The Great Debate UK
from Reuters Investigates:
A Reuters exclusive today describes a method China used recently to hide some of its U.S. Treasury purchases - "US caught China buying more Treasuries than disclosed."
Treasury officials said they were simply modernizing outdated procedures two years ago when they revamped the rules for participating in government bond auctions.
The real reason for the change, a Reuters investigation has found, was more serious: The Treasury concluded that China was buying much more in U.S. debt than was being disclosed, potentially in violation of auction rules, and it wanted to bring those purchases into the open - all without ruffling feathers in Beijing.
Stephen Culp, Reuters graphics editor, came up with a handy visual explanation for the practice that allowed China to mask billions of dollars worth of U.S. debt purchases at auctions. China placed its bids informally through primary dealers, who then placed their bids at Treasury auctions without naming China as a customer. The Treasury outlawed the practice in June, 2009, but kept the reason for the rule-change under wraps.
Michel Barnier wants Europe to be better prepared for the next financial crisis. But the EU's financial market chief's plan for bank taxes seems to miss the point. Timothy Geithner's push for EU-wide stress tests raises questions of its own. But at least the U.S. Treasury Secretary has identified the core problem facing Europe's financial sector.
The current euro zone crisis has its roots in sovereign debt. But concerns about banks' exposure to risky sovereign debt have led to strain in the European inter-bank funding markets. There are also signs that U.S. money-market funds, which hold more than $500 billion of euro zone financial assets, are drawing back.
Suppose it is 2011 and the Volcker Act has recently passed, sharply curtailing U.S. banks' riskier activities and separating them from retail deposits. Citi's recently arrived chief executive Bob Steel, who is dismantling the group, puts out a memo to the bank's staff saying Tim Geithner has been hired as head of the bank's strategy and investor relations. Oddly, the imaginary scenario is not such a stretch.
From: Bob Steel
To: All Citi staff
Feb. 1, 2011
Dear Citi employee,
By now, most of you probably know that Citi announced the appointment of Timothy F. Geithner as Global Head of Strategy and Investor Relations. Tim, who joins after a hiatus from a distinguished career in public service, will report directly to me.
In his new role, Tim will oversee Citi's relations with shareholders, including the U.S. government and key investors in the Gulf Region. He will work closely with me, as well as Vice Chairman Christopher Dodd and Executive Vice President of Government Relations Harry Reid to manage the increasingly challenging regulatory environment presented by the implementation of the Volcker Act.
As you all know, we are now focused on developing our client franchise in our core business as we proceed with the series of dramatic changes announced in recent months to the corporate organization of the group. Under Tim's leadership, we will reinforce the confidence we have begun to rebuild with shareholders as we embark on the biggest restructuring of Citi's capital structure since its founding.
Tim is an exceptional communicator and strategic thinker. His track record shows consistent results under some of the most challenging financial conditions in generations. Our new model -- a smaller, more focused global bank for businesses with no consumer operations and a trading arm devoted entirely to facilitating client transactions -- is one Tim understands from his years in public service, both at the Federal Reserve Bank of New York and as Secretary of the Treasury from 2009 until 2010.
Until suitable replacements are named, I have asked Tim to oversee all of our investor relations responsibilities, including those for Citi's two pending spinoffs: the planned divestiture of Citi's North America Consumer Banking franchise to a consortium led by Banco Itau of Brazil and Carlos 'Slim' Helu; and the creation of Toxia, America's biggest non-bank financial institution, through the merger of Citi Holdings and General Electric Capital's GE Money division.
I hope you are all as excited as I am about Tim's arrival and the great future that lies ahead for the corporation. I am looking eagerly to taking your questions in the various Town Hall meetings that our new Head of Corporate Communications David Axelrod will be setting up at Citi locations around the globe in coming weeks.
from The Great Debate:
Treasury Secretary Geithner is all but admitting that U.S. banks are suffering not from market failure but self-inflicted collateral damage.
The U.S. Treasury on Monday detailed an up to $1 trillion plan to buy up assets from banks in partnership with private investors, using financing bankrolled by the government, financing that is only secured by the value of the doubtful assets the fund buys.
from The Great Debate:
-- James Saft is a Reuters columnist. The opinions expressed are his own --
The tragedy is that we will have to wait that long and that the costs will mount.