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.”

Top Bank Regulator Says Bank Recovery May Lag

By Leah Valencia, The University of New Mexico- Talk Radio News Service

Top U.S. Bank regulator Sheila Bair, chairman of the Federal Deposit Insurance Corp, told Congress that bank recovery may take longer than expected.

"While we are encouraged by recent indications of the beginnings of an economic recovery, [bank] growth may still lag behind historical norms," Bair said during a hearing with the Banking, Housing and Urban Affairs Committee.

According to Bair, bank failures will remain high because household wealth loss was so pervasive and the general economy is weakened.

Bair urged policymakers to begin thinking about exit strategies in regards to their interventions in the financial markets.

"While these programs have played an important role in mitigating the liquidity crisis that emerged at that time, it is important that they be rolled back in a timely manner once financial market activity returns to normal," she said.

Bair and other witnesses advised against the merging of regulatory committees.

“We are very concerned about this, I think it could weaken FDIC. It could overall weaken banking regulation.”

Bair said that although banks have come a long way in repairing the balance sheet, she cautions that restoration will continue into the next several quarters.

Congressman's fury at economic crisis

Congressman Michael Capuano (D-MA) expresses his concerns to a representative from the FDIC about the current economic situation at a House Financial Services Committee hearing to discuss the "Hope for Homeowners" program. February 3, 2009.

Financial investment firms compared to "spoiled teenagers"

As far as Senator Chris Dodd (D-Conn.), Chairman of the Senate Banking, Housing and Urban Affairs Committee, is concerned, there must be a “heightened sense of urgency” about the enactment of the Emergency Economic Stabilization Act. At a full committee hearing on the turmoil in the United States credit markets, the committee heard from Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation; Neel Kashkari, interim assistant secretary for financial stability and assistant secretary for international affairs at the Treasury Department; Brian Montgomery, federal housing commissioner and assistant Housing and Urban Development secretary; Elizabeth Duke, member of the Federal Reserve Board of Governors; and James Lockhart III, director of the Federal Housing Finance Agency.

The opening statements included Senator Charles Schumer’s (D-N.Y.) comparison of the financial investment firms in question to “spoiled teenagers” who threw a house party while their parents were out of town. Schumer said the financial crisis was “not unforeseeable” and that the Treasury must issue guidelines for future banking endeavors now that taxpayer money is involved. Senator Bob Menendez (D-N.J.) believes that if 9800 Wall Street jobs were lost everyday, like they were lost for millions of Americans, the financial problem would have been solved long ago. He then stated that the “funds are not a gift” from taxpayers to banks and that must be made clear through oversight and compliance.

In her testimony, Chairwoman Sheila Bair advised the necessity to recapitalize banks in order to reverse the “confidence problem” happening in America. She said this recapitalization would be similar to that of European banks and would help in the area of liquidity. She also advised that to help homeowners, the FDIC would work with the Senate Banking Committee and Treasury Department to prevent future foreclosures and create sustainable mortgages. Neel Kashkari said that to help financial institutions, the Treasury Department had created seven policy programs including an equity purchase program, a homeownership preservation program, and an executive compensation program. Kashkari believes that the Treasury has “accomplished a great deal in a short period of time,” but stated that it may not be until the end of the year before the $250 billion is allocated to chosen banks.

Housing market hit is worst in years

When the housing market is down, the "whole economy gets hurt," said Rep. Barney Frank (D-Mass.)in a hearing today. The Financial Services Committee met to discuss the problems and possible solutions to the current housing market.

Frank added that the federal government's feelings are not only of sympathy to those in foreclosure. He said that some people have committed to mortgage policies out of their price range.

Rep. Jeb Hensarling (R-Texas) said that the United States needs to "preserve the paycheck" of its homeowners. Hensarling continued by stating that no one would want to be a seller in this market.

Sheila Blair, Chairman of the Federal Deposit Insurance Cooperation, said the current housing market is due to a "complex set of interrelated causes." She said the housing market in the United States had the most severe drop of the past 60 years.

Brian Montgomery, Chairman of the Board of the new "Hope for Homeowners Program," said that the program is slated to be ready to open on Oct. 1 of this year. He said the goals of the program are to help improve homeowners' chances of refinancing their loans, mitigating monetary losses for both buyers and sellers of mortgages, and to reduce the number of foreclosures nationally.