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(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?
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).
This also explains why there is no economic recovery, insufficient lending by banks and the unemployment stays unacceptable high at 9,5%. Nice NY Times op-ed by Friedman: “It’s my fault.”
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Update [2010-07-25 06:43 AM by Oui]:
US Financials vs Elizabeth Warren
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]
« click for story
A Powerful Lineup in Opposition to an Independent Watchdog
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.
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My recent comment in BooMan’s fp story – The Real Disappointment
Company profits are up with less employees … creating jobs overseas. US imports up again.
Recently an acquaintance at the next table in a Palo Alto, California, restaurant introduced me to his companions: three young venture capitalists from China.
I left the restaurant unsettled. Something didn’t add up. Bay Area unemployment is even higher than the 9.7 percent national average. Clearly, the great Silicon Valley innovation machine hasn’t been creating many jobs of late — unless you are counting Asia, where American technology companies have been adding jobs like mad for years …
U.S. Versus China
Today, manufacturing employment in the U.S. computer industry is about 166,000 — lower than it was before the first personal computer, the MITS Altair 2800, was assembled in 1975. Meanwhile, a very effective computer-manufacturing industry has emerged in Asia, employing about 1.5 million workers — factory employees, engineers and managers.
The largest of these companies is Hon Hai Precision Industry Co., also known as Foxconn. The company has grown at an astounding rate, first in Taiwan and later in China. Its revenue last year was $62 billion, larger than Apple Inc., Microsoft Corp., Dell Inc. or Intel. Foxconn employs more than 800,000 people, more than the combined worldwide head count of Apple, Dell, Microsoft, Hewlett-Packard Co., Intel and Sony Corp.
10-to-1 Ratio
Some 250,000 Foxconn employees in southern China produce Apple’s products. Apple, meanwhile, has about 25,000 employees in the U.S. — that means for every Apple worker in the U.S. there are 10 people in China working on iMacs, iPods and iPhones. The same roughly 10-to-1 relationship holds for Dell, disk-drive maker Seagate Technology, and other U.S. tech companies.
Bill Wiseman of McKinsey & Company presented “Waking up to the new normal, the world economy after the great recession” at a recent ITAC GSA Conference. Bill supports my previous semiconductor financial predictions in great and graphical detail.
In the United States: unemployment claims are up, home sales are down without government incentives, and manufacturing growth is stalling. New claims for unemployment benefits recently jumped to 1.3 million people without federal jobless benefits, and that number could grow to 3.3 million by the end of the July due to political infighting. In Europe there is a debt crisis, in China there is an economic bubble …
"But I will not let myself be reduced to silence.".
(AP/ABC News) – Nearly 528,000 homes were taken over by lenders in the first six months of the year, a rate that is on track to eclipse the more than 900,000 homes repossessed in 2009, according to data released Thursday by RealtyTrac Inc., a foreclosure listing service.
“That would be unprecedented,” said Rick Sharga, a senior vice president at RealtyTrac.
By comparison, lenders have historically taken over about 100,000 homes a year, Sharga said.
The surge in home repossessions reflects the dynamic of a foreclosure crisis that has shown signs of leveling off in recent months, but remains a crippling drag on the housing market.
"But I will not let myself be reduced to silence."