The Real Reason Tim Geithner Is Afraid of Elizabeth Warren
Blistering op-ed from financial crisis author John Talbott, and a video battle between Warren and Turbo that you really don't want to miss -- hint: Geithner gets his arse kicked by the kind professor from Harvard. Take a minute to read Talbott's analysis -- the banks are still massively insolvent, and Timmy exists to protect the turf of failed bank management.
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Article is reprinted with permission -- originally appeared at the Huffington Post.
By John R. Talbott
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As reported on HuffPost last week, Treasury Secretary Timothy Geithner has expressed opposition to the possible nomination of Elizabeth Warren to head the Consumer Financial Protection Bureau, according to a source with knowledge of Geithner's views.
One can assume that Geithner, being very close to the nation's biggest banks, is concerned that Warren, if chosen, will exercise her new policing and enforcement powers to restrict those abusive practices at our commercial banks that have been harmful to consumers and depositors.
Certainly, Warren is not the commercial banking industry's first pick to serve in this new role. And unlike other legislation in which an industry's lobbying effort would naturally slow or cease once the legislation is passed, the new financial reform bill is continuing to attract enormous lobbying action from the banks. The reason is simple. The bill has been written to put a great deal of power as to how strongly it is implemented in the hands of its regulators, some of which remain to be chosen. The bank lobby will work incredibly hard to see that Warren, the person most responsible for initiating and fighting for the idea of a consumer financial protection group, is denied the opportunity to head it.
But this is not the only reason that Geithner is opposed to Warren's nomination. I believe Geithner sees the appointment of Elizabeth Warren as a threat to the very scheme he has utilized to date to hide bank losses, thus keeping the banks solvent and out of bankruptcy court and their existing management teams employed and well-paid.
To see how this scheme works during the current crisis we must go back and examine previous crises and recessions in order to understand their cause. As Kenneth Rogoff explains in his new book, This Time is Different, most crises are preceded by a boom or bubble period in which asset classes, such as homes in this case, reached unsustainable pricing levels. The main driver of most of these asset bubbles is loose bank lending in which banks offer money to asset buyers on very liberal terms, thus guaranteeing that asset prices will inflate abnormally. Eventually, all bubbles burst, and in the worst cases we are led into financial crises. The banks make things even more difficult because as prices fall the banks end up with substantial increases in problem loans.
To deal with this increase in problem loans, the banks typically pull back on all lending, not just lending in the affected sector. The banks, now primarily concerned with their own survival if they wrote off the problem loans, literally stop almost all new lending, thus driving the economy into a deep recession. It is difficult to sustain economic activity when there is no credit being supplied by the banking system. The banks, instead of lending to businesses and consumers, shift their investments to very safe instruments like US Treasury securities. The result is a risk-free cash flow that over time eventually repairs the banks' balance sheets by increasing their profitability and thus restoring their book equity.
Typically, during crises, the Federal Reserve also lowers interest rates and the cost of bank borrowing so as to make this risk-free profit spread to banks even greater. In the current financial crisis, the Federal Reserve has lowered interest rates to almost zero percent per annum thus assuring that the banks can profit enormously by doing almost nothing, not lending and sitting on risk free Treasury investments. While good for the banks, one can see how damaging this lack of credit extension can be to an economy trying to recover from an economic crisis.
What is most damaging about this approach to an economy attempting to recover from a recession is that it ensures that the policy of tight money from the banks will continue for some time. Time is needed for the banks to earn their way out of their loan losses and insolvency problems if they decide not to quickly write off the bad loans. In Japan, after their banking crisis of 1994, it took more than a decade for the banks to repair their balance sheets and resume normal lending thus retarding economic growth for decades.
This is exactly the plan that Geithner and Larry Summers have proposed for the current crisis. If you remember, Hank Paulson, the Treasury Secretary at the time, had announced that the $700 billion TARP funds would be used to buy toxic assets like bad mortgage loans from the commercial banks. But this never happened and now the amount of bad bank loans has increased in the trillions. Immediately after receiving authorization of the funding for TARP from Congress, Paulson reversed direction and decided to make direct equity investments in the banks rather than using the TARP funds to acquire their bad loans.
So where are the trillions of dollars of bad loans that the banks had on their books? They are still there. The Federal Reserve took possession temporarily of some of them as collateral for lending to the banks in an attempt to clean up the banks for their supposed" stress tests". But as of now, the trillions of dollars of underwater mortgages, CDO's and worthless credit default swaps are still on the banks books. Geithner is going to the familiar "bank in crisis" playbook and hoping that the banks can earn their way out of their solvency problems over time so the banks are continuing to slowly write off their problem loans but at a rate that will take years, if not decades, to clean up the problem.
And this is where defeat of the nomination of Elizabeth Warren becomes critical for Geithner. For Geithner's strategy to work, the banks have to find increasing sources of profitability in their business segments to balance out their annual loan loss recognition from their existing bad loans in an environment in which they continue to recognize new losses in prime residential mortgages, commercial real estate lending, sovereign debt investments, bridge loans to private equity groups, leverage buyout lending and credit card defaults.
The banks have made no secret as to where they will find this increase in cash flow. They intend to soak their small retail customers, their consumer and small business borrowers, their credit card holders and their small depositors with increased costs and fees and are continuing many of the bad mortgage practices that led to the crisis (ARM's, option pay deals, zero down payments, second mortgages, teaser rates, etc). American and Banking Market News reports this week that the rule changes in the financial reform bill may lead banks to start implementing fees that had essentially disappeared from the industry early in the new millennium, such as fees for not meeting minimum balance requirements on a checking account, or reinstituting fees for certain online banking transactions that are currently free or charging to receive a paper statement or to talk to a live teller as Bank of America's CEO has recently proposed.
It is exactly these types of unwarranted fees on small consumers and poorly designed products that Elizabeth Warren will fight against as head of the new consumer finance protection group. And it is why Geithner sees her as so threatening. Unless the banks are allowed to raise fees and charges on their smaller consumer customers, Geithner's and Summers' scheme for dealing with the banking crisis by hiding problem loans permanently on the banks' balance sheets will be exposed for what it is, an attempt at preserving the jobs of current bank executives at the cost of dragging out this recovery needlessly for years in the future. For the investment banks without small consumers and depositors to soak, Geithner and Summers have offered an environment with fewer competitors, more dominant market shares for the surviving firms and near monopoly pricing of their investment banking and derivative products to corporate clients and institutional investors to ensure continued and increasing profitability and growth.
Warren's appointment wouldn't just be a setback, it would devastate Geithner's entire plan on how to deal with trillions of bad assets the banks still won't recognize as losers. That is why I think she is going to face enormous resistance, even inside of the administration. The next one to oppose Warren after Geithner will be Larry Summers for this very reason. Then they will see if they can get Bernanke and finally Obama on board. The pitch to Obama and Bernanke will not be personal, it will be the same phony argument that Paulson and Bernanke used to justify TARP to congress, they will say that if Warren is appointed the entire world of banking and finance as we know it will come to an end.
I am reminded of when Bernie Sanders offered an amendment to audit the Fed to the financial reform bill earlier this year. While it was just one of many amendments being considered, the administration came out and said it was not against any of the amendments being discussed, with one exception, they would fight the "audit the Fed" idea to the death (me thinks the lady doth protest too much). Why? The same reason, a complete audit of the Fed would show that we have still not dealt with the bad loans on the banks' books.
As to the other two potential nominees on Obama's short list for the position, Michael S.Barr is Geithner's boy currently working for him as an Assistant Secretary at Treasury. More importantly, he is Bob Rubin's boy, having served as Rubin's assistant in the Clinton administration. If you are Rubins' boy, you are the bank lobby's boy as this position of Rubin's boy was previously held by Summers and then Geithner. Eugene Kimmelman seems like a nice enough person who has no background in finance. If the banking lobby can't get their guy in, the next best thing is to get a completely clueless person in who is too afraid to act boldly given he couldn't tell a CDO from a CEO. He has been the top lobbyist for the Consumers Union, so he is pro-lobbying and as a positive comment, really understands how toasters and garage door openers work.
Elizabeth Warren won't just protect consumers, her Oklahoma bred sense of honesty, fairness and decency just might reinvigorate and redirect a government and a banking industry that for too long has seen the average American taxpayer and the typical small consumer as the enemy to be taken advantage of at every turn.
If you want to help make sure Elizabeth Warren is appointed to head the new consumer finance protection agency, please take a minute and sign this online petition that will be presented to the President and then use the accompanying email opportunity to invite your friends to do the same.
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John R. Talbott is the bestselling author of eight books on economics and politics that have accurately detailed and predicted the causes and devastating effects of this entire financial crisis including, in 2003, "The Coming Crash in the Housing Market", in January 2006, "Sell Now! The End of the Housing Bubble" and in 2008, "Contagion: The Financial Epidemic that is Sweeping the Global Economy".
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Video: Warren makes Geithner very uncomfortable with questions about AIG and Goldman Sachs:
- "Where did the money go?"
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For more on this video:
Jul 25, 2010 at 10:30 PM
Reader Comments (42)
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/trichet/Geithner%20desktop.jpg
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/trichet/Bernanke%20Desktop.jpg
http://www.huffingtonpost.com/john-r-talbott/the-real-reason-geithner_b_650403.html
What about a Jindal/Bachmann 2012 ticket...hmmmm...not a fan of Jindal for that position but I like the other half of that ticket.
http://www.youtube.com/watch?v=l4FofjtRihA
I am a big fan of Catherine Keener, I mean a HUGE FAN...I think Bachmann looks a bit like Keener or the other way around...either way...HOT and SEXY!!!
Take a look...http://www.youtube.com/watch?v=EhSR5cS_qnU&feature=related
http://www.bloomberg.com/news/2010-07-19/obama-bull-market-intact-as-history-shows-midterm-gridlock-spurring-rally.html
“I envision a rally from before the midterm elections,” said Fisher, who oversees $35 billion in Woodside, California, as chief executive officer of Fisher Investments. “Markets love gridlock. What the market wants to see is no change: less legislation that engages in changes in taxes, spending, regulation or property rights.”
This is another reason why I am sure that the market is about to tank again. I predict a downward slide of at least 1500 off the dow.
This article is a perfect example of irrational exuberance.
Yes, OBAMA IS THE DOUBLE RAINBOW...
http://www.youtube.com/watch?v=OQSNhk5ICTI
Some how the Good Ol Boys, just wont let this happen. EW, and Ron Paul are two fighting endlesly for the American People. We need more like them.
http://www.youtube.com/watch?v=8D_xFwQR_SE&feature=related
lol
the double rainbow is hilarious shit z...
http://www.youtube.com/watch?v=OQSNhk5ICTI
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I agree that the market is in trouble from here...don't get me started on ken fisher...he is a complete and total loser...they are the scientologists of money management...i've heard horror stories from clients trying to get their money back from Fisher..here he says the problem isn't too much debt but not enough...
http://www.businessinsider.com/henry-blodget-its-a-v-shaped-rally-and-its-only-half-done-says-ken-fisher-2009-9
But I put "Paul & Paul" 2012 !
http://www.time.com/time/photogallery/0,29307,1739286_1586542,00.html
http://www.youtube.com/watch?v=2_u_hFt3ad0&feature=related
http://www.youtube.com/watch?v=zlfKdbWwruY
http://www.youtube.com/watch?v=t_xCeItxbQY&feature=player_embedded#!
Just wait, under Obamacare, you may be speaking to Shirley soon. Okay, relax, she hasn't gotten a job managing your healthcare YET!!!
http://www.youtube.com/watch?v=X9tQt_1tj4g
Did Bilderberg rename it "The Big Society"? Those bastards.
http://www.youtube.com/watch?v=xmHt5UEL9sI
http://www.youtube.com/watch?v=okHGCz6xxiw
http://www.youtube.com/watch?v=cSNdcG_ZMas&feature=related
http://www.youtube.com/watch?v=BIQxK0ZOxnw&feature=related
Looks like Mrs. Z ain't pettin' your puppy enough lately, huh?
3 Republican congressmen reveal Barack secretly spent $23 million
http://www.wnd.com/index.php?fa=PAGE.view&pageId=181405
An investigation by three Republican congressmen has revealed the Obama administration has secretly spent $23 million of U.S. taxpayer dollars in Kenya to fund a "Yes" vote on a constitutional referendum scheduled for Aug. 4 that would increase access to abortions in Kenya and establish legal status for Islamic law tribunals.
http://www.prisonplanet.com/congressman-obama-may-have-spent-10-million-on-illegal-kenya-abortion-push.html
The U.S. Treasury Department says the Coinage Act of 1965 says "private businesses are free to develop their own policies on whether or not to accept cash, unless there is a state law which says otherwise."
Check out the video...
http://www.connectmidmichigan.com/news/story.aspx?id=481793
http://www.youtube.com/watch?v=hbKZEHnUtgo
Yes, it's Jacob Lew ("Bill Clinton's Budget Brain")
http://www.examiner.com/x-264-Celebrity-News-Examiner~y2009m12d29-ABC-newsgal-Bianna-Golodryga-engaged-to-Obama-numbercruncher-Peter-Orszag
That's probably just a really good picture...
http://dailyoptionsreport.com/images/uploads/2010/Bianna-Golodryga.jpg
WTF!
http://www.youtube.com/watch?v=v4oNwtOfg2g
Obama...half white or half black??? OH NO SHE DIDN'T....
http://www.youtube.com/watch?v=xRU1pjqQpP0
HEY DB...WHAT'S NOT TO LOVE...
http://www.youtube.com/watch?v=O9dVQi-APZ8
http://online.wsj.com/article/SB10001424052748704720004575377140531684602.html
The 50-year-old commodities trader last week bought up to 240,000 metric tons of cocoa beans from the London exchange, a haul valued at about $1 billion...
http://www.youtube.com/watch?v=Ce49tT-V-qc
Great, we are also paying taxes in Pakistan. Way to go Barry!!!!
http://www.youtube.com/watch?v=KIMCQ1-2xxs
Obama wanted a volunteer army too.
Brown Beret Caught In Explosive Racist Rant Against "White" America..
Comment by Sandra Lee Smith 2 minutes ago @Bob Allen: I suspect it is, and that our leaders are responsible for that; I saw, on another site I was checking out yesterday, a document, a treaty actually between the US and Mexico signed in 1959, stating there would be a "CANAMEX' corridor right through AZ, as part of the NAU plan and it would include FREE PASSAGE rights for Mexicans! Bet you didn't learn about that when YOU took American History in school either! Also on that site, was information about a "port" in Kansas City, MO,. OWNED and operated BY MEXICO as their sovereign territory! That deal was made in the '90s, I believe it was. Dubai owns most of our seaports now, and various nations own toll highways all over the US as well, all sold to them by our national or state governments without Congressional approval or oversight, and behind closed doors so the people wouldn't find out that our nation was being sold out from under us piecemeal!
http://www.resistnet.com/video/video/show?id=2600775%3AVideo%3A2389043&xgs=1&xg_source=msg_share_video
BIGGEST CRIMINAL BRAIN now back in POWER
That Jacob Crook turned all USA corporate thugs and Wall street Bankers to become fearless to SCAM USA working class during CLINTON BLOW JOB PRESIDENCY ENJOYMENT
AMEN
WE ARE DOOMED; Working class should get ready to banged more and faster under JACOB the biggest Terrorist ever
Chilling toll of Times Sq. 'bomb' on track to becoming the biggest individual mass murderer in US history
http://www.nypost.com/p/news/local/manhattan/chilling_toll_of_times_sq_bomb_400MLFIYrBDELDqzmiq0EM#ixzz0uDPuinJw?om_rid=NQ-S6t&om_mid=_BMRZdnB8PKYlO1&
Is Timmah really going to get promoted to his maximum level of incompetency?
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That's the rumor...Geithner to Goldman...
"I don't know, that's the question, how does he know that?" Dodd said in response to a question from TPMDC on his way in to the Democrats' weekly policy lunch.
"She's qualified, no question about that. The question is whether she's confirmable," Dodd added. "The issue is [if] you can't confirm somebody, if you go six or seven months without someone in that job, you've got a problem."
http://tpmdc.talkingpointsmemo.com/2010/07/dodd-no-recess-appointment-for-warren-who-still-may-not-be-confirmable.php