Friday, September 11, 2009

Being Timothy Geithner II

Before the Congressional Oversight Panel, Secretary of Treasury, Timothy Geithner, assured the panel that the financial system is being restored because counterparites, foreign and domestic, are gaining confidence in our system again. Even though jobs are important, it's a lagging indicator, so what is most important now is confidence.

As I listened to Secretary Geithner I couldn't help but to wonder, as I have written here before, why is this so? If you were a counterparty wouldn't you invest in an economy where it is known and proven that taxpayers will bailout failed banks and insurance companies like AIG who paid $105 BILLION to its counterparties at 100% on the dollar when the auto industry was required to take a haircut?

Confidence? The confidence of counterparties do not lie in our economy proper, our industries, products, sales, etc. Their confidence lies in our government through the taxpayers to be bailed out. They have confidence that the Treasury Department and The Fed will bolster their investments in spite of the competancy of AIG and Wall Street banks. But from where does this confidence spring?

The current system seems like a house of indebted cards based on a system that seems to have just as much confidence as casinos. (I would highly recommend Nicholas Darvas' book, Wall Street: The Other Las Vegas.) If we didn't bailout AIG and these big Wall Street banks, would these counterparties, foreign and domestic, who seem to have gammed the American financial system on the backs of the American taxpayer, be so inclined to invest?

Through AIG, Goldman Sachs received $12.9 BILLION on top of its $10 BILLION received from TARP directly, Societe Generale Corporate & Investment Banking, one of Europe's main financial services companies received $11.9 BILLION and Barclays of Britian recieved $7.9 BILLION. Two-thirds of AIG's funds flowed to European banks. So, with these facts is Secretary Geithner correct when he points to other investing in our system again as a sign of recovery?

Okay, even if the confidence of counterparties is a sign of recovery in that the reason for investing is to insure some sort of security and others fell secure again, what is the taxpayers' insurance based on--more debt, hiked interest rates and fees? These counterparties can count on the American taxpayer. They can repay loans not through legitimate products but through the spread created by low interest government loans via programs like TARP and hiking the interest rates on taxpayers' credit cards and collecting late fee charges on those who bailed them out.

Wall Street Banks such as Goldman Sachs seems to have done nothing really that would enable it to raise the $10 million dollars given through TARP with minimum interest thanks to the government besides benefiting from the means above. Yet, these guys are complaining of losing talent if million dollar bonuses aren't paid. But I'm less concerned about the bonuses and more about the system itself. But it's doesn't seem to be about losing talent. It seems more about gaming the system. He who does this best on Wall Street seems to win. Doesn't Timothy Geithner know this?

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