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Geithner: “Don’t Worry, Be Happy”
Sense on Cents: “Challenge!”

Posted by Larry Doyle on August 14, 2009 8:23 AM |

Treasury Secretary Geithner has adapted to Washington very quickly. How so? His willingness and ability to distort and conceal  the truth is consistent with much of what emanates from our nation’s capital. I literally gagged upon reading the extremely superficial commentary in today’s Wall Street Journal, Geithner Sees Good Vital Signs:

U.S. Treasury Secretary Timothy Geithner said the Obama administration wouldn’t allow Wall Street to return to such old habits as taking on excessive risk, and that plans to overhaul financial-market regulation were on track.

Does Secretary Geithner think that people do not monitor these issues? His statements in this article are the equivalent of a Wall Street bond salesman’s assertion “trust me on this,” while jamming an overpriced security down his client’s throat. My response, “challenge!!” Let’s navigate.

Geithner asserts:

“I don’t think the financial system is reverting to past practice, and we won’t let that happen,” Mr. Geithner said. “The big banks are running with much less leverage now, much more conservative liquidity cushions, there’s been a significant shrinking of their balance sheets, getting rid of bad assets (LD’s highlight) and cleaning up. And the weakest parts of the system don’t exist anymore.”

Sense on Cents challenge: the system is chock full of toxic assets. The new-issue securitization market for consumer assets remains largely dormant and the TALF and PPIP programs are largely a joke. I submit “PPIP: A Virtual Odd Lot” (July 7, 2009).

The Wall Street Journal continues:

Mr. Geithner said the financial-services sector needs better oversight and tougher rules if the U.S. is to avoid a repeat of the financial crisis.

Sense on Cents challenge: in regard to ‘better oversight’, not once have I heard Geithner nor SEC chair Mary Schapiro comment on the Wall Street self-regulatory organization FINRA. Harry Markopolos asserted in his Congressional testimony last February that FINRA was ‘in bed with the industry.’ While FINRA is spending heavily on a public relations campaign, I believe the very nature of this organization (a Wall Street funded self-regulator) is compromised. Regular readers know how strongly I feel about FINRA’s regulatory malfeasance in the Auction-Rate Securities scandal. Mr. Geithner, I submit “FINRA Is Supposed to Police the Market” (April 29, 2009).

The WSJ further reports on Geithner:

He said the administration’s proposed regulatory revamp would offer better protection with the Federal Reserve overseeing the country’s largest financial firms, a new regulator for mortgages and credit cards, and tougher oversight of credit derivatives and hedge funds, among other things.

Sense on Cents challenge: Mary Schapiro of the SEC along with Sheila Bair of the FDIC question placing the Fed as the sole uber-regulator over the largest financial firms. I concur. I believe the Fed has already severely compromised its independence and that this move would only further compromise it. I submit “Don’t Call the Fed Independent” (June 17, 2009).

In regard to credit cards, Geithner must hope people are not aware or forget that Wall Street banks are already implementing changes to their credit card practices to subvert new regulations. I submit “Banks Build Better Mousetrap” (July 9, 2009).

On the derivatives front, recall that there are two segments to this market, standardized derivatives and custom derivatives. The real ‘juice’ is in the custom space and that product will likely remain very opaque. JP Morgan is the largest bank in this space. I submit “Can We ‘TRACE’ JP Morgan’s Business?” (July 17, 2009).

Neither Secretary Geithner nor anybody in Washington took any initiative to address the highly questionable business practices within the equity markets. Joe Saluzzi of Themis Trading exposed the problems and issues surrounding high frequency trading.

Neither the WSJ nor Geithner addresses the facade presented by the rating agencies. These entities facilitated the Wall Street debacle and have been left largely untouched. I submit “Wall Street’s Great Enabler Dodges a Bullet” (June 23, 2009).

The WSJ concludes,

The administration’s plan has lost momentum since it was unveiled in June. Lawmakers have postponed votes on key portions of the proposal amid an outpouring of industry criticism and regulatory turf battles. But Mr. Geithner said the effort is “doing fine” and predicted the administration will get most of what it is seeking when Congress returns in the fall.

Sense on Cents would further add that the rebound in our markets are a function of:

>> the FASB’s relaxation of the mark-to-market

>> the explosion of the Fed’s balance sheet which is effectively monetizing our nation’s debt

Why has the Obama plan to reform Wall Street lost momentum? Very simply, Wall Street owns Washington — now more than ever. I submit “How Wall Street Bought Washington” (March 9, 2009).

While Geithner and team try to promote that Wall Street will not return to ‘business as usual,’ he neglects to address the incestuous nature of the Wall Street and Washington relationship. The divide between Wall Street and Main Street has bnever been greater. I continue to maintain that “Future Financial Regulation: Not a Question of Sufficiency, But of Transparency and Integrity” (May 18, 2009).

Yes, very much business as usual.


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