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Charlie Rose Speaks to Tim Geithner

Posted by Larry Doyle on March 11, 2009 12:54 PM |

I will provide my insights and perspectives on Charlie Rose’s interview of Treasury Secretary Tim Geithner last evening. The interview has been broken down into 6 separate clips, with my commentary preceding each clip.

Part 1
In this clip, Geithner wears both the political and policy hats. While promoting the Obama agenda initially (housing, education, healthcare, energy), he then turns toward the specifics of unlocking the consumer credit securitization markets via the TALF (Term Asset Backed Securities Loan Facility). This facility attempts to restart the securitization market and model which I wrote was broken back on November 12th (The Wall Street Model Is Broken…and Won’t Soon be Fixed). That market provides approximately 40% of the financing to a wide array of consumer finance markets. Geithner attempts to portray a measure of confidence and aggressiveness. The market has currently responded with a vote of no confidence.


Part 2
Geithner addresses further specifics about the TALF and the public/private partnership that would be connected to the effort. The specifics of this public/private partnership are not addressed but, in essence, the government would provide financing (loans) for private entities to purchase asset-backed securities currently clogging bank balance sheets. Geithner does not provide specifics on the terms of the loans and MORE IMPORTANTLY does not address the fact that the government will likely share in the losses on these securities going forward. I believe many private investors are salivating at the potential for this program. Our Economic All Star John Mauldin commented that this partnership is the equivalent of government money coming in the front door and going to hedge funds out the back door. Mauldin proposes a suspension of the “mark to market” accounting rule that forces banks to mark these securities to depressed levels in the presence of no buyers.

Geithner defends his aborted initial delivery on his grand plan as “mismanaged expectations.” He also inaccurately describes mortgage rates as being close to 5%. The “mortgage mirage,” in which many people can not get a mortgage, has 30 year conventional mortgage rates closer to 5.5% and Jumbo rates in the 7% range, but virtually inaccessible.


Part 3
Geithner is forceful in this clip in stating that the government will stand behind the 20 largest banking institutions. These banks represent approximately 70% of the banking industry and – without using the phrase – Geithner is saying they’re “too big to fail.” He defends the capital injected as ultimately being in the best interests of the economy and taxpayers. He rails on the mismanagement and gross compensation practices at many of these institutions. He appreciates the anger and outrage of responsible people who are sufferring from the damage caused by those who have been irresponsible. All good.

When addressing the need for global regulatory changes as well as domestic regulatory changes, I suggest Secretary Geithner listen to former Australian Prime Minister and Treasurer Paul Keating who undressed him this past weekend. Keating opines that the IMF and World Bank will see a massive shift in power to the surplus economies of the East from the debtor economies of the West. Here at home, when Geithner talks about focused accountability, let’s see if he and the Obama administration effect the necessary changes in the corrosive influence of lobbyists as well as addressing the incompetence displayed at the SEC and FINRA.


Part 4
Geithner attempts to make the case that investors, both foreign and domestic, will continue to invest in our country and our U.S. government debt if they have confidence. The administration has the obligation to maintain that confidence. The first step in maintaining the confidence is displayed in the budget proposed by President Obama. Geithner puts his political hat back on in promoting the Obama agenda as being economically sound, laced with fiscal discipline, and promoting their moral obligation.

Investors are less sure about Geithner’s feelings and have voiced their indecision by exiting the markets since this budget was proposed.

Geithner further addresses the necessity for individuals, corporations, and governments to live within their means. Investors have roundly responded that they believe this administration and Congress are doing anything but living within their means given the undisciplined spending in the Stimulus plan, the budget, and the Omnibus Bill.

Geithner uses the lessons of the ’90s as justification for raising taxes going forward. He prefaces his remarks that taxes will only be raised “when the economy recovers.” Charlie Rose appropriately challeneges him on the overly optimistic economic assumptions utilized in the budget. I would ask why the base case GDP in the Bank Stress Test of 2% growth in 2010 is not the same level of GDP used in Obama’s budget. The budget assumes 3.2% !!


Part 5
In this clip, Geithner is largely wearing his political hat. He defends the Administration’s vetting process as he staffs Treasury. He further pushes the Obama agenda. In regards to criticism he has experienced, he responds that it is purely part of the job.

On the auto front, he dodges the question of bankruptcy.

Charlie Rose then questions him on what he has learned so far in his role as Treasury Secretary. Geithner responds that many may not know that he spent a large part of his career at Treasury serving under Robert Rubin and Larry Summers. He holds them in very high regard and seems to promote that respect for them is universal. He does not address that Rubin was at the core of the lack of regulatory oversight that we have had for the last decade, as well as being the prime architect of the massive systemic risk that Citibank has developed.

When asked if he could see the problems developing that now envelop our economy, Geithner ducks in stating that most people missed it.


Part 6
Geithner remarks that both capitalism and our financial system have already changed and will continue to change as the necessary regulatory systems are put in place.

Geithner further adds that he is confident America will respond to this crisis because it is not a question of ability but a question of will. He believes this Administration possesses the will to make every necessary move to restore our economy.

In my personal opinion, it is also most definitely about ability as well. Do we have the measure of integrity and quality in our elected officials? Chuck Hagel, Leon Panetta and others have railed on the corrupt system of lobbying, campaign contributions, and persistent fundraising that has polluted our country and the process of government. While the Obama Administration has spoken about addressing parts of these issues, their actions and policy proposals to date indicate otherwise.


I found the Geithner interview to be interesting, while not exactly enlightening.

He is both politician and policy maven. To this point, the markets have graded him as decidedly mediocre. Although, to be fair, Washington as a whole is graded no better.


Video provided by YouTube channel

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