Friday, November 21, 2008

It's Geithner

NBC is leaking that NY Fed Chair Tim Geithner is Obama's pick for SecTreas.
Barring last minute changes, the nominee for Treasury Secretary will be NY Fed President Tim Geithner -- a career Treasury official under both Bob Rubin and Larry Summers -- who actually had worked at the Treasury in three administrations under five Secretaries -- going back to 1988.

Geithner has been a key player in the current economic crisis -- helping Treasury Secretary Hank Paulson and his team manage the wall street bailout.

Former Treasury Secretary Summers -- also considered for the post -- might still play a major future role in the Obama administration, according to sources. Summers came under fire from women's groups because of controversial comments he made about gender issues while President of Harvard, but sources say the decision to choose Geithner had more to do with Obama's interest in "change" and getting someone new on the team.

Also expected Monday -- an announcement that former U.N. Ambassador and Energy Secretary in the Clinton administration, New Mexico Governor Bill Richardson, will be Commerce Secretary.

How BAD is this pick?

The Dow shot up almost 500 points on the news in the last hour of trading.

I can't get over how hideous of a pick this is. You might as well leave Hank Paulson in charge. There will be no appreciable change in economic policy in the Obama administration, more bailouts for Wall Street, more money thrown down the rabbit hole.

Geithner is literally the worst pick Obama could have made short of letting Paulson keep his job. Not only is he part of the same Ben Bernanke/Alan Greenspan Fed team that got us into this mess, as New York Fed Chairman, there's no single bigger government cheerleader for Wall Street itself than this man.

Obama's message is clear: Wall Street, not Main Street. I hope this is wrong. Honestly, I do. Because if this is true, Obama just sold America down the river, and he most likely has no intention of making the hard choices that have to be made in order to save the economy. Geithner's been the point man for the bailout on the Treasury/Fed side of the deal and while he has made noises about the US economic position being in trouble, his actions speak to supporting the same useless Fed actions that produced this debacle. If anything, Geithner was showing Bernanke "the ropes" 16 months ago.

Among executives of the district banks, Geithner, 46, has the most extensive background in responding to upheavals. During the Clinton years, he was an aide to Robert Rubin and Lawrence Summers, who both served as Treasury secretary. In that role, Geithner helped broker emergency loans for Thailand, Indonesia, South Korea, Russia and Brazil when their currencies sagged. While he was at the Treasury, the U.S. participated in interventions to strengthen the yen in 1998, and the euro in 2000.

``It is a team that is new to the challenge, but it is a pretty smart group,'' said Harris. Bernanke ``really studied for the job. He is familiar with the history of the Fed, the policy errors, and he is a Great Depression buff.'' Bernanke contributed to Depression research with a 1999 paper co-authored with Mark Gertler and Simon Gilchrist on how financial markets can worsen economic downturns.

With Friday's action, Bernanke and his colleagues have ``tip-toed in'' and are ``trying to strike the right balance between doing nothing and riding to the rescue,'' said Gary Schlossberg, senior economist at Wells Fargo Capital Management in San Francisco, which oversees $200 billion in assets. ``They've left the door open to a full-blown easing of monetary policy. The results are mixed so far, and early returns suggest we're not out of the woods yet.''

That worked out well, huh guys?

Geithner's a clueless twit, just like the rest of the Fed crew. Obama's just hung a sign on Wall Street this afternoon: "Under New Management, Same Old Business."

Clinton is arguably strike one, but Geithner is definately strike two for Obama. Two and a half weeks and he's already showing major signs that "Change you can believe in" is the same goddamn thing as Bush.

I am pissed.

[UPDATE]More Geithner is Great! quotes...

I would say the market is going to like it," said James Awad, managing director of Zephyr Capital. "[Former Clinton Treasury Secretary Larry] Summers was more controversial. People will view it as a safe choice, an experienced guy.

"There's a little bit of a question because he's associated with the bailout," Awad added, "and that's still a work in progress and not totally successful. There will be a few who'll be upset because he's associated with the TARP."

"Geithner is a solid choice. He has shown more independent thinking," said Former Sen. Don Riegle, who chaired the Senate Banking Committee during the savings and loan crisis. "He has also seen this financial system meltdown from the inside ... he can offer highly skilled and pragmatic advice to Obama."

"He will understand the urgent necessity of assembling a world class team at Treasury ... and be able to attract the talents he needs," Riegle continued. "This choice will also facilitate close cooperation between the Treasury Department and the Federal Reserve, [which is] much-needed given the increasing scale of the economic crisis."

"He is battle-tested with Rubin and Summers and has done an excellent job orchestrating the Fed's response to the worst financial crisis since the Great Depression," said Chris Rupkey, economist at Bank of Tokyo-Mitsubishi. "A crisis manager par excellence who will hit the ground running, as he has been on the case since the Global funding crisis began way back in July 2007. I cannot think of a better choice who will mesh seamlessly with the Fed and FDIC."

If you actually think the Fed has done a excellent job in any way, shape, or form, then yes, Geithner's your man.

Spin Citi

No go on the Citigroup rebound. Stock's down another 20% to around $4 a share and falling here at 10:45 AM or so. Dan Wilchins at Reuters is already running down the list of what the Gubment can do, which boils down to four choices:
  1. Government buys a crapload MORE of Citi preferred stock,
  2. An AIG style multi-billion "loan",
  3. An FDIC liquidation, WaMu style,
  4. Government guarantees all Citigroup debts and derivative obligations.
Number 2 is the most likely, 3 cannot be allowed to happen, but I'm assuming the government will screw around with 1 first.

Which means of course option 4, the option that would actually work, won't be considered. Once the government starts acting as derivative counterparty for Citi, every bank in the country will want the same exact guarantee, period. It's the derivative obligations that are going to kill the banks, and they both know it...but eventually this is what will be have to be done. Banks still refuse to come clean on derivative debt and the fact the banks are basically insolvent because of it.

So yeah, we'll stick with 2. Big old loans. They've worked GREAT so far. Obama's Treasury Secretary is going to be the worst job on Earth.

But at least it's a job.

Dear America:

"Quit complaining about the economy. We'll be fine, just as soon as you realize there's nothing fundamentally wrong with the global financial picture and you get your ass to Wal-Mart like you've been doing and deal with the fact Obama's going to fail to keep any of his domestic spending promises and will have to slash spending across the board like McCain was going to do anyway."

--Irwin Stelzer

The Enemy Of My Enemy

Seems the universe has an unlikely ally in fighting those pesky Somali pirates off the Horn of Africa: militant Somali Islamists.
Dozens of Somali Islamist insurgents entered a port on Friday in search of the pirate group behind the seizure of a Saudi supertanker that was the world's biggest hijack, a local elder said.

Separately, police in the capital Mogadishu said they ambushed and shot dead 17 Islamist militants, in the latest illustration of the chaos in the Horn of Africa country that has fueled a dramatic surge in piracy.

The Sirius Star -- a Saudi vessel with a $100 million oil cargo and 25-man crew from the Philippines, Saudi Arabia, Croatia, Poland and Britain -- is believed anchored offshore near Haradheere, about half-way up Somalia's long coastline.

"Saudi Arabia is a Muslim country and hijacking its ship is a bigger crime than other ships," Sheikh Abdirahim Isse Adow, an Islamist spokesman, told Reuters. "Haradheere is under our control and we shall do something about that ship," he said.

Islamists on one side, pirates on the other, and we're stuck in the middle. Lovely.

I'm assuming then standard US operating procedure and asking "So, which side do we start bribing first to kill the other?"

A Smidge Of Good News On Housing

As Fannie and Freddie are suspending foreclosures until after the New Year.
The six-week halt will begin Nov. 26, a day before the U.S. Thanksgiving holiday, and last through Jan. 9, the companies said in separate statements today. The hiatus is designed to give servicers more time to implement a streamlined loan modification program for struggling borrowers.

“It’s a giant time out,” Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, said today in a Bloomberg Television interview. “I wouldn’t be surprised to see this across the board.

Fannie and Freddie, government-sponsored enterprises that own or guarantee $5.2 trillion of the $12 trillion U.S. home mortgage market, were placed under federal control Sept. 6. They have since been pushed to work harder at modifying troubled single-family and multifamily mortgages to curtail foreclosures.

Better than nothing, especially if other mortgage lenders follow suit. But six weeks from now, folks will still be underwater on their mortgages and out on the streets in January.

And a hell of a lot more people will follow over the next 18 months.


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