusions of a broad range of economists -- believes that China is manipulating its currency. President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China's currency practices.""Manipulation?" "Aggressively?" This is strong language. Geithner did not do this on his own authority. These are prepared answers. He is citing the new President, not once but twice.
China's response was fast and direct. China's commerce ministry said in Beijing that China "has never used so-called currency manipulation to gain benefits in its international trade. Directing unsubstantiated criticism at China on the exchange-rate issue will only help US protectionism and will not help towards a real solution to the issue."
Are we seeing the world's largest and third largest economies calling each other names in the middle of a global economic and financial meltdown?
The world is in recession. The economic growth rates in the major and mature economies are now negative numbers. In China the growth rate is at least 4 and maybe as much as 8 points below last year. All the governments of the world that are running deficits are enlarging them in order to finance stimulus packages. Their central banks are bringing the policy interest rates toward zero. Trillions will need to be borrowed by those governments. Either they will be financed by the outright massive printing of money through the central bank mechanism, or they will be financed by those in the world who have savings.
China is the largest single holder of financial savings in the world. Japan is next.
Why are we picking a fight with China?
The implied question is why are we alluding to one with Japan, whose currency is currently the strongest of the G4 majors? In a world where global finance is mostly in US dollars, British pounds, euros, and yen, this is engaging in a dangerous sport.
The pound has lost one third of its value against the dollar since the crisis began. It is destined to weaken more. The euro struggles because of the structural issue of having to conduct monetary policy in the sovereign debt of the various euro zone member countries. The gap between those sovereign interest rates has reached nearly 3% between the weakest and strongest. This is an extremely difficult task for the European Central Bank to manage.
And Japan is getting killed by the flight to the strong yen. Japan will intervene soon to weaken the yen; they have as much as said so. The yen is strengthening against the Chinese Yuan; that is Japan's largest trading partner. The yen is 1.5 standard deviations above the JPY/USD exchange rate. It is nearly 3 standard deviations above the JPY/EUR cross rate that has been established during the ten years the euro existed. And it is over 3 standard deviations above the JPY/GBP cross rate.
So that leaves the dollar likely to get stronger. Right now it is the default choice of the world. We have currency strength not because we are so desirable but because we are currently better than the others. All bad; we're not as bad as they are. Or all bad and the others are even worse.
So what do we do within 72 hours of launching the Obama administration that says it is seeking "change?" We fire the first public salvo in what could easily become a trade war or a threat to global financial integration.
What makes us so credible?
Is it our proven record of regulatory oversight of our financial markets, as demonstrated by the Madoff scandal and the SEC? Is it the way our rating agencies work so diligently to place a coveted "AAA" on paper that was peddled to the rest of the world and was found out to be highly toxic? Is it the way we honor the promises of federal agencies by having tier-one-eligible Fannie and Freddie preferred held in the US and abroad by institutions, and then essentially cause a structural default on that preferred (actually, dividend suspension)? Or is it the way the actions of Treasury and the Federal Reserve allowed a primary dealer (Lehman) to fail, thus triggering a global contagion?
C'mon? Where is the plan to restore confidence and credibility and transparency and consistent policy for the United States? And how does the Obama administration believe that launching a fight with China is beneficial?
In the 1930s the severe recession of 1929-1931 was turned into the depression of 1931-1933 because of protectionism. Every historian knows that. Every economist learns it in school. This is well-known by Geithner and even better-known by Larry Summers and Paul Volcker. They are the three members of the Obama economic troika.
The statement Geithner repeated twice was certainly known to them in advance. Why did they not temper it? What is the plan? Do they want to threaten and see if China backs down? This, too, is dangerous. Do they intend to pursue the Schumer tariff scheme? There are more questions than answers.
Lastly, Larry Summers was going to attend the World Economic Forum in Davos, Switzerland. He has cancelled. Why? Was it because he did not want to have to face the private conversations that would follow such statements as have been made by Geithner in the name of the President?
Watch Davos closely. And remember that the absence of statements is as revealing, if not more so, than the presence of them. Not one mention of trade openness appears in our reading of the 100 pages of answers to the Senate. Maybe someone else can find an affirmation of free and open trade. I cannot.
We fear protectionism. It starts with rhetoric. We now have that threat. If it is pursued, it ends badly for everyone. No one wins.
Geithner's answers are sobering. We are now in the realm of fiscal policy and national policy. This is not in the realm of the central bank; the Federal Reserve is not the player here. The Fed is doing all it can to unfreeze the financial system and restore it to functionality. If permitted to complete its task, that policy will work. If stymied or corrupted by conflicting policy in trade or federal finance, the recession will worsen and the pain will become more severe.
I couldnt agree more!! Corecap
China, Obama, Geithner and IMF declare Trade War
Tim Geithner was confirmed as our U.S. Treasury Sec.
This is scary stuff !!
In his confirmation he said, not once, but twice, that "President Obama, backed by the conclusions of a broad range of economists, believes that China is manipulating its currency. President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China's currency practices."
If in his confirmation, he's making statements like that, you can expect that Obama will push for legislature to put tariffs on Chinese goods... Protectionism... This is ALL GOING IN THE WRONG DIRECTION!!!!!!! And believe me now and hear me later... he didn't just make up this response! This was given to him by Obama, and he made certain that everyone hear him, by repeating the answer!
Protectionism is to a currency, like kryptonite is to Superman... So... Not only is the Gov't on the path to spending even more than the previous administration spent, they look as though they will go down this protectionism path... Add to that, the recession and zero interest rates, and you've got the ingredients for a huge swat at the dollar... down she goes!
The IMF's Managing Director, Strauss-Kahn, was talking yesterday, and said, "I have said repeatedly that the renminbi is undervalued" He went on to add, "What we need is for the Chinese to change their policy and shift to more domestic-led growth than to focus on exports. Most Chinese officials are convinced that this is in their own interest."
So... The IMF believes the renminbi is undervalued, and that the Chinese should do something about it, and so does the Obama administration... And you say, "Trade wars"? I bet you can! And not a good time for them either! Not when the whole globe is suffering... Dolts, all of them, they can't see the Big Picture... !
This is scary stuff !!
In his confirmation he said, not once, but twice, that "President Obama, backed by the conclusions of a broad range of economists, believes that China is manipulating its currency. President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China's currency practices."
If in his confirmation, he's making statements like that, you can expect that Obama will push for legislature to put tariffs on Chinese goods... Protectionism... This is ALL GOING IN THE WRONG DIRECTION!!!!!!! And believe me now and hear me later... he didn't just make up this response! This was given to him by Obama, and he made certain that everyone hear him, by repeating the answer!
Protectionism is to a currency, like kryptonite is to Superman... So... Not only is the Gov't on the path to spending even more than the previous administration spent, they look as though they will go down this protectionism path... Add to that, the recession and zero interest rates, and you've got the ingredients for a huge swat at the dollar... down she goes!
The IMF's Managing Director, Strauss-Kahn, was talking yesterday, and said, "I have said repeatedly that the renminbi is undervalued" He went on to add, "What we need is for the Chinese to change their policy and shift to more domestic-led growth than to focus on exports. Most Chinese officials are convinced that this is in their own interest."
So... The IMF believes the renminbi is undervalued, and that the Chinese should do something about it, and so does the Obama administration... And you say, "Trade wars"? I bet you can! And not a good time for them either! Not when the whole globe is suffering... Dolts, all of them, they can't see the Big Picture... !
Monday, January 26, 2009
Geithner China Comment
Is Tim Geithner's recent China bashing comment a goof?
I think so. Read this story from China:
"BEIJING (Nikkei)--Calls are growing in China for the government to reduce its holdings of U.S. Treasury securities, as some observers expect their prices to decline amid heavy issuance to fund U.S. economic stimulus plans.
Such sentiment -- in part motivated by indignation over recent American assertions that China is partially responsible for the global financial crisis-- threatens to cast a cloud over relations between Beijing and the new U.S.administration.
"China should sell some of its U.S. government bonds and increase its euro and yen assets," Yu Yongding, a former member of the People's Bank of China's policy board, wrote in a Chinese newspaper earlier this month. Yu warned that the supply of Treasuries may far exceed demand in the future.
Such remarks by Yu, who currently serves as director-general of the Chinese Academy of Social Sciences' Institute of World Economics and Politics, has sparked discussion within the government on how to manage its foreign reserves, according to a source familiar with the matter."
I'm not saying that "this is finally the last shoe to drop" . Just because a Chinese official calls for Beijing to sell their Treasuries, doesn't mean Beijing does. However, look at the damage done to the dollar, and Treasuries when we have a single individual within China calling for this!
A shot across the bow to Geithner, Schumer et al. China bashing is not only wrong in theory but has real world consequences for the USA. The US $ dropped nearly 1% over the weekend.
I think so. Read this story from China:
"BEIJING (Nikkei)--Calls are growing in China for the government to reduce its holdings of U.S. Treasury securities, as some observers expect their prices to decline amid heavy issuance to fund U.S. economic stimulus plans.
Such sentiment -- in part motivated by indignation over recent American assertions that China is partially responsible for the global financial crisis-- threatens to cast a cloud over relations between Beijing and the new U.S.administration.
"China should sell some of its U.S. government bonds and increase its euro and yen assets," Yu Yongding, a former member of the People's Bank of China's policy board, wrote in a Chinese newspaper earlier this month. Yu warned that the supply of Treasuries may far exceed demand in the future.
Such remarks by Yu, who currently serves as director-general of the Chinese Academy of Social Sciences' Institute of World Economics and Politics, has sparked discussion within the government on how to manage its foreign reserves, according to a source familiar with the matter."
I'm not saying that "this is finally the last shoe to drop" . Just because a Chinese official calls for Beijing to sell their Treasuries, doesn't mean Beijing does. However, look at the damage done to the dollar, and Treasuries when we have a single individual within China calling for this!
A shot across the bow to Geithner, Schumer et al. China bashing is not only wrong in theory but has real world consequences for the USA. The US $ dropped nearly 1% over the weekend.
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