Defenders of Tim Geithner criticized William Black for arguing that the Prompt Corrective Action Law mandated regulatory receivership for insolvent banks. I noted and discussed the criticism here. Now the subject of the criticism, Black himself, has responded along the lines I brought forth:

One senior lecturer at the University of Chicago is dissatisfied with the Geithner Plan:

Even if it is successful, the [Geithner Plan] will add very little new capital to the banks — roughly only the amount paid for toxic assets that is over and above their current value.

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This is an interesting development:

[Elizabeth] Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program (Tarp), [will issue] a damning report that will question the administration's approach to saving the financial system from collapse. . . . She declined to give . . . detail[s] but confirmed that she would refer to insurance group AIG, which has received $173bn in bailout money, and banking giant Citigroup, which has had $45bn in funds and more than $316bn of loan guarantees.

Warren . . . believes there are "dangers inherent" in the approach taken by treasury secretary Tim Geithner, who she says has offered "open-ended subsidies" to some of the world's biggest financial institutions without adequately weighing potential pitfalls. "We want to ensure that the treasury gives the public an alternative approach," she said, adding that she was worried that banks would not recover while they were being fed subsidies. "When are they going to say, enough?" she said. . . .

In response to my post on bank holding companies, regulatory receivership and the Geithner Plan, Geekesque cites Justin Fox on why CitiGROUP can't be taken over. I think Geek misunderstands that I do not want CitiGroup taken over, I want CitiBANK taken over. However, he believes CitiBANK is not insolvent. The question is why isn't CitiBANK lending? Do they need more liquidity? That seems implausible in light of the fact that the Fed has printed so much money and has lowered interest rates to banks to virtually zero. Geek argues that in order to solve the financial crisis, the "non-banks" must be saved:

Over at the Big Picture, Barry Ritholtz links to the much discussed WSJ piece on Larry Summers receiving mountains of hedge fund cash and writes that Obama may go down in history as "the smart guy who decided to continue the 'dumb guy's' policies."

Exactly right. But there's more to be frustrated about in the WSJ piece than just the revelations about Summers. For example, the WSJ writes that New Orleanian and White House Social Secretary Desiree Rogers "collected a $350,000 salary from Allstate Financial as president of the social networking division..."

Allstate has a richly deserved horrible reputation down here in New Orleans. Check out this account of one New Orleanian's battle with Allstate over Katrina-related claims: [More...]

One of the strange inaccurate defenses that you read about President Obama's reluctance to use the power of regulatory receivership regarding the financial crisis is that since banks are held by bank holding companies, the banks themselves can not be taken over without new legislative authority. Here is an example:

I kid, but I wonder if he will now be under attack for this post:

Hopey Changey

Ah well.

The Obama administration is engineering its new bailout initiatives in a way that it believes will allow firms benefiting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay, according to government officials....The administration believes it can sidestep the rules because, in many cases, it has decided not to provide federal aid directly to financial companies, the sources said. Instead, the government has set up special entities that act as middlemen, channeling the bailout funds to the firms and, via this two-step process, stripping away the requirement that the restrictions be imposed, according to officials.

It's the banksters' country. We just live in it.

The Obama/Geithner Plan is terrible. Let's hope it gets derailed. Speaking for me only

Politico (scribe informs us that the quopte was first reported in The American Banker.) The interesting thing to me about this is the question why Obama has chosen to be the thing stopping the pitchforks (figurative one presumes.) Why not instead build some political capital for the right policy moves regarding Wall Street and the economy?

We are told that President Obama is "politically constrained." But Obama seems to see it conversely - that he is the one doing the constraining. FDR certainly knew how to wield public anger to forward his agenda. Obama seems to believe that constraining public anger is necessary for his agenda.

Speaking for me only

Robert Reich:

Capital markets may or may not unfreeze under the combined heat of the Treasury and the Fed, but what happens to Wall Street is becoming less and less relevant to Main Street. Anxious Americans will not borrow even if credit is available to them. And ever fewer Americans are good credit risks anyway. All this means that the real economy will need a larger stimulus than the $787 billion already enacted. To be sure, only a small fraction of the $787 billion has been turned into new jobs so far. The money is still moving out the door. But today's bleak jobs report shows that the economy is so far below its productive capacity that much more money will be needed.

. . . We should stop worrying about Wall Street. Worry about American workers. Use money to build up Main Street, and the future capacities of our workforce.

But Krugman Reich always hated Obama so he must be wrong.

Speaking for me only

An interesting article about Tim Geithner as head of the NY Fed. Geithner admits his failings, which is good, but I think the article raises questions about what he is doing now as Treasury Secretary:

That same year [2006 Geithner] initiated a Fed-wide review of how well the financial giants were able to measure their ability to survive the stresses of a market downturn. William Rutledge, the New York Fed's executive vice president for bank supervision, said the reviews turned up several weaknesses. They found that banking companies were pretty good at measuring the risks to specific parts of their businesses but had little understanding of the dangers to the institution as a whole. The firms also failed to account for the kind of worst-case scenarios that would later cripple several banking giants.

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James Kwak writes up the Financial Accounting Standards Board's (FASB) weakening of the "mark to market" rule. It's a good read. But as Kwak notes, investors won't be fooled by it. It does allow Geithner and the banks to play games with us though:

What if the function of these rule changes is to make it easier for banks to ignore the results of the PPIP auctions? For example, Bank A puts up a pool of loans for auction, but doesn’t like the winning bid and rejects it; Bank A doesn’t want to be forced to write down its loans to the amount of the winning bid. Or, alternatively, Bank B sells a security to a buyer, and Bank A holds the same security; Bank A doesn’t want to be forced to write down the security to the price of Bank B’s transaction.

I think it is more pernicious than that -- it allows "investors" to justify gambling taxpayer money (remember the non-recourse loans) and pay higher prices for the "legacy assets" than the market calls for. This is part of the Rube Goldberg contraption called the Geithner Plan to hand over a trillion dollars of taxpayer money to the financial industry.

Speaking for me only

E.J. Dionne quotes President Obama at the G-20 Summit:

"We can't fall back on the stale debates and old divides," Obama said at his Wednesday news conference in London with British Prime Minister Gordon Brown.

As applied to the financial crisis, this is simply nonsense from President Obama. He is applying a solution that has been tested and failed. In Japan in the 1990s. Dionne acknowledges this by citing Krugman and Stiglitz: