TARP stopped an “economic panic” …

… as a starting point for the entire stimulus program according to a Congressional Oversight Panel audit, but the overall report card looks like a middling “cee” at best.

From the link:

The independent panel that oversees the government’s financial bailout program concluded in a year-end review that, despite flaws and lingering problems, the program “can be credited with stopping an economic panic.”

The Congressional Oversight Panel, which issued the report, was created in October 2008 by the same law that established the $700 billion Troubled Asset Relief Program. The panel has often been critical of the Treasury Department’s management of the bailout operation, especially at its start in the Bush administration but also under the Obama administration.

In the latest monthly report released on Wednesday, the panel again criticized the Treasury Department under Secretary Timothy F. Geithner for “failure to articulate clear goals or to provide specific measures of success for the program” as it has morphed over time from rescuing financial institutions to propping up securitization markets, auto manufacturers and home mortgages in danger of default. The panel also described the program’s foreclosure mitigation efforts as inadequate.

Mr. Geithner announced Wednesday that the administration would extend the bailout program until Oct. 3, 2010. In a letter, Mr. Geithner told lawmakers that the extension was needed to assist families and stabilize financial markets.

TARP turns one — a birthday with no candles, no cake from me

TARP, the original bailout jammed through in a blind panic, turns a year-old tomorrow. Its expiration is scheduled for the end of the year unless Treasury Secretary Tim Geithner decides to keep it rolling.

From the link:

As of Saturday, it will have been a year since the U.S. Congress created the $700 billion Troubled Asset Relief Program, originally intended as a bailout just for the financial system.

Emphasis might be placed on the word “Troubled,” as TARP has been plagued by controversy since conception. For the past year, the Bush and Obama administrations have used the program as a bailout smorgasbord, with entrees for the auto and mortgage industries, the securitization market for consumer goods, American International Group (See “What AIG Really Owes Taxpayers”) and the banking sector at large. Toxic assets remain on bank balance sheets, Congress is still busy plugging TARP’s holes on executive compensation limits and the program is a significant part of the country’s projected $1.6 trillion deficit for 2009.

New banking rules

Regulation is coming fast to the banking world. I’m no fan of business regulation, but the financial sector has no one to blame but itself for any rules imposed from above. Particularly after taking handouts from the taxpayers.

From the link:

U.S. Treasury Secretary Timothy Geithner will soon propose an overhaul of the financial regulatory system that is expected to give the Federal Reserve powers to monitor broad economic risks, a Treasury spokesman confirmed on Monday.

As officials grapple with the worst financial meltdown since the Great Depression, government officials plan to outline a revamp of controls over banks and financial institutions aimed at preventing a repeat of the crisis.

Geithner is due to soon outline proposed changes that are also expected to include tougher capital standards for banks, according to a report in the Wall Street Journal that a Treasury spokesman said is accurate.

The administration’s goal is to unveil its proposals before the meeting of the heads of state of the Group of 20 rich and developing economies in early April, the report said.

The rules are further expected to aim to ensure that banks cannot shop among different regulatory agencies to obtain the most lenient supervision and require more transparency and stricter rules for the way money flows between banks.

A brilliant bank bailout plan …

… from Andy Kessler. Andrew Sullivan called this idea “wacky,” but I like it. Certainly not all that wacky — just a way outside the box.

From the link:

Now with TARP 2.0, renamed a friendly Financial Stability Plan, the idea is to entice private capital to buy these bad loans and derivatives in an effort to set the “market price.” But Mr. Geithner hasn’t solved the dilemma of banks not wanting to sell and become insolvent. Moreover, no one is going to buy these securities ahead of Mr. Geithner’s action with the “full resources of the government” to bring down mortgage payments and reduce mortgage interest rates. Lower mortgage payments means mortgage-backed securities would be worth even less. Six months to a year from now, big banks may still be weak and the ugly “n” word of nationalization will be back.

Mr. Geithner should instead use his “stress test” and nationalize the dead banks via the FDIC — but only for a day or so.

First, strip out all the toxic assets and put them into a holding tank inside the Treasury. Then inject $300 billion in fresh equity for both Citi and Bank of America. Create 10 billion new shares of each of the companies to replace the old ones. The book value of each share could be $30. Very quickly, a new board of directors should be created and a new management team hired. Here’s the tricky part: Who owns the shares? Politics will kill a nationalized bank. So spin them out immediately.

Some $6 trillion in income taxes were paid by individuals in 2006, 2007 and 2008. On a pro-forma basis, send out those 10 billion shares of each bank to taxpayers. They paid for the recapitalization.

Each taxpayer would get about $100 worth of stock for each $1,000 of taxes paid. Of course, each taxpayer has the ability to sell these shares on the open market, maybe at $40, maybe $20, maybe $80. It depends on management, their vision, how much additional capital they are willing to raise, the dividend they declare, etc. Meanwhile, the toxic assets sitting inside the Treasury will have residual value and the proceeds from their eventual sale, I believe, will more than offset the capital injected. That would benefit all citizens, not the managements and shareholders who blew up the banking system in the first place.

Text of Geithner’s remarks

If you’re interested in the text of Tim Geithner’s remarks on stimulus part two yesterday, here you go:

Treasury Secretary Tim Geithner announced the government’s plan to revitalize the financial sector. Here are his prepared remarks, as released by the Treasury.

As President Obama said in his inaugural address, our economic strength is derived from “the doers, the makers of things.”

The innovators who create and expand enterprises; the workers who provide life to companies; this is what drives economic growth.

The financial system is central to this process. Banks and the credit markets transform the earnings and savings of American workers into the loans that finance a first home, a new car or a college education. And this system provides the capital and credit necessary to build a company around a new idea.

Without credit, economies cannot grow at their potential, and right now, critical parts of our financial system are damaged. The credit markets that are essential for small businesses and consumers are not working. Borrowing costs have risen sharply for state and local governments, for students trying to pay for college, and for businesses large and small. Many banks are reducing lending, and across the country they are tightening the terms of loans.

Geithner to announces latest bailout on Monday

This ought to be interesting. Bush’s sad sack team had their shot, now Obama’s team begins in earnest. I honestly don’t know what the answer is here, or that there is an answer for that matter. I do know I’m not alone in having deep suspicion and reservations about all this corporate socialism.

I wish Geithner and the rest of Obama’s team the best of luck. Anyone who hopes for failure (read: Rush Limbaugh and other nut jobs on the right) is only hoping for the failure of the United States.

From the link:

Treasury Secretary Timothy Geithner and other top officials are putting the finishing touches on a plan to overhaul the U.S. government’s $700 billion financial rescue program.

A Treasury official said Geithner will deliver a speech on Monday outlining the new plan.

But Treasury officials would not comment on a report Thursday that the administration is considering proposing changes to the current accounting standard that require banks to carry assets such as mortgage-backed securities on their books at fair value, a process known as “mark to market.”

Critics of this process contend that it has made the current financial crisis worse by forcing banks to slash the value of assets that are currently depressed because of market conditions. Treasury officials said the administration’s plan was not yet complete and would be revealed in Geithner’s speech in Washington next week.

Geithner met Thursday with Federal Reserve Chairman Ben Bernanke and other officials who serve on the President’s Working Group on Financial Markets. The group was formed in the wake of the 1987 stock market crash with the goal of better coordinating the government’s response to market crises.

“This is a critically important group,” Geithner told reporters before the meeting began. “Together this group has the authorities and instruments and experience and talent that are going to be critical to helping solve the financial problems facing our country.”

Half million cap on bailout exec salaries

A bold move by Obama. Not sure if I agree with the government-imposed salary cap, but I do agree with the concept in spirit. If nothing else this might knock down the number of corporate begging hands out there.

Instead of stealing from taxpayers, some C-level execs might just think they can keep their salary and right the ship themselves. You know, let capitalism work the way it’s supposed to work.

From the link:

President Barack Obama on Wednesday imposed $500,000 caps on senior executive pay for the most distressed financial institutions receiving federal bailout money, saying Americans are upset with “executives being rewarded for failure.”

Obama announced the dramatic new government intervention into corporate America at the White House, with Treasury Secretary Timothy Geithner at his side. The president said the executive-pay limits are a first step, to be followed by the unveiling next week of a sweeping new framework for spending what remains of the $700 billion financial industry bailout that Congress created last year.

The executive-pay move comes amid a national outcry over huge bonuses to executives heading companies seeking taxpayer dollars to remain afloat. The demand for limits was reinforced by revelations that Wall Street firms paid more than $18 billion in bonuses in 2008 even amid the economic downturn and the massive infusion of taxpayer dollars.

“This is America. We don’t disparage wealth. We don’t begrudge anybody for achieving success,” Obama said. “But what gets people upset — and rightfully so — are executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers.”

Update — the Wall Street Journal hits back.

Geithner’s hearing is done and confirmation is expected

A bit of drama here in the opening days of the Obama administration, but confirmation is the correct move here.

From the link:

President Barack Obama’s nominee for Treasury secretary, Timothy Geithner, though tarnished by disclosures of his failure to pay taxes, is likely too uniquely qualified for Congress to reject amid hopes to contain the worst economic downturn in decades.

A red-faced Geithner will undoubtedly be grilled at his Senate confirmation hearing on Wednesday about his failure as an International Monetary Fund official to pay tens of thousands of dollars in U.S. taxes, and how that squares with taking the job that includes responsibility for U.S. tax collection.

But barring a glaring slip at the hearing, Geithner, the president of the New York Federal Reserve Bank and a key participant in government efforts to prop up financial markets, looks on track to be confirmed as Treasury secretary.