Paulson says Russia urged China to dump Fannie/Freddie holdings (McKee/Nicholson, Bloomberg)
Kohn, Bair warn banks about interest rate risk at FDIC symposium (Wutkowski, Reuters) The Fed says rates will stay low for an “extended period.” But that doesn’t mean “forever” so the Fed, along with other bank regulators, have warned bankers to prepare their balance sheets for higher rates. The populist line that banks need to “lend more” to get the economy going is just foolish. Regulators know the score: banks that lend too much at these low rates, or are using too much cheap short-term funding, will be caught out when rates head back up. Text of Kohn’s speech here. PDF of Sheila Bair’s here. (Bair’s speech is shorter and less wonkish)
Tim Geithner’s appearance in front of Congress today was another embarrassment, perhaps more for the people’s representatives than the Treasury Secretary. Still, Geithner offered a clumsy defense for paying out 100¢ on the dollar to AIG’s counterparties, which included more than Goldman Sachs.
Note: Apologies for no links yesterday. Busy day writing columns!
SEC to vote on new money fund rules (Johnson, WSJ) Unfortunately, the SEC won’t do away with $1 NAVs, price fluctuations will be published on a 60 day lag. So investors will continue to treat money funds as cash equivalents, even though they aren’t, and the systemic risk they pose won’t really go away.
Tishman gives up Stuyvesant Town (Wei/Spector, WSJ) Way underwater was this deal: the price tag was $5.4 billion, but the property is thought to be worth only $1.8 billion now. Tishman put up only $112 million of equity. Lenders and investors get wiped out. Good. By the way, if underwater investors can walk away, there’s little reason underwater homeowners should feel a moral obligation to keep paying their own overpriced mortgages….