Entire Financial System Responsible For The Crisis, Say Former Citigroup Executives

By Chingyu Wang-Talk Radio News Service

Two top executives from Citigroup Inc., a major issuer of subprime mortgages, told the Financial Crisis Inquiry Commission Thursday that blame for the failure to deter the financial crisis lies with the financial system as a whole.

"Almost all of us involved in the financial system, including financial firms, regulators, rating agencies, analysts, and commentators, missed the powerful combination of forces at work and the serious possibility of a massive crisis," said former Chairman of Citigroup Executive Committee Robert Rubin.

Former Chairman and CEO of Citigroup Charles Prince said he believes that the financial crisis originated from the long period of low interest rates, which ultimately led to a dramatic growth in securitized products.

"The rating agencies dramatically downgraded their ratings on the securitized products collateralized by these subprime loans," said Prince.

Prince said that everyone believed "these securities held virtually no risk- a perception strongly reinforced by the above AAA rating bestowed by the rating agencies."

Bonuses From Companies Bailed Out By TARP Could Be Taxed

By Laurel Brishel Prichard University of New Mexico/ Talk Radio News Service

Sen. Barbara Boxer (D-Calif.) and Sen. Jim Webb (D-Va.) introduced a bill that would tax bonuses distributed by financial institutions bailed out by the Troubled Assets Relief Program (TARP) during a press conference Thursday afternoon.

The bill would place a 50 percent tax on bonuses over $400,000. Some of the companies that would be hit include Bank of America, Citigroup, Goldman Sachs, Merrill Lynch, Morgan Stanley, JP Morgan and Wells Fargo.

The bill would require a tax on the bonuses even if the companies have already paid back the money initially received through TARP.

“If your going to get that kind of bonus, you can share it 50-50 with the people who helped bail you out. We believe that's fair, reasonable and its not any example of what people will call class warfare,” said Webb.

Both Senators hope for bipartisan support on the bill.

Geithner Endorses Frank's Proposal On Future Bailouts

By Ravi Bhatia - Talk Radio News Service

During testimony given before the House Financial Services Committee Thursday, Treasury Secretary Timothy Geithner echoed the White House's support for Committee Chairman Rep. Barney Frank’s (D-Mass.) proposal that would grant the Federal government the authority to take control of failing financial firms.

Frank's legislation would create a fund paid for by businesses with over $10 billion in assets in order to bear the costs of big firms that fail. Such costs were incurred by American taxpayers in the 2008 bailouts of banking company Citigroup and General Motors. It would also create a Financial Oversight Council, led by Geithner, to set policy and stricter regulations on the firms, and mediate arguments between federal agencies.

“It’s not about redemption for the firms that make mistakes,” Geithner said. “It’s about unwinding them in a way that doesn’t cause catastrophic damage to the economy.”

The Committee will vote on the legislation as early as next week. The committee's Ranking Republican, Spencer Bachus (R-Ala.), opposed the legislation and the speed at which it is being pushed.

“The draft legislation that was supposed to be the subject of this hearing was not received until Tuesday afternoon,” he said. “I doubt that any of today's witnesses, with the possible exception of Secretary Geithner, have had the opportunity to fully comprehend the legislation entirely.”

“Their proposal places taxpayers first in line to bear the losses when the government invokes its resolution authority," added Bachus.

In a statement released before her testimony on Thursday, Federal Deposit Insurance Corporation Chairman Sheila Bair said that the proposed Oversight Council lacks the authority to “effectively address systemic risks.” She recommended that the President appoint an independent chairman, subject to Senate confirmation, to fill the role Geithner would otherwise.

“A Council with regulatory agency participation will provide for an appropriate system of checks and balances to ensure that decisions reflect the various interests of public and private stakeholders,” Blair said.

Geithner said that he believes Frank’s bill will update the federal government’s financial regulatory system to match what he called, “21st century” challenges.

“The Council will have the obligation and the authority to identify any firm whose size in leverage and complexity creates a risk to the system as a whole and needs to be subject to heightened, stronger standards on leverage,” he said. “The rules in place today are inadequate and they are outdated. We’ve all seen what happens when in a crisis, the government is left with inadequate tools to respond.... That is a searing lesson of last Fall.”