Guest Post: More Spin And Geithner Gobbledygook
Submitted by Nomi Prins
More Spin And Geithner Gobbledygook
On the right hand side of the Treasury Department website homepage, under the subheading Wall Street Reform, is the following lofty statement:
"It is time to restore responsibility and accountability to our financial system."
That's the spin. Now, it's been spinning there awhile, so it's not exactly news.
But today, in complete contrast to the meaning of that statement, Geithner suggested backing a 'risk-retention' proposal
that excludes banks that meet high underwriting standards (probably
those that got high marks on the latest Fed stress tests for which the
Fed isn't releasing any details) from having to retain portions of the
deals they securitize, you know, of having to maintain a stake in the
outcome of those deals and the performance and integrity of their
To recap, as a result of the 2008
debacle, banks that passed their stress tests, effectively borrow money
at next to zero percent. The aftermath of the financial crisis is the
loosest monetary policy in our nation's history. Even with all that
help, banks don't want to be bothered holding anything that could screw
around with their capital ratios. Of course.
The watery and verbose Dodd-Frank bill
did very little to change the banking landscape (okay less than nothing,
big banks got bigger, Glass-Steagall wasn't resurrected, rating
agencies remain in control of rubber stamping deals and debt, funky
derivatives are excluded from exchanges, etc.) But it did manage to
churn out some language that suggested banks keep some 'skin in the
game' and retain up to 5% of each securitized deal they manufacture.
Today, Geithner reconfirmed that any
potentially useful pieces of that bill (and you have to look really hard
for them to begin with) would be rendered impotent or be axed.
Shocking. So comforting he's leading the super-spin
systemic-risk-reducing-but-not-really, taxpayer funded Financial
Stability Oversight Council Board.
It's no surprise that the banks that
received trillions of dollars of federal backing don't want to hold more
of their concocted crap in the future. That would mean holding more
capital behind the crap too. That would mean not being able to use that
capital to create new crap.
But it's not just them. It's the
regulators that manufacture their future employees too. Having
apparently forgotten everything that happened in the last few years, the
FDIC voted 5-0 to consider this proposal. The SEC's going to have a
think about it later this week. How about - no that's a dumb ass
proposal that flies against everything we've been babbling about when we
talk about containing systemic risk? Course not.
It'll happen. The most powerful banks
will be deemed the highest quality issuers and nothing will have changed
- again. And what's the likelihood that JPM Chase, for example, is the
first exemption? High.
What's the likelihood that the
collateral underlying their loan portfolios retains the same value it
had when those loans were contracted? Zero. If that were the case, then
only in JPM Chase land, for example, would the value of homes not have
deteriorated. Which isn't reality.
But that doesn't matter. Because they, and every other bank, can
continue to pretend that until a default happens or a foreclosure is
completed, there's no need to re-evaluate any of their loan portfolios
because they are under-collateralized on every single loan, or admit
their true risk. Certainly no accounting rule is going to make them.
Yep, banks know enough to lobby against
retaining a higher stake of risk in those loans and their related deals.
Which tells us something about how weak and shady the banking system
remains and how strong the Treasury, Federal Reserve, Regulatory and
Congressional spin to the contrary is.