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Aristotle
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Joined: 05 Dec 2007
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Treasury Accused of of Lawbreaking & Incompetence
PostPosted: Tue Feb 24, 2009 7:57 pm Reply with quoteBack to top

A Missouri law professor, William K. Black, who was a high level Federal regulator during the S&L crisis, gives specific citations to U.S. Code sections which require the Treasury to put troubled banks into receivership before they become insolvent, not do ill defined public/private partnerships which Geitner and Bernanke discuss. The professor accuses Tim Geithner of breaking that law by not acting against the zombie banks and putting them in receivership. See:

See: http://www.huffingtonpost.com/.....69234.html

In particular, that article cites: "Title 12, Sec. 18310 mandating that banking regulators take "prompt corrective action" to resolve any troubled bank. The law mandates that the administration place troubled banks, well before they become insolvent, in receivership, appoint competent managers, and restrain senior executive compensation (i.e., no bonuses and no raises may be paid to them). The law does not provide that the taxpayers are to bail out troubled banks.

To top off those concerns, the WSJ reports that Treasury's senior staff are not regulating Citigroup and Citibank in the manner required by Title 12. The WSJ article makes it sound like the regulatory function is in complete chaos:

http://online.wsj.com/article/.....67485.html

Rather than regulating the nearly insolvent banks in the manner required by Title 12, on February 23, 2009, the Press Office of the U.S. Department of Treasury released this public statement:

"February 23, 2009
tg38

Joint Statement by the Treasury, FDIC, OCC, OTS and the Federal Reserve

Washington, DC – The U.S. Department of the Treasury, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve Board today issued the following joint statement:

"A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery. The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses. The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth. Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.

"We announced on February 10, 2009, a Capital Assistance Program to ensure that our banking institutions are appropriately capitalized, with high-quality capital. Under this program, which will be initiated on February 25, the capital needs of the major U.S. banking institutions will be evaluated under a more challenging economic environment. Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital. Otherwise, the temporary capital buffer will be made available from the government. This additional capital does not imply a new capital standard and it is not expected to be maintained on an ongoing basis. Instead, it is available to provide a cushion against larger than expected future losses, should they occur due to a more severe economic environment, and to support lending to creditworthy borrowers. Any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory. Previous capital injections under the Troubled Asset Relief Program will also be eligible to be exchanged for the mandatory convertible preferred shares. The conversion feature will enable institutions to maintain or enhance the quality of their capital.

"Currently, the major U.S. banking institutions have capital in excess of the amounts required to be considered well capitalized. This program is designed to ensure that these major banking institutions have sufficient capital to perform their critical role in our financial system on an ongoing basis and can support economic recovery, even under an economic environment that is more challenging than is currently anticipated. The customers and the providers of capital and funding can be assured that as a result of this program participating banks will be able to move forward to provide the credit necessary for the stabilization and recovery of the U.S. economy. Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Program is that banks should remain in private hands."

The bottom line, as articulated in Professor Black's article, is that Title 12 Section 18310 was enacted at the end of the savings and loan crisis as a means of requiring a proactive, uniform means of protecting the public as commercial banks and savings banks moved towards the brink of insolvency. The mush coming out of the Treasury Department, as quoted above, is not what that law requires.

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houston
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Geithner
PostPosted: Fri Mar 20, 2009 6:05 pm Reply with quoteBack to top

How much longer will Geithner remain in office?

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mahalo guy
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Joined: 28 Jun 2008
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Re: Geithner
PostPosted: Sun Mar 22, 2009 5:45 am Reply with quoteBack to top

That depends on how much dirty laundry gets seen by the public. If his boat starts leaking, he's history.

houston wrote:
How much longer will Geithner remain in office?
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