U.S. Treasury Position to Allow Wall Streeters to Remove Toxic Assets from Company Accounts

As a possible harbinger of better times to come, U.S. financial markets rose more than 5 percent as the days final hour of trading to place after the Treasury Department's declared their new plan that will allow banks to remove toxic assets from their account statements.

The New York Times explains that: "The Obama administration formally presented the latest step in its financial rescue package on Monday, an attempt to draw private investors into partnership with a new federal entity that could eventually buy up to $1 trillion in troubled assets that are weighing down banks and clogging up the credit markets."
President Obama and Treasury Secretary Geithner announced the "Public Private Investment Plan" earlier today in which: "the government and private investors," according to the Washington Post "will invest together to buy up between $500 billion and $1 trillion worth of real estate-related loans and securities from banks. The government will use up to $100 billion from the Troubled Assets Relief Program, matched by private funds, to capitalize the purchases.

The Washington Post explains: "The hope is that instead of hoarding cash in case those assets continue to lose value, banks will resume lending money once the toxic assets are off their books.

"The government and private investors, meanwhile, will hold the assets for the long term, and stand to either make or lose money depending on how the economy does."

The New York Times reiterates: "The success or failure of the plan carries not only enormous stakes for the nation’s recovery but certain political risks for Mr. Geithner as well. At least two Republican senators have called for his resignation. And on Sunday, Senator Richard C. Shelby of Alabama, the ranking Republican on the Banking Committee, told Fox News that “if he keeps going down this road, I think that he won’t last long.”

The core of the new plan will consist of $75 billion to $100 billion in funds provided by TARP, the Troubled Assets Relief Program which will allow the Public-Private Investment Program will supply about $500 billion to purchase the toxic assets with the government hoping that the monies available will eventually rise to nearly a trillion dollars that will be available to buy troubled assets.

The Financial Services Roundtable, an important financial services lobby, endorsed the Treasury’s plans on Monday morning, "saying that the purchase program would keep the troubled assets from bogging down big banks and preventing a recovery in banking and the broader financial system. Many experts say the financial system must recover before the country can claw its way out of the broad and painful recession.

Steve Bartlett, president of the Financial Services Roundtable remarked: “The partnership between public and private institutions is a great way to help restore liquidity in the market,.. “It is encouraging to see Treasury creating unique ways of stimulating the economy while protecting the taxpayer.”

It seems the greatest hindrance to the new plan is the number of banks and private investors who will become involved, and if Wall Street investors maintain their support for the plan.

One investor, the head equity trader at BNY ConvergEx Group, Anthony Conroy said: “People are excited that there’s a plan, that there’s a definitive plan.”

Other investors such as Matthew Eads, portfolio manager and securities analyst for Atlanta-based Eads & Heald Investment Counsel. felt unrestrained in voicing their opinions: "The market's really trading more on psychology now than fundamentals,... "Investors are really looking for anything to grab on that's a sign of good news."

Weighing in with his opinion President Obama, following his economic briefing stated: "We believe that this is one more element that is going to be absolutely critical in getting credit flowing again," Obama said. "It's not going to happen overnight. There's still great fragility in the financial systems, but we think that we are moving in the right direction.

"And we are very confident that," Obama continued, "in coordination with the Federal Reserve and the FDIC, other relevant institutions, that we are going to be able to not only start unlocking these credit markets, but we're also going to be in position to design the regulatory authorities that are necessary to prevent this kind of systemic crisis from happening again."

In essence the plan works in this manner: "according to a Treasury Department fact sheet: Imagine that a bank wants to sell mortgage loans with a $100 million face value. The FDIC would auction the loans to private bidders. Suppose the winning bidder offered $84 million. The private investor would put up $6 million, Treasury would put up $6 million, and the FDIC would guarantee $72 million worth of loans.

"If investors select assets wisely," The Washington Post explains, "and the assets prove to have good value over the long run, the loans will be repaid, and the hedge fund and Treasury Department split the remaining profits in proportion to their original investment. If the investors choose poorly, or the assets fall significantly in value, the government shares in the initial loss and potentially is required to spend additional money to cover the loan guarantees.

"The idea is to get those assets off the books of banks and onto the books of long-term investors who could lose money without causing broader economic damage."

It is important to note that Treasury officials intend to use their plan to gather momentum that will solve the ongoing breakdown in America's financial system.

American Public Growing Tired and Dissatisfied with Wall Street Abuses as Obama Goes on the Offensive

Americans across the nation are voicing their anger at Wall Street, in particular against AIG as President Obama is waging a battle for the support of the nation to make changes in the way Wall Street executives conduct themselves.

The most outrageous situation facing Americans is that "the reality is that no matter what we do now, tens of trillions of dollars in wealth have been lost. All that's left is simply an elaborate exercise in settling up the accounts."

What angers Americans the most is "that the hundreds of billion dollars of taxpayer funds that have been put at risk to keep AIG and Citi from failing and taking the whole financial system down with them."

The only useful purpose all of this public anger is having is that it is helping to let off some collective pessure that has building for years on the way Wal Street has been conducting it's business practices. It also aids in the coalesce of political pressure for reform of the political checks and balances that keep Wall Streters in check. And with the renewed call for stricter regulations comes the hope that in the future Wall Street finaciers will be forced to "think long and hard the next time they get the urge to take excessive risks with other people's money."

One of the most tangible forms of protest being waged by angry American took shape on Capitol Hill today when House members decisively authorized "a near total tax on bonuses paid this year to employees of the American International Group and other firms that have accepted large amounts of federal bailout funds, rattling Wall Street as lawmakers rushed to respond to populist anger."P

Angry Democrats and Republicans authorized a nearly 90% tax "on bonuses for traders, executives and bankers earning more than $250,000."

The hast to restrain the bonuses by Housemembers who have waged vigorous battles over the limitation of compensation for Wall Street executives, demonstrates the high degree of tension being brought to bear by the bailout. On the Senate side, lawmakers are expected to consider a tax on executive bonuses that will differ with the measure passed by the House, which will effect final pasage of the bill.

President Obama urged congressional members to come up with a “final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated.”

In a cautious and measured response, President Obama Mr. Obama said he believed legislators were “responding, I think, to everybody’s anger” but that the best way to handle the situation was “to make sure you’ve closed the door before the horse gets out of the barn.”P

Members of Congress voiced their displeasure in terse statements: “As A.I.G.’s recent actions remind us, it is unconscionable that companies dependent upon the largess of the federal government for their very existence should in turn pay irresponsibly exorbitant bonuses to the rapscallions partially responsible for the current recession,” Representative John D. Dingell, Democrat of Michigan, said.

Wall Street executives called the legislative actions reckless and ill-conceived. And many bank executives threatened to pull out from efforts to right the nation's economy.

Even senior Republican leaders backed the stringent measures: “It is an extreme use of the tax code to correct an extreme and excessive wrong done to the American taxpayer,” said Representative Dave Camp of Michigan, senior Republican on the tax-writing Ways and Means Committee, who backed the measure despite reservations.

"But experts on constitutional and tax law said it was likely the House bill could pass muster. Numerous court rulings have upheld retroactive tax provisions, particularly over short periods. The House bill applies back only to Jan. 1, 2009. The measure is also strengthened by the fact that it does not apply to just one company or group of individuals, and does not take aim only at past bonuses but also bonuses to be paid in the future, experts said.

Towns to Use Chairmanship of House Oversight and Government Reform Committee to Take Account of How Bailout $ Was Spent

New York Democrat Rep. Edolphus Towns is preparing to assume the chairmanship of the House Oversight and Government Reform Committee and is making it clear that his committee "plans to make oversight of Wall Street one of his top priorities of the year, starting with a look at how firms have spent federal bailout funds and whether executives have used the money to fund executive bonuses," according to Brody Mullins of the Wall Street Journal. Centered in Towns sights is his desire to achieve "a full accounting of how the first half of the $700 billion in funding was spent before the second half is released." Towns made his intentions known when he publicly said: "We cannot continue to give money away and then not hold somebody accountable for that money." Chairman Towns will present a more detailed outline of his oversight plans in a Washington, D.C. speech that is scheduled for today, January 14th. The Wall Street Journal, in remarks submitted by Chairman Towns, explains: "his two main concerns about Wall Street are that financial-services companies are not making loans with the bailout funds, and that executives are profiting from the money." Towns wants to know: "What did the American people get for the $350 billion," adding that "I must admit, I don't see the value at this point." The Journal paraphrased Towns' contention that "too many companies are sitting on their government-infused capital, rather than" in Towns' estimation "putting those resources in play to help fix our economy. This is unacceptable." Responding to the topic of executive pay and bonuses; Towns complained that: "I used to think that being a weatherman was the only job in America where you can get it wrong 80% of the time and still have a job." Clearly the issuance of bonuses to many corporate executives is a contentious point for Chairman Towns. The Journal summarized Towns intentions when: "He said his oversight panel will launch an investigation into executive pay and bonuses at companies that receive bailout money from the government." Towns emphasized his concerns when he said: "It is an abomination that so many firms who are receiving government funds continue to reward poor performance." The Journal explained that Chairman Towns also prioritizes "more vigorous oversight of the Obama administration than Republicans performed of the Bush administration." Towns continued with a critical assessment of the relationship between President Bush and the GOP Congress: "Looking back, the Republican Congress did the Bush administration no favors by turning a blind eye to problems created in the executive branch." The Journal continued by saying that Chairman Towns "... wants to make the administration more transparent, by making more information available to the public on presidential records, visitor logs and donors to presidential libraries. Mr. Towns said he wants to prevent companies that are delinquent on their taxes from getting government contracts." Towns also was paraphrased by the Journal as having a desire to possibly "hold hearings on the Bowl Championship Series used to determine a national college-football champion. Agreeing with similar interest expressed by President-elect Obama; Chairman Towns said: "I really feel that we need to take a look at it," to which he added: "What can we do to ensure that this is a fair situation and this is really the best team?"

She Just Might Have a Point, Guys

Debora Spar writes in the Washington Post; freely admitting that she likes men. However, "as the financial debacle unfolds, I can't help noticing that all the perpetrators of the greatest economic mess in eight decades are, well, men. Specifically, they are rich, white, middle-aged guys, same as the ones who brought us Watergate in the 1970s, the Teapot Dome scandal in the 1920s and, presumably, the fall of Rome." Men, she argues are "undeniably overrepresented along all tiers of finance," and they are "particularly overrepresented at the highest levels of power and in those sectors most deeply implicated in the current crisis." To drive home her contention, she cites: "A Catalyst Research study last year found that women make up almost 60 percent of the workforce at Fortune 500 finance and insurance companies but account for only 17.9 percent of corporate officer positions and none of the chief executive positions. In the world of hedge funds, women are notable largely for their absence." Spar believes that there is "some greater force is at work here, something more than the traditional clubbiness of Wall Street or the obstacles that still confront women juggling work and family. It may be that women perceive and act on risk in subtly different ways; that they don't, as a general rule, embrace the kind of massively aggressive behavior that brought us a Dow of 14,000 and then, seemingly overnight, a crash of epic proportions. Whether it be from a protectiveness born of biology or a reticence imposed by social norms, women may be less inclined than men to place the kind of bets that can get them in real trouble." Spar convincingly supports her conclusions with numerous examples that: "women may also be more inclined to blow the whistle on others' risky business. Consider the case of Brooksley Born, former head of the Commodity Futures Trading Commission, who in 1997 called for greater disclosure and new rules to govern the exploding world of financial derivatives. She was chastised by some of the most powerful men on Wall Street, and her recommendations were ignored. But she was right. So was Sherron Watkins, the first Enron executive to warn its CEO that the company was heading for deep financial trouble. So was Coleen Rowley, the FBI agent who prodded her superiors -- unsuccessfully -- to investigate the men who later unleashed the attacks of Sept. 11, 2001." Spar does not profess to know "why women respond differently to danger signals -- and earlier, it appears -- than men. We don't know why women either shy away, or are effectively banned, from businesses that thrive on risk." A recent study that may contain some answers was "published last year by John Coates and Joe Herbert of Cambridge University, (postulates) that women simply don't have the testosterone for it; on the trading floor, they deduced, higher profits literally correlate with higher levels of the male hormone. Another, examined in laboratory experiments conducted by Muriel Niederle and Lise Vesterlund at the University of Pittsburgh, is that women are far less inclined than men to bet their pay on performance, even if they have evidence to suggest that they are superior performers." Spar argues; despite our unsure understanding of the differences between men and women, she advocates the "need to bring more women into leadership positions on Wall Street, in politics, in regulatory bodies and in American life generally." Efforts to date promoting greater inclusion of women in reveal Spar's pessimistic point of view that: "Most of these initiatives, however, have been pursued to make life easier for the women involved -- or, more cynically, to remove the threat of lawsuit or adverse publicity for the firms." Spar resolutely concludes that: "The financial crisis has exposed a quieter but equally pressing concern: We need women in leadership positions not only because they can manage as well as men but because they manage differently than men; because they tend -- over time and in the aggregate -- to make different kinds of decisions and to accept and avoid different kinds of risk. We need women who will say no to bad decisions based on male-dominated rivalries and clubby golf course confidences. We need women to blow the whistle when risks explode and to challenge the presumptions that too many men, clustered too closely together and sharing a common worldview, can easily indulge." Spar's point provides a compelling point for the greater participation of women: "As the constant wail from Wall Street should remind us, diversity isn't just nice in theory. It makes for better business." And she just might have a point guys.