Tags: FDIC, Geithner, The Bailout Juggernaut
Message to diligent administrators concerned with the preservation of taxpayer dollars: Get in the way of the bailout juggernaut and you will make powerful enemies. Consider the plight of FDIC head Sheila Bair:
Geithner, president of the Federal Reserve Bank of New York, has argued Bair isn’t a team player and is too focused on protecting her agency rather than the financial system as a whole, according to two congressional officials and a person familiar with his thinking. Bair has battled with Geithner and fellow regulators over aid to Citigroup Inc. and other emergency actions, making her enemies in the Bush administration.
Of course, it’s rather difficult to out Bair and still look like the magnanimous administration you’ve claimed to be (we’re looking at you Obama), particularly when she’s supposed to hold the post until 2011. Our popcorn machine is warmed up.
Geithner May Seek to Push Bair Out After Clashes During Crisis [Bloomberg]
What’s the quickest way to assure that lenders will never ever buy another asset based on mortgage income streams? Make it clear that, at any time, the income stream of that mortgage could be modified by a regulator, a judge or the like. How would you value that asset now?
Still, foreclosure assistance puts a smile on the face of lots of voters. So, I suppose you had to expect they were going to push it. Especially this year. FDIC’s wiley Sheila Bair has an idea though.
“Specifically, the government could establish standards for loan modifications and provide guarantees for loans meeting those standards,” she said. “By doing so, unaffordable loans could be converted into loans that are sustainable over the long term.”
If its going to work, it will have to be voluntary for the security holders, and a government guarantee goes a long way for that.
FDIC’s Bair Suggests Guarantees for Loans [The Wall Street Journal]
We worried some weeks ago about what the FDIC, who’s capitalization is awfully small to look very useful against any serious glut of bank failures, was going to do if things started to fall apart. It appears we have our answer:
The Federal Deposit Insurance Corporation is seeking temporary unlimited borrowing authority from the Treasury Department, according to a copy of the final Senate bailout legislation on Wednesday.
The saving grace here is that FDIC actually seems to know what the hell it is doing. Not only that, but they seem to have a particular affinity for public relations and youth outreach. We badly want to make (more) fun of Chairwoman Bair, but since there are so few heros and heroines in “crisisland,” we can’t bring ourselves to rock the boat. Have your unlimited borrowing authority, Bair. Use it well.
FDIC seeking temporary unlimited Treasury loans [Reuters]
Tags: Clusterfucks, FDIC, Sheila Bair
We are all for simple explanations to complex financial problems. Given this, what prerequisite for a major regulatory position in finance could be more gratifying than the ability to explain complex monetary policy issues to children? And given this, who could be more qualified than Sheila C. Bair, Chairman of the Federal Depository Insurance Corporation, and, more importantly, author of Five Star Amazon Review award winner “Rock, Brock and the Savings Shock?” (For ages: 8-12. Hurry! Supplies are limited and Amazon only has 2 left in stock!)
Try as I might, I couldn’t possibly do the work more justice than this Amazon review:
Rock is a spender and Brock is a saver. Their grandfather hires them to do chores and then encourages them to save by matching the total amount of money that they have accumulated from their pay each week. Brock manages to amass $512 in 10 weeks, while Rock spends his money as soon as he earns it, purchasing a fanciful array of toys, gum, and yard-sale items, all of which are comically depicted in the bright cartoon illustrations. Ultimately, Brock uses his proceeds to buy a fancy telescope and some gifts for family members, generously putting his remaining $50 dollars into a joint savings account that he shares with his brother. Evidently Rock learned his lesson as the tale ends with the twins in their old age as millionaires. A section entitled Do the Math contains charts showing the cash accumulation and what would have happened if Brock had spent some money during the 10 weeks. An explanation of compound interest and advice about saving are included. While the rhyming text has some awkward passages, this picture book is a good way to examine the issue of saving vs. spending.
We would be remiss if we failed to mention that this masterpiece ranks #6 in the Amazon “Twins” category behind #2: “How to teach filthy rich girls” (I own three copies) and #3 “The Ironwood Tree.”
I am looking forward to the chapter on dealing with an abrupt
2150% increase in claim liabilities by depository insurance companies.
Tags: credit crunch, FDIC
I’m sure you can imagine exactly what would happen if State Farm suddenly decided that they would cover wind, water/flood and fire on every homeowner’s policy that, up to this point, had excluded recovery in these categories. Since State Farm had been carefully collecting actuary data and setting rates (in those states that didn’t impose strict price controls on residential insurance premiums) to extract their fairly thin margins, a sudden spike in expected payouts would require pretty drastic action.
Because a large portion of returns to insurance come from re-investment of collected premiums, insurance entities are incentivized to minimize required reserves and put the rest “to work.” A sudden increase in potential claims liabilities is not an easy thing to adjust to. Combining that with a period in which the rate of new claims is more than likely to spike, this would likely be, at least in the world of commercial insurance, fatal. So if the FDIC is suddenly required to assume substantial new liabilities after having for years collected premiums that would be insufficient to cover even the regular default rate, well that’s not good. Absent rather serious mis-management at the FDIC (we could realistically hope for this, actually) someone is probably going to have to inject a serious hunk of capital to keep the entity solvent.
Congress, White House Weigh Increase in Deposit Insurance [Wall Street Journal]
Tags: Citi, FDIC
All depositors are fully protected and there is expected to be no cost to the Deposit Insurance Fund. Wachovia did not fail; rather, it is to be acquired by Citigroup Inc. on an open bank basis with assistance from the FDIC.
The FDIC has entered into a loss sharing arrangement on a pre-identified pool of loans. Under the agreement, Citigroup Inc. will absorb up to $42 billion of losses on a $312 billion pool of loans. The FDIC will absorb losses beyond that. Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing this risk.
This wouldn’t be the first time we’ve pointed out that financial Newspeak (the purge of all meaning from some phrases and words and the concentration of it in others) seems to be all the rage with the kids today. I realize that, conflicted though it looks, one could interpret “expected to be no cost” and “Citigroup Inc. will absorb up to $42 billion of losses….” as something other than mutually exclusive. That catch-all word “expected” makes the world your oyster as a public relations professional. For example:
Lehman Deal Expected This Weekend [Wall Street Journal]
Lehman Expected To Follow Merrill’s Route [Reuters]
Sales Of Some Lehman Units Expected Soon [Reuters]
Lehman’s Chairman, Dick Fuld, Is Expected To Attend The Gala Dinner [Unknown]
Even as I type this, the usual CNBC wonks are salivating over that tasty FDIC Chairwoman, Sheila C. Bair. Apparently, she get’s “three thumbs up.” I guess the insight that FDIC insurance premiums might have to be bumped up after weeks and weeks of massive losses qualifies one as a brilliant master of all things finance. (At least it does in Newspeak).
All Sheila needs is a slight improvement, elevating her to the “heckofajob” level and she’ll be unceremoniously dismissed fired a week later.
Citigroup Inc. to Acquire Banking Operations of Wachovia [FDIC.gov]
Federal Deposit Insurance Corp data released this afternoon show 117 banks and thrifts were considered to be in trouble in the second quarter, up from 90 in the prior quarter. That’s being headlined as the worst number since 2003 but it’s even worse than that. At the end of 2007, there were 76 banks on the list. In the first quarter we added 14. In the second quarter, we added twenty-seven to the total. (Actually, its worse than that since the actual failed banks are taken off the list, meaning we’ve added more than the total indicates). In short, the deterioration of banks is accelerating.