Thursday, February 26, 2009

Nothing New Here

"Tim Geithner didn't use the words 'regulatory forbearance' yesterday in his banking bailout presentation. In fact, no one in Washington uses those words, which are seriously out of fashion. Yet regulatory forbearance is the most important item in the government toolkit. ... Is mark-to-market the best of all possible disclosure regimes for investors? Maybe so, but that's no reason for regulators to tie their own hands when flexibility about bank solvency would better serve the public interest. That's regulatory forbearance. Let's not kid ourselves, either, that banks haven't already received a few nods to avoid accounting write-downs that would endanger their capital adequacy. ... Banks 'too big to fail' already are effectively backed by government and don't need trillion-dollar capital injections or taxpayer-financed toxic asset relief. .. Instead, Mr. Geither offered that Washingon now would 'stress test' banks to find out their true condition, Huh? Aren't our multiple regulatory agencies already doing this? ... Dropping mark-to-market is no miracle cure, but it would reduce the pressure on banks and regulators to make irrational choices about the disposition of questionable assets. ... Regulatory forbearance doesn't make this moral hazard worse; at this point, it simply represents the least-cost approach to finishing the job the government has of holding the banking system's hand while it steps back from the abyss", Holman Jenkins (HJ) at the WSJ, 11 February 2009.

"The Treasury Secretary seems stuck on keeping the banks we have in place. But we don't need zombie banks overstuffed with nonperforming loans--ask the Japanese. Mr. Geithner wants to 'stress test' banks to see which are worth saving. The market already has. Despite over a trillion in assets, Citigroup is with a meager $18 billion, Bank of America only $28 billion. The market has already put that the banks and their accountants haven't fessed up to bad loans and that their shareholders are toast. ... The $45 billion to Citi and the Bank of America wasn't nearly enough. Instead $306 billion and $118 billion loan guarantees were extended to cover the bad debt, which unfortunately, the market believes still weighs down the banks' balance sheets", Andy Kessler at the WSJ, 11 February 2009.

"Bank-stock investors have every reason to stress out over the Treasury's stress test. As part of Treasury Secretary Timothy Geithner's Financial Stability Plan, many banks will be subject to tests aimed at gauging whether they have sufficient capital to support lending and absorb losses under a severe economic outlook. Existing bank regulators, including the Treasury's own Office of the Comptroller of the Currency [OCC], already test banks' strength. So the new assessments will have an added rigor, or the announcement was pure theater. If the administration really does have the stomach to get tough with the banks, they could be forced to recognize credit losses more quickly. ... Incredibly, as the credit crunch has deepened, banks' loan-loss reserves have so far fallen as a percentage of non-performing loans", my emphasis, Peter Eavis at the WSJ, 13 February 2009.

Is HJ kidding? Regulatory forbearance, in part got us here. How does HJ know what serves the public interest? He sounds like a bank lobbyist Thomas Jefferson warned us about banks. I say kill these monsters, now. To think accounting entries change regulators' decisions shows banks books are cooked and HJ wants the taxpayers cost of bank bailouts disguised. HJ makes similar arguments to Citigroup's Bob Traficanti, my 17 July 2008 post:

I agree with Kessler.

The OCC is another joke. See what it did at NCC, my 18 June 2008 post, link:

1 comment:

Anonymous said...

Silly IA... why on earth would the Treasury bring down the conduits that the Federal Reserve uses to add and subtract liquidity into the system?

If Treas/Fed kills the global money center banks you thinky they can use all the regional and community banks to mediate policy? Ha ha ha...

Imagine the Fed's Open Market Operations trying to keep track of thousands of mini counterparties... not happening... so we will have zombies for a while to come...

No... not 'regulatory forbearance' ... it's 'regulatory necessity'