Stress tests could stress feds (wonky)
February 25th, 2009 | Treasury | Posted by Gregg Carlstrom
The Treasury Department unveiled guidelines (pdf) today for its bank “stress tests” (I have more details in this week’s paper). Seems to me the guidelines will put some federal employees — namely, the bank regulators — in a tough position. Here’s why.
According to Treasury’s guidelines, regulators have to assess the 19 biggest U.S. banks using two economic scenarios. One of them is the “standard” scenario — what most economists think will happen to our economy over the next two years. The other is a sort of worst-case scenario.
If banks fail the tests — basically if they have too many questionable loans, and not enough capital to cover their expected losses — then they have to raise money and make up the difference. They can do this through private investors, or by asking the government for another investment (more TARP money, essentially).
Geithner announces TARP 2.0 plan
February 10th, 2009 | Treasury | Posted by Gregg Carlstrom
Treasury secretary Timothy Geithner just unveiled the Obama administration’s plan to revise the Troubled Asset Relief Program, the financial system bailout. We’re calling it “TARP 2.0.”
A few of the highlights that impact federal agencies:
- The Treasury Department will “stress-test” banks. Presumably this is to ensure that banks receiving money through TARP 2.0 are actually solvent. There’s serious concern that many of the largest banks in America are insolvent.
- Treasury and the Federal Reserve will create a “bad bank” to buy toxic securities with a mix of public and private capital.
- The government will guarantee a larger percentage of Small Business Administration loans. SBA lending has plummeted in recent months because of tight credit markets and the deepening recession.
Geithner said the Obama team would unveil its plan for stabilizing the housing markets “within the next few weeks.” Presumably that will involve Treasury, the Federal Housing Finance Agency, the Housing and Urban Development Department, and others.
Tags: bailout, Timothy Geithner, Troubled Asset Relief Program
In case you missed it: Federal Times on the Daily Show
January 15th, 2009 | Postal Service | Posted by Elise Castelli
Back in November, Gregg wrote about the potential for a bailout of the Postal Service, which had a $2.8 billion shortfall last year. Well someone has finally taken notice. And that someone is Lewis Black of the Daily Show with Jon Stewart.
Federal Times does not endorse the views of Lewis Black, but we are a little excited about the screen time on the Daily Show.
The Daily Show With Jon StewartM – Th 11p / 10c
Tags: bailout, Daily Show, fun, Lewis Black
Obama unveils his economic team
November 24th, 2008 | Regulation Treasury | Posted by Gregg Carlstrom
12:27 PM: Obama pledged more “transparency and accountability” for the government’s rescue efforts under his administration.
12:18 PM: Obama called on the next Congress to put together an economic stimulus plan in January; he also promised to unveil proposals from his economic team in the next few weeks. Obama also acknowledged that any government stimulus plan could require cuts to other government programs:
We’ll have to scour our federal budget, line by line, and make meaningful cuts and sacrifices.
12:10 PM: Not that it was much of a secret, but now it’s official. The president-elect just finished his speech at a press conference at the Chicago Hilton. His picks:
- New York Federal Reserve president Timothy Geithner will be his pick for Treasury secretary;
- Harvard professor and former Clinton Treasury secretary Lawrence Summers will head the National Economic Council;
- Christina Romer will chair the Council of Economic Advisers;
- Melody Barnes will direct the Domestic Policy Council.
The new Treasury secretary will have two big tasks: First, adding some transparency to the government’s trillions of dollars worth of bailouts, which have been kept very secretive by current Treasury secretary Henry Paulson; and second, reforming the nation’s failed financial regulators.
Tags: bailout, Regulation
How quickly could you spend $350 billion?
November 11th, 2008 | Treasury | Posted by Gregg Carlstrom
The Treasury Department has spent most of the first $350 billion allocated by the Emergency Economic Stabilization Act, passed just over one month ago:
Most of the spending — $250 billion — is going directly to banks. The banks get immediate cash; Treasury gets an ownership share of the bank. AIG got another $40 billion loan yesterday, on top of the $100 billion it’s already received.
That’s $290 billion in spending since Oct. 3, an impressive $86,064 per second.
And it leaves just $60 billion; most experts I’ve talked with say that money will be gone soon.
What does that mean for the department? Treasury can access another $350 billion, but secretary Henry Paulson has to explain to Congress why it’s necessary. So expect another round of hearings on Capitol Hill, beginning perhaps as early as next week.
Tags: bailout, Henry Paulson
Big government spending, but small increases for agencies
November 10th, 2008 | 2009 Budget Agencies | Posted by Gregg Carlstrom
I’m at an event on economic stimulus and financial regulation sponsored by the Committee for a Responsible Federal Budget. The group is projecting a staggering $1 trillion deficit for fiscal year 2009, driven largely by the cost of reviving the slumping economy: bailouts for financial firms, diminished tax returns and an economic stimulus package.
The irony is that, while government spending as a whole is skyrocketing, individual agency budgets may not see that much of an increase.
That’s because much of the new spending is either handed out directly in a stimulus package — to states, businesses and taxpayers — or controlled by an individual agency, like the small cadre of Treasury employees who handle the Troubled Asset Relief Program.
This is setting up a potentially huge battle come January 20: Can the president-elect find a way to increase agency budgets to pay for big new initiatives, like universal health care, “green energy” investments and stronger environmental protections? Or will the mounting deficit keep agency budgets tight?
Regulating the regulators
October 21st, 2008 | Regulation | Posted by Gregg Carlstrom
The Washington Post reported today that three federal agencies — the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the New York branch of the Fed — are “vying for control” of the $53 trillion market in “credit-default swaps,” contracts that insure financial institutions who make risky investments.
It’s an interesting look inside the infighting that plagues financial regulators. A horde of agencies oversees the financial world:Â the SEC, CFTC, two agencies to regulate banks, the Fed, the Federal Housing Finance Agency, the Treasury Department…
In the era of deregulation (now ending), that was fine. But our fragmented regulators are starting to become an issue. I’ve talked with several economists this week who say the current system doesn’t make sense: too many agencies, not enough coordination.
And on Capitol Hill today, at a hearing of the House Financial Services committee, former Congressional Budget office director Alice Rivlin said “the number of regulators should be less than it is now.”
There’s a precedent: The British consolidated their regulators into a single Financial Services Authority ten years ago. It hasn’t exactly been a successful regulator — the British government’s £50 billion bank bailout is proof — but that’s true in any industrialized country.
There’s precedent at home, too. Earlier this year, the Treasury Department proposed a merger between the SEC and CFTC.
So expect consolidation to be an issue when the next Congress takes up new financial regulations. Agencies are already trying to protect their programs, but it seems inevitable that at least some functions will be merged.
Tags: bailout, Regulation