Tag Archives: treasury

Treasury and the Blogs

On Monday the Treasury Department (various officials, including Geithner, in shifts) had an informal meeting with eight prominent finance or economics bloggers. I’ve only read the accounts by Tyler Cowen, Steve Waldman, and Yves Smith; Waldman names all of them and links to other accounts. This is Smith’s sum-up:

“[T]hese guys are very smooth, very smart, and seemed quite sincere, which made it difficult to discern how much they really did believe and how much of what they said they had to say because they need to defend official policy and maintain confidence. Let’s face it, they get prodded and roughed up by big dogs with some frequency. There was nothing we asked that would be new. They’ve covered this ground with other people of more consequence and therefore have answers ready. We are a pretty unimportant audience (yes, they did bother making time for us, but let us not kid ourselves on how far down the food chain bloggers are) and we cannot argue from a position of advantaged information, so it was inevitable that we would not get beyond standard responses.”

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Cash for Trash: Better Never than Late

The following guest post was written by Linus Wilson, a finance professor at the University of Louisiana at Lafayette, the media’s go-to guy on calculating the value of transactions between the government and the banks, and an occasional commenter on this blog. Linus also analyzes government-bank transactions at Seeking Alpha.

The U.S. government does few thing better than create debt.  After a year of talking about it, the government is going to have the chance to throw their good debt, Treasury bills notes and bonds, after bad, non-performing toxic loans and securities.  The Federal Deposit Insurance Corporation (FDIC) and the U.S. Treasury are going their separate ways on their cash for trash schemes at this point.  Accountants and investors should be wary of the big prices they see coming from the FDIC’s auctions, but taxpayers should be afraid of the U.S. Treasury’s efforts to re-inflate the securitization bubble.

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A View from the Inside

If you haven’t picked up on one of the dozens of recommendations from other blogs, I recommend reading Phillip Swagel’s long and detailed account of the view of the financial crisis from his seat as assistant secretary for economic policy at the Treasury Department. It’s particularly useful for people like me who make a habit of criticizing government officials.

The writing is dry, but much of the subject matter is fascinating. It often explains or defends Treasury’s actions during the crisis, but Swagel certainly owns up to plenty of mistakes or shortcomings. For example, discussing the emergency guarantee program for money market funds, he writes, “Nearly every Treasury action there was some side effect or consequence that we had not expected or foreseen only imperfectly.”

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Confusion, Tunneling, And Looting

Emerging market crises are marked by an increase in tunneling – i.e., borderline legal/illegal smuggling of value out of businesses.  As time horizons become shorter, employees have less incentive to protect shareholder value and are more inclined to help out friends or prepare a soft exit for themselves.

Boris Fyodorov, the late Russian Minister of Finance who struggled for many years against corruption and the abuse of authority, could be blunt.  Confusion helps the powerful, he argued.  When there are complicated government bailout schemes, multiple exchange rates, or high inflation, it is very hard to keep track of market prices and to protect the value of firms.  The result, if taken to an extreme, is looting: the collapse of banks, industrial firms, and other entities because the insiders take the money (or other valuables) and run.

This is the prospect now faced by the United States. Continue reading

The Race for Treasury Secretary

For those of us following the current economic crisis, Barack Obama’s most important cabinet choice will be his Treasury Secretary pick. Although nothing to be sneezed it, the position has historically been less prominent than the portfolios of State and Defense, but the news of the last six weeks and the urgency created by the current recession make it critical at this moment. The names being floated in a variety of articles on the Internet are, in rough order of likelihood:

  • Tim Geithner, head of the Federal Reserve Bank of New York and a key player in every government action involving Wall Street so far
  • Larry Summers, President Clinton’s last Treasury Secretary and a prominent academic economist
  • Jon Corzine, former head of Goldman, former senator, and now governor of New Jersey
  • Paul Volcker, former chairman of the Federal Reserve
  • Sheila Bair, head of the FDIC
  • Robert Rubin, also a Clinton Treasury Secretary, also a former head of Goldman, and currently board member of Citigroup

Less likely names floated include Warren Buffett, billionaire investor; Jamie Dimon, CEO of JPMorgan Chase; and Paul Krugman, 2008 Nobel Prize winner in economics and an outspoken liberal columnist and Bush administration critic.

The main thing all of the leading candidates have in common is that they are centrists and pragmatists (not a socialist among them, as far as I can tell). There is no reason to believe any of them would reverse the major steps taken by Henry Paulson so far, although several would likely move more aggressively for mortgage relief and broad-based economic stimulus. This is generally a good thing. While Paulson can be accused of some major missteps, and of so far failing to unblock lending to the real economy, his one achievement has been to restore some confidence to the banking sector, and the impact of a wholesale change in policy direction could be highly unpredictable.

My personal opinion, based on nothing, is that the Wall Street connection rules out Corzine and Rubin, and his comments about women while president of Harvard rule out Summers, so I would bet on Geithner, who has knowledge of Wall Street but does not have the political taint of having made a fortune on Wall Street.