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Can We Trust Tim Geithner? The Young Turk, Jim Rogers, itulips and Roubini



February 12, 2009 – Comments (11) | RELATED TICKERS: WFC , C , BAC

The Young Turk has a moderate view:

Jim Rogers has my view:

"Mr Geithner caused the problem when he was the head of the NY FED...does not know what he is doing."

"they want to support their friends on Wall Street"

Geithner Crazy Like A Fox?

Nouriel Roubini floats a novel theory to explain Tim Geithner's disastrous speech the other day: He actually knows what he's doing. 

The savvy Geithner, this theory goes, has determined that seizing Citigroup (C) and Bank of America (BAC) now would trigger a run on the bank at JP Morgan (JPM) and Wells Fargo (WFC)--thus forcing the immediate seizure of those giants, too.  JPM and WFC are also insolvent, so this wouldn't be irrational, but Geithner and his bosses might get blamed for destroying them.

In 6-12 months, meanwhile, the market will gradually have realized that JPM and WFC are insolvent, so nationalization will no longer be a startling alternative (and Obama and Geithner won't get blamed).  So, wait a while, and let the market do the unpleasant work for you.  In the meantime, continue with Hail Mary Plan A and hope it works.  And if it doesn't, revert to the then-more-politically-palatable Plan B.

Nouriel Roubini: So why is the US government temporizing and avoiding doing the right thing, i.e. take over the insolvent banks? There are two reasons.

First, there is still some small hope and a small probability that the economy will recover sooner than expected, that expected credit losses will be smaller than expected and that the current approach of recapping the banks and somehow working out the bad assets will work in due time.

Second, taking over the banks – call is nationalization or, in a more politically correct way, “receivership” – is a radical action that requires most banks be clearly beyond pale and insolvent to be undertaken.  Today Citi and Bank of America clearly look like near-insolvent and ready to be taken over but JPMorgan and Wells Fargo do not yet. But with the sharp rise in delinquencies  and charge-off rates that we are experiencing now on mortgages, commercial real estate and consumer credit  in a matter of six to twelve months even JPMorgan and Wells will likely look as near-insolvent (as suggested by Chris Whalen, one of the leading independent analysts of the banking system).

Thus, if the government were to take over only Citi and Bank of America today (and wipe out common and preferred shareholders and also force unsecured creditors to take a haircut) a panic may ensue for other banks and the Lehman fallout that resulted from having unsecured creditors taking losses on their bonds will be repeated again. Instead if, as likely, the current fudging strategy - of temporizing and hoping that things will improve for the economy and the banks - does not work and in 6-12 months most banks (the major four and the a good part of the remaining regional banks) all look like clearly insolvent you can then take them all over, wipe out common shareholders and preferred shareholders and even force unsecured creditors to accept losses ( in the form of a conversion of debt into equity and/or haircut on the face value of their bond claims) as the losses will be so large that not treating such unsecured creditors would be fiscally too expensive.

So, the current strategy – Plan A - may not work and the Plan B (or better Plan N for nationalization) may end up the way to go later this year. Wasting another 6-12 months to do the right thing may be a mistake but the political constrains facing the new administration – and the remaining small probability that the current strategy may by some miracle or luck work – suggest that Plan A should be first exhausted before there is a move to Plan N. Wasting another 6-12 months may risk turning a U-shaped recession into an L-shaped near depression but currently Plan N is not yet politically feasible.

Roubini: Nationalizing Banks Is The Best Way To Go Geithner Reveals Inspiration For Bank Bailout Plan What Geithner Should Have Said


A Red-Neck view of Geithner (a re-post taken from GS751)

Geithner's Speech in 30 Seconds



11 Comments – Post Your Own

#1) On February 12, 2009 at 7:53 AM, abitare (30.20) wrote:

slycapital has another take on Geithner

Do Obama and his team get it?

February 12, 2009

The answer should be apparent to anyone that suffered through Obama or Geithner’s speeches. Martin Wolf from the Financial Times lays out the main problem eloquently in this article.

The problem is solvency. The problem has always been solvency. Fighting a lack of liquidity is like fighting a shooting war with knives. 

Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating.

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#2) On February 12, 2009 at 8:07 AM, abitare (30.20) wrote:

America's view:


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#3) On February 12, 2009 at 8:40 AM, abitare (30.20) wrote:

FYI - Peter Schiff on Geinther and Tarp

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#4) On February 12, 2009 at 10:58 AM, kdakota630 (29.15) wrote:

Another excellent bunch of clips.  Thanks, Abitare.

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#5) On February 12, 2009 at 2:29 PM, jesusfreakinco (28.37) wrote:

Excellent post.  I am short financial in real life and riding these suckers into the ground...

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#6) On February 12, 2009 at 8:59 PM, mickeyc21 (29.95) wrote:

Hi Jeff,

Geithner has already failed in his role as NY Fed chief. It is interesting to watch the market dive when he displays his cluelessness when he's being doing it for a while now - just in a different job.

Roubini seems to be over thinking the issue. Geithner is just another person who got his degree and is coasting (I'm educated, the world owes me...).

Geithner has basically no equity in his house and has been sitting in ARM mortgages while he's been doing all this "help". How the f... can you take someone seriously when their own finacial house isn't in order. 

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#7) On February 12, 2009 at 9:03 PM, Lenokis (23.79) wrote:

Very well put together...

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#8) On February 13, 2009 at 12:10 AM, SharpSEO (48.16) wrote:

The more I read about the Fed, the more disturbed I get. I really believed in Obama, bought into "change". Made my first ever political contribution (and a substantial one, by my standards)... Why did he have to pick a fed insider? AARRRGHHH.

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning"

-Henry Ford

P.S. - if you've never researched the Ford Foundation's international "activism", do some searching.... very intersting stuff to be found.

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#9) On February 13, 2009 at 1:37 AM, gman444 (28.25) wrote:

SharpSEO:   Hard to say yet about Obama---maybe the only way for change is through a fed insider.   I for one hope that Roubini is not overthinking....

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#10) On February 13, 2009 at 7:28 AM, abitare (30.20) wrote:


Thank you for the replies and RECS. I have nothing to add, I am just watching to see how this pans out. 

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#11) On February 13, 2009 at 7:44 AM, abitare (30.20) wrote:

Another take John Stewart:

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