Geithner to Propose Vast Expansion Of U.S. Oversight of Financial System: The Fed and the FDIC would seem to be the biggest winners here.
Along with the likes of Paul Krugman, I’m a big fan of John Jansen, the man behind the dry-but-very-important Across the Curve blog. In a world where good bond-market information is very hard to find online, Jansen’s blog is invaluable.
The transcript of the media conference call with Sheila Bair on the subject of the bank bailout is online, and is well worth reading; many thanks to Justin Fox for the pointer. This exchange between Bair and BusinessWeek’s Jane Sasseen jumped out at me:
There’s a big gap between the amount of money that the government needs to bail out the banking system, on the one hand, and the rapidly-dwindling amount of TARP funds that it has available for that purpose, on the other. Hence all the leverage in the bank-bailout scheme. But doesn’t it then make perfect sense for all the banks which got unleveraged TARP money back in October to give it back as soon as possible, so that it can then get levered up by the PPIPs and reinjected in beefed-up form back into the financial sector?
John Authers, the FT’s "Short View" columnist, takes a big step back today to look at the really long view, with charts going back to 1802. He notes that long-dated government bonds have outperformed stocks over the past 40 years, and he gets a great quote from Robert Arnott:
I’m beginning to come around to the idea that the FDIC will play the single most important role in determining the way that the Geithner plan plays out. If the banking system is indeed as unhealthy as everybody thinks it is, the FDIC essentially has two choices: it can either ratify high prices being paid for toxic assets by extending financing guarantees for them, or it can force lower prices to be paid for toxic assets, force banks to mark their assets down to levels at which they violate their minimum capital requirements, and intervene to close those banks down.