Showing posts with label TARP. Show all posts
Showing posts with label TARP. Show all posts

Thursday 20 May 2010

Elizabeth Warren: a tough sheriff who oversees the US TARP bail-out fund.

Elizabeth Warren: a tough sheriff in finance's Wild West


Elizabeth Warren, who oversees the US TARP bail-out fund, blames America’s housing downturn on the banking industry and 'the bizarre way’ many mortgages were created .


By James Quinn, in Washington DC
Published: 5:30PM BST 19 May 2010



Elizabeth Warren: a tough sheriff in finance's Wild West
With the US Capitol's dome glistening in the fading moonlight behind her, Professor Elizabeth Warren is wolfing down one half of an Egg McMuffin.
Sat on the edge of a sofa in a television studio green room – ahead of at least six "on camera" interviews – at just gone 6am, she coyly apologises for needing to "charge her batteries".
Although it's dark outside, and having been up until 1am the night before – after two days of meetings with the Treasury, the Federal Reserve and her own oversight committee – the woman charged with overseeing the Treasury's $700bn (£471bn) bank bail-out fund is far from tired.
Having spent the majority of her working life focusing on middle-class families and bankruptcies – her day job is as a law professor at Harvard Law School, where she has taught for the last 18 years – it's little surprise that she's looking out for middle America in her temporary role to point out the good and bad of the Troubled Asset Relief Programme (TARP).
"We can't have a robust economy when we're looking at 1m foreclosures," she says. "Our economy just can't take this." Citing statistics that show almost one in four US mortgages is under water, she notes that government attempts to help those in trouble have failed, saying that for every borrower who has avoided foreclosure, another 10 lost their homes.
"Today we've got a [housing] market that won't heal itself, and if it doesn't heal, we'll all be paying this year, next year, and for years to come."
Prof Warren points out that the original idea behind the bail-out fund was to buy parcels of toxic mortgages burning holes in banks' balance sheets: "Part of what we're trying to accomplish is to remind Treasury that it should be about mortgage foreclosures, that's the trigger for the crisis that has not yet been resolved."
She blames the housing downturn on the very banking industry which was the recipient of half of the first wave of the $700bn fund, and "the bizarre way" many mortgages that are now delinquent were created, with "first mortgages on top of second mortgages" and individuals given home loans they could never afford.
Little surprise then that she is the most ardent supporter of a strong consumer financial protection agency as part of the current financial reform legislation winding its way through the US Senate.
Noting that there are currently seven US regulators who have some form of oversight over consumers – the largest being the Fed – she wants an independent agency to look out for middle America.
"I want Senators to have to vote 'yes' or 'no' on an agency with real muscle. I'm not interested in some pretend agency that lets everyone congratulate themselves when in fact it won't make any real difference."
At that point, Senator Richard Shelby, a leading Republican, walks by en route to his own interview and tells Warren: "You're doing good things."
It's ironic as the senator is blocking Democrat proposals for a consumer agency, saying it is "an incredible expansion of the government's reach without any basis in the current crisis".
Prof Warren knows she faces an uphill struggle, and admits that a year ago pushing through such a consumer body would have been easier: "The crisis had started with bad credit policies... I thought it would be the least contentious part of regulatory reform."
Part of the difficulty, she says, is that as banks' finances have recovered, and with foreclosures off the front pages, the problems of the past are further from the minds of those making the decisions. "When only the insiders are part of the conversation, then every policy that results is helpful only to insiders," she retorts.
A career academic, Prof Warren, 60, took up her current position in November 2008 when Senator Harry Reid, the Democrat leader in the Senate, asked her to chair the committee. A key part of her job has involved pointing out what she believes is wrong with not only the consumer agency proposals but other parts of the regulatory framework. On the need for a way to winding-up large institutions without wasting taxpayer funds, Prof Warren would like to see an authority that is "tough enough that it truly liquidates these financial institutions in an orderly way".
She adds: "They need to understand the consequence of their mistakes is that the shareholders are wiped out, the top management is fired and creditors take a haircut."
She is equally unrelenting when it comes to derivatives legislation, speaking of a "huge shadow market" born out of investment banks' realisation that there is little money to be made in equities because of greater efficiencies and transparency.
"The notion that a portion of our economy, which is so significant, can simply trade wildly with no transparency, with no clarity in how that market operates, is dangerous. If we didn't learn that over the last year-and-a-half, then we must have rocks for brains."
As she winds her way across Washington, stopping off for a photo shoot followed by a series of meetings, and talking to The Daily Telegraph along the way, she jokes that she's "a lot more fun in the classroom as nobody's taping" but it's clear she enjoys her role grand-standing on behalf of the American people.
That's why she taken the oversight panel on the road with stops in towns across America. "It's enough sometimes just to tear your heart out. The people who show up and want to talk always have something interesting, something personal, to say."
Prof Warren clearly has little time for the US capital's lobbyists and the banks they represent. "This is the new Wild West, the place where extraordinary profits can be made and the bonuses that come from them are to be sought," she says. "Remind me, what ARE they for? Business as usual? Because that did so well for us, right?"
Though effervescent and approachable, she dodges the question when asked if she would like to head the consumer protection agency – a role for which she is clearly well suited and often tipped for.
When pressed, she points out that she has spent her "whole career" on consumer protection and the middle classes, who "have [been] squeezed to the point that as a country we face the real possibility that our middle class could collapse."
In the next breath, she says: "You need a lot of things, and a leader is one of them. But I really don't want to make this about me."
But as a woman of the people – with a penchant for McDonald's morsels rather than Washington power breakfasts – she would say that, wouldn't she?
Professor Elizabeth Warren's CV
Age 60
Role Chair, Congressional Oversight Panel on TARP
Day job Leo Gottlieb Professor of Law, Harvard University
Family Married, two grown-up children
Education University of Houston; Rutgers University
Tipped for Chair, future Consumer Financial Protection Agency


http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7740307/Elizabeth-Warren-a-tough-sheriff-in-finances-Wild-West.html

Friday 11 December 2009

Geithner Warns of ‘Headwinds’ on Road to Recovery

Geithner Warns of ‘Headwinds’ on Road to Recovery


Published: December 10, 2009

WASHINGTON (Reuters) — The United States economy is struggling against “headwinds” that mean the government must retain the ability to respond to unexpected crises, even as it starts to wind down emergency programs, the Treasury secretary, Timothy F. Geithner, said on Thursday.

Geithner Statement to Oversight Panel Testifying before a Congressional panel that oversees the Troubled Asset Relief Program, or TARP, Mr. Geithner took credit for having averted a complete financial disaster but warned against becoming too optimistic about a rebound.

“The financial and economic recovery still faces significant headwinds,” he said, citing high unemployment and home foreclosure rates, tight credit and impaired securitization markets, especially for mortgage-backed securities.

Mr. Geithner laid out a strategy for winding down the bank bailout program but also defended his decision on Wednesday to extend it past a scheduled year-end expiration, until next Oct. 3, as a necessary guard against a sudden economic relapse.

“History suggests that exiting too soon from policies designed to contain a financial crisis can significantly prolong an economic downturn,” he said.

The relief money was approved by Congress last year as a $700 billion program to buy impaired assets from banks but was immediately converted into a fund for the Treasury Department to make capital injections into ailing banks.

Big banks now are eager to exit the program by repaying their bailout money, partly to free themselves from pay restrictions.

Bank of America sent Treasury a $45 billion check on Wednesday to do so. Citicorp also is talking to Treasury about a repayment.

Mr. Geithner said it was “a good thing for the country that banks are eager to get out” of the program but it has to be done with care. “We are not prepared to have this money come back in a way that would leave the system or these institutions without adequate capital to face their challenges ahead.”

Citigroup got $45 billion of relief money last year.

Mr. Geithner said the investments made in banks were returning more money sooner than thought and the next few weeks will bring ”substantial income” from more sales of warrants to buy stock in banks that are repaying bailout money.

He said he was extending the program, on a modified basis, through next October because he did not want a repeat of the situation in which the government potentially faces a crisis without having adequate tools on hand to deal with it.

The Congressional Oversight Panel on Wednesday released its assessment of the program, conceding that while it had helped stabilize the financial system it had not succeeded in bolstering lending.

In addition, the panel said, it failed to resolve the issue of too-big-to-fail financial institutions and created an implicit guarantee that the government would again bail them if necessary.

Mr. Geithner said not all relief investments would be returned.

“There is a significant likelihood that we will not be repaid for the full value of our investments in A.I.G., G.M. and Chrysler,” he said, though some $15 billion more might come back than originally projected


http://www.nytimes.com/2009/12/11/business/economy/11tarp.html?ref=business