from MacroScope:
Spitzer: NY Fed “an absolute sinkhole”
To say former New York Governor Eliot Spitzer is no fan of the Federal Reserve Bank of New York would be an understatement.
After arguing financial regulatory reform proposals being discussed in Washington fall short, he said:
"One institution needs to be completely overhauled: The New York Fed," he said.
At a panel in New York, Spitzer lambasted the New York Fed as "an absolute sinkhole when it comes to what went on over the past ten years."
"There wasn't a single person there who knew what was going on because this was all one club," Spitzer said. "Every member of that club wanted to protect what was going on," he said.
"The New York Fed has failed heartily and something has to be done about it," he said.
The New York Fed was at the center of the Fed's crisis management efforts, and has come under fire for decisions made in the bailout of insurer American International Group and the failure of Lehman Brothers.
SCENARIOS – Reshaping Fannie Mae and Freddie Mac
WASHINGTON, March 22 (Reuters) – Treasury Secretary Timothy Geithner is expected to lay out the Obama administration’s broad vision for restructuring mortgage finance giants Fannie Mae and Freddie Mac on Tuesday in congressional testimony.
Geithner has said that any specific legislative proposals will not come until 2011 at the earliest. His testimony before the House Financial Services Committee on Tuesday is expected to be the first step in a long journey to make changes to the existing housing finance system.
The government seized Fannie and Freddie at the height of the financial crisis, in what at the time was said to be a temporary measure to ensure credit remained available for homebuyers.
Last fall, the U.S. Government Accountability Office said that move will likely muddy efforts to restructure the two companies, which own or guarantee about half of U.S. residential mortgages.
The GAO said the two government-sponsored enterprises have a mixed record in meeting their mission to foster affordable housing, and that both capital and risk management deficiencies had compromised their safety and soundness.
The GAO analysis examined a series of options that could be considered for Fannie Mae and Freddie Mac.
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US’ Geithner repeats call for financial reform bill
WASHINGTON, Feb 24 (Reuters) – U.S. Treasury Secretary Timothy Geithner on Wednesday repeated his call for Congress to pass financial reform legislation that curbs risk-taking by big financial firms and ensures they can absorb their own losses. (more…)
US’ Geithner pushes for independent consumer agency
WASHINGTON, Feb 22 (Reuters) – The Obama administration is still fighting for a single, independent consumer financial protection agency, U.S. Treasury Secretary Timothy Geithner said on Monday as lawmakers haggled over a financial reform bill. (more…)
US’ Geithner says bank fee can recoup AIG bonuses
By David Lawder
WASHINGTON, Feb 3 (Reuters) – U.S. Treasury Secretary Timothy Geithner on Wednesday said insurer AIG’s contracts to pay hundreds of millions of dollars in bonuses were “outrageous” and appealed to Congress to help recoup the payments.
Geithner said Congress could help recover the “deeply irresponsible” bonuses by passing an Obama administration proposal to levy fees on large financial firms.
“Those contracts were outrageous. They should never have been permitted,” Geithner said in testimony to the U.S. House of Representatives Ways and Means Committee.
Obama has proposed a fee on the largest financial companies to collect around $90 billion over 10 years to recoup taxpayer losses resulting from financial bailouts.
The White House has shifted to a more aggressive stance on Wall Street since the Democrats lost a Senate seat in a special election in Massachusetts in January. The election highlighted voter resentment against big banks and big bonuses in the wake of massive bailouts during the financial crisis.
American International Group Inc is readying another round of payments to employees of its Financial Products unit — largely blamed for making bad bets on credit default swaps that brought the firm to the brink of collapse — that are expected to reach about $100 million.
Build America Bonds expansion needed-Geithner
WASHINGTON, Feb 2 (Reuters) – U.S. Treasury Secretary Timothy Geithner told a Senate panel on Tuesday that expanding the popular stimulus program known as “Build America Bonds” would help state and local governments at no cost to the federal government.
The taxable bonds, which give issuers a large federal rebate, have been a “remarkably effective program,” he said.
“It is one of the most effective per dollar of taxpayers’ money that we’ve seen out there. That’s a good case for making it permanent, but we think there’s also a good case to look at the scope of applicability,” he added.
In the budget President Barack Obama sent to the U.S. Congress on Monday, the program created in last year’s stimulus plan would become permanent and be expanded to include government refinancings and short-term operating costs.
“But we don’t have a monopoly of wisdom on this,” Geithner said. “We’d be happy to work with you to make sure that if we expand it, we’re not going to reduce its basic effectiveness.”
BABs, intended for infrastructure projects, helped revive the tax-exempt municipal bond market that states, cities and municipalities use to raise the funds needed to build schools, roads and hospitals. The market had been hit hard by the credit crisis and was all but frozen at the beginning of 2009.
“Because of this program… the cost of borrowing for state and local governments has come down very, very dramatically,” Geithner said. “State and local governments still face really, really difficult challenges that they haven’t seen in many decades.”
U.S. lawmakers turn up heat on Geithner over AIG
By Glenn Somerville and David Lawder
WASHINGTON, Jan 27 (Reuters) – U.S. lawmakers turned up the heat on U.S. Treasury Secretary Timothy Geithner over his role in the bailout of insurer AIG, challenging his claim he did not influence a decision to keep quiet AIG payments to big banks.
Both Democrats and Republicans questioned whether Geithner, who led the New York Federal Reserve Bank at the time, could have been in the dark over the decision not to disclose details of $62 billion AIG paid to banks to settle swaps contracts.
One Republican said he should resign.
Geithner held firm to his defense that he had withdrawn from decisions by the New York Fed after he was nominated to the Treasury post in late 2008. He forcefully defended his role in helping rescue American International Group Inc.
“For the first time since the Great Depression you were seeing a full-scale run on the financial system,” Geithner said, with his temper occasionally flaring at the close questioning.
“People were taking their savings out of the banks, they were wondering if a dollar was a dollar … There was a basic calamitous breakdown in the fabric of our system.”
US’ Geithner, NY Fed defend actions on AIG payments
By David Lawder and Glenn Somerville
WASHINGTON, Jan 26 (Reuters) – U.S. Treasury Secretary Timothy Geithner denied any role in disclosures about American International Group’s payments to banks and defended his decisions as New York Federal Reserve chief to pay full price to retire AIG credit default swaps.
Geithner, in prepared testimony for a much-anticipated congressional hearing on Wednesday, said protracted demands for concessions from banks in late 2008 could have triggered devastating credit rating downgrades and brought AIG down, with “catastrophic” consequences for the U.S. economy.
Geithner’s testimony is widely seen as important for his future as Treasury chief. He has denied acting in the interests of specific institutions.
“I had no role in making decisions regarding what to disclose about the specific financial terms of Maiden Lane II and Maiden Lane III and payments to AIG counterparties,” Geithner said, referring to Fed investment vehicles that bought securities from the banks. The remarks were made available late on Tueday.
Geithner, who ran the New York Fed at the time of the bailout, faces a grilling by the U.S. House of Representatives Oversight and Government Reform Committee, which is reexamining AIG’s <AIG.N> payment of $62.1 billion to bank counterparties to close out trades made before and after the insurer was rescued.
Republican lawmakers on the panel have accused the New York Fed under Geithner of wasting billions of taxpayer dollars by failing to negotiate concessions from the banks and then trying to suppress public disclosures about the payments.
FACTBOX-One year on, US’s Geithner faces big challenges
WASHINGTON, Jan 26 (Reuters) – U.S. Treasury Secretary Timothy Geithner is in the eye of a political storm as he tries to deflect congressional inquiry into his role in bailing out insurer AIG and battle a perception that his influence is diminishing.
The White House on numerous occasions in recent weeks has reiterated its support for Geithner, a former New York Federal Reserve Bank president sworn in as Treasury chief one year ago.
A decision last week by President Barack Obama to start a fight with banks by limiting their size seemed to highlight an expanding policy role for Obama economic adviser and former Fed Chairman Paul Volcker, with Geithner less visible.
Following are five challenges Geithner must grapple with as the administration tries to buttress the economy and tamp down questions about steps taken to counter the financial crisis.
* AIG BAILOUT
The bailout of insurance giant American International Group Inc has dogged Geithner for his entire first year in office, raising questions about decisions he made as head of the New York Fed to pay off the insurer’s bank counterparties in 2008. As Treasury secretary, he failed to halt hundreds of millions of dollars in bonus payments to AIG executives, stoking populist anger and cementing a public perception that he is a creature of Wall Street’s bailout culture — even though he is a lifelong public servant.
Geithner’s association with the AIG train wreck may hurt his credibility as he tries to persuade a newly mutinous Congress to accept Obama administration plans for tougher curbs on Wall Street and new measures to stabilize housing and aid small businesses. Some pundits say a thorough airing of the AIG matter could help clear the air for Geithner — assuming there is no “smoking gun” that reveals improper actions.
BREAKINGVIEWS – Copying U.S. bank tax will be tempting, but hard
By Peter Thal Larsen
LONDON, Jan 15 (Reuters Breakingviews) – Tim Geithner has changed his tune. Just two months ago, the U.S. Treasury Secretary dismissed Gordon Brown’s call for a global financial tax as “not something we would be prepared to support”. But now the United States has unveiled its plan to tax bank liabilities, Geithner is keen for others to do the same. He may be disappointed.
Other governments are bound to be tempted. The U.S. levy, designed to raise at least $90 billion over ten years, provides valuable tax revenue. It allows President Obama to demonstrate that he is being tough on banks just as they prepare to pay out large bonuses. And by penalising big banks that rely on wholesale funding, it imposes an explicit charge on those institutions that are deemed too big to fail.
But the United States is one of a very small group of countries that could impose such a tax on its own. It has a large domestic banking industry, and is home to many of the world’s major financial institutions. Only China and, perhaps Japan, are in the same category.
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