Geithner’s Opposition to the Elizabeth Warren [Update]

The Real Reason Tim Geithner Is Afraid of Elizabeth Warren

(Daily Bailout News) – 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.”

So where are the [62] 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 (CCD).

Chris Dodd (D-CT) says Elizabeth Warren too controversial to head new Consumer Financial Protection Agency

Over the last few days, Connecticut Senator Chris Dodd and Treasury Secretary Tim Geithner have made the case that Harvard professor and Congressional Oversight Panel chairwoman Elizabeth Warren is too controversial a figure to head the new Consumer Financial Protection Agency. This, then, raises the revealing question of how Washington defines “controversial”?

Recall that the charge of “too controversial” was not made by Senate Democrats (or at least not at the volume they are being made against Warren) against Gary Gensler, the former Goldman Sachs executive appointed by President Obama to head the Commodity Futures Trading Commission. It was not made by most Senate Democrats against Larry Summers, a hedge fund executive subsequently appointed to a top economic position in the administration. It was not made against Citigroup executive Jack Lew when last week he was appointed to head the Office of Management and Budget. And it wasn’t made against Tim Geithner, who orchestrated massive taxpayer giveaways to major banks during his time at the New York Fed.

And yet, according to Democratic-run Washington, D.C., Elizabeth Warren — an academic not connected to the financial industry or past corrupt governmental decisions; a regulator working to protect taxpayer’s bailout money — may apparently be too controversial to be confirmed by a Democratic Senate.

Dodd willing to give up independent CFPA [Jan. 15, 2010]

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A Powerful Lineup in Opposition to an Independent Watchdog

Why Elizabeth Warren Should Head the New Consumer Protection Bureau

No one can co-opt Elizabeth Warren. She’s fearless in defending families and merciless on financial abuse. She understands fine print and how it’s used to con customers. She believes, passionately, that banks and other lenders ought to come clean.

That’s why she’s so unpopular, especially on the Republican side of the aisle. She could win a majority in the Senate, but the Senate is no democracy. A minority — 40 percent — can stop her nomination from reaching the floor. On television last week, Sen. Chris Dodd, chair of the Senate Banking Committee, floated the possibility that the minority might win. The banks and their anti-consumer defenders could keep her from being confirmed.

The last thing they want is a strong director truly committed to righting wrongs. And Elizabeth Warren is strong. She has accused the big banks of “throwing away customer trust like so much worthless trash.” She was shocked by the depth of deception in the mortgage market, and the sale of credit cards full of — her favorite phrase — “trick and traps.” She has written that craven federal regulators “played the role of lookout at a bank robbery, holding back anyone who tried to stop the massive looting from middle-class families.”

Oooo, the banks say, that hurts. She’s biased, incendiary, and unfit for the role of consumer protector. I say, it’s about time that somebody lit some fires. Warren gets it exactly right. Deregulation set off a race to the bottom, where deceptive and unfair practices ramped up bank profits at the expense of American families.

CFPA Leadership and Trust