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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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January 21, 2009 3:47 PM ET
The Obama administration may try to form a “bad bank” to acquire toxic securities from private banks, allow bankruptcy judges to modify mortgages of struggling homeowners, and increase credit for college students, car buyers, and small businesses and banks, Treasury Secretary-nominee Timothy Geithner said today. These provisions would be part of a comprehensive bailout package that President Barack Obama plans to propose in the next few weeks to revise the unpopular $700 billion program implemented by the Bush administration, Mr. Geithner said at his confirmation hearing before the Senate Finance Committee. “This program needs serious reform,” said Mr. Geithner, president of the Federal Reserve of New York, “Many people believe the program has allowed too much upside for financial institutions while doing too little for small business owners, families who are struggling to keep their jobs and make ends meet, and innocent homeowners.” The Obama plan also will include tougher controls over how banks use federal assistance to make sure that they use the money for loans to businesses and consumers, and more transparency about how the money is spent, he said. Mr. Geithner has faced the toughest confirmation battle of any Obama nominee because of his failure to promptly pay $48,000 in federal taxes and interest earlier this decade. His late tax payments “reflect a degree of negligence toward the law he’ll be charged with enforcing,” said Senator Jim Bunning (R-Ky.). As Treasury secretary, Mr. Geithner would oversee the Internal Revenue Service. Still, his nomination will be approved by the Senate, Republican Pat Roberts of Kansas said today. “You’re going to be confirmed,” Mr. Roberts told Mr. Geithner. At least five Democrats, including committee chairman Max Baucus of Montana, said at the hearing that they plan to vote for the nominee. A committee vote has been scheduled for tomorrow, with a final confirmation vote by the full Senate due sometime after that. The notion of a “bad bank” to acquire troubled private banking securities resembles a model used by the Resolution Trust Corp. to acquire savings and loan assets in the 1980s. It has surfaced because Treasury Secretary Henry Paulson justified the need for bailout legislation in October on grounds that the government would purchase banks’ mortgage-backed securities and collateralized debt obligations. These toxic bonds have sunk in value and no longer have a market. However, Mr. Paulson scrapped the original plan after the legislation was enacted, electing instead to use the money mostly to buy stakes in banks in an attempt to encourage lending. One reason Mr. Paulson gave for jettisoning it was that the securities were difficult to value. Many economists say, however, that these assets have helped clog the credit pipeline because they have not been valued. “It’s an incredibly difficult thing to do and get right,” Mr. Geithner said today in response to a question of how the securities should be valued. How the Obama administration does it “will depend on the precise nature of the program we design,” he said. Still, the administration is considering a mix of ways to value these assets, including considering how the market prices similar securities and using a model based on estimates of third-party evaluators, Mr. Geithner said. The Senate voted last week to release the second half of the $700 billion bailout for use by the administration. Nobel Prize-winning economist Paul Krugman said this week that a "bad bank" could end up making "huge gifts to bank shareholders at taxpayer expense" if the government doesn't first seize the struggling private banks it is trying to assist. The government is loathe to do so because it "remains deathly afraid of the N-word - nationalization," Mr. Krugman wrote in his New York Times column. "I suspect that taxpayers are about to get another raw deal," he wrote.
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