Geithner! 17 comments
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I'm pleased and surprised at the news that Tim Geithner will be the next Treasury secretary. Pleased because he's an insightful pragmatist who's more than qualified to do the job; surprised because I had thought that he might prefer to stay where he is, in what is essentially a tenured and extremely high-powered position at the New York Fed, rather than move to Washington for an uncertain period of time -- especially when his former boss, Larry Summers, is likely to have his own senior job at the White House, which will certainly include both some element of policymaking, and having Obama's ear. That said, Summers and Geithner work well together, so there aren't likely to be too many tensions between the two.
As for the big end-of-week stock-market rally, I think it's far too easy to ascribe it to the Geithner news. Stocks have moved around an enormous amount of late in the final hour of trading, especially on a Friday, and a small Geithner uptick could easily snowball into a 500-point rally under those conditions. The chances that it will last, and that the bottom of the market will in retrospect be seen to be about 3pm this afternoon, seem slender indeed to me: I'd hazard that there are a few more major corporate failures coming down the pike, and that such events are just as capable of sending markets tumbling as Geithner's appointment is to send markets spiking.
Geithner has been worried about the international regulatory architecture for some time, and his September 2006 speech on the subject looks prescient, even if it concentrated a bit too much on hedge funds and not enough on leverage more generally. At ease in the international policy arena, he is America's greatest hope for putting together a coherent global financial system which encourages risk-taking without allowing it to get out of control. But before he can do that, he's going to have a lot of fires to put out, and a major stimulus bill to help draft. I hope he finds a replacement for his New York Fed job sharpish, because he's going to want a decent amount of time to prepare himself to hit the ground running on January 20.
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This article has 17 comments:
Don't worry, though. Bush has been so terrible and is so hated that Obama will have a two-year honeymoon. It's going to be like Reagan's first time. Americans are going to take the medicine (no choice) and the Bush administration will be rightly blamed. He set the bar for irresponsibility and leverage.
On Nov 21 10:55 PM hoover wrote:
> Geithner is believed to be nominated for Treasury Secretary and the
> DOW gains 450 points or so. That in itself shows there is something
> radically wrong with the market and the entire financial system.
> A worldwide house of cards, Ponzi scheme, chain letter, or mountain
> of leverage on top of leverage, isn't going to be changed soon when
> it starts coming unglued and has built up momentum for a couple of
> years. If Obama and his financial team even slow the downward direction
> of this monster in four years they will have achieved unbelievable
> success. But, they will be criticized as if they failed miserably.
The market was looking for anything.... to get out of a short squeeze.
It is a subjective thought, but twice now the market has bounced back from about the same lows, maybe that is the bottom.
As far as Geithner, he may be a good man, I don't know of him, but this economic predicament is much bigger than any one man.
It remains to be seen how the Obama administration will be able to deal with the fundamentals.
What has been done so far is windows dressing, if it remains at this stage, the market will chew it up and spit it out, along with the hacks that attempted to perpetrate the so called bailout, or whatever you want to call it.
On Nov 22 08:13 AM nukldrager wrote:
> Hey cristian, how as in where did you look to see that the market
> was in a short squeeze?
A speech by Timothy Geithner from March 23, 2007 (about the time the credit crisis began)
Credit Markets Innovations and Their Implications
"The past few years have seen remarkable changes in credit markets, and this is a good time to take stock of what we know about those developments and their implications.
The latest wave of credit market innovations has elicited some concerns about their implications for the stability of the financial system, concerns similar to those associated with earlier periods of rapid change in financial markets. Will the most recent credit market innovations amplify credit cycles, contributing to "excessive" lending in times of relative stability, and then magnify the contraction in credit that follows? Will they introduce greater volatility in financial markets? Will they create greater risk of systemic financial crisis?
These concerns have been heightened in some quarters by the problems currently being experienced in the subprime mortgage sector. It will take some time before the full implications are understood and the full impact can be assessed. As of now, though, there are few signs that the disruptions in this one sector of the credit markets will have a lasting impact on credit markets as a whole.
Indeed, economic theory and recent practical experience offer some reassurance against both these specific concerns and more general worries about the implications of credit market innovations for the performance of the financial system..."
www.newyorkfed.org/new...
(Ben Bernanke could not have said it better)
As far as I can read on this blog a lot of people have identify the problem correctly. Now to effectively correct it, this another story. If everything goes well, all the money injected will allow us to have another nice run, the same with new faces at the lead until next time.
jimrogers-investments....
This is just one more awful pick from the sameold.gov team. Are those of you who voted for this man disillusioned yet? I'll lay 2-to-1 you will be by inauguration day.
www.nakedcapitalism.co...
Sunday, March 25, 2007
New York Fed President Timothy Geithner's Not-So-Reassuring Speech
Compared to other Fed presidents, Timothy Geithner is straightforward and more than usually willing to talk about bad things. So when he gives a speech that is comparatively upbeat, as he did earlier this week ("Credit Markets Innovations and Their Implications") it should be reassuring.
So why did this speech bother me? It wasn't as if Geithner was overselling his case. He described both the risks (more credit issuance outside the banking system; more debt held by institutions with a propensity to trade rather than buy and hold) and the benefits (greater range of product, better pricing of risk, more diversified portfolios among investors) and thus deemed financial innovation to be a plus.
Perhaps I have an eye for problems, but I saw in Geithner's straight-up-the-center description plenty of cause for worry. First, banks, the financial institutions that are most closely regulated, hold only 15% of the "nonfarm nonfinancial" debt outstanding (remember financial institutions do lend to each other, so that is excluded). By contrast, hedge funds are becoming increasingly important players, and their investing operations are unregulated, unsupervised, and largely unreported. So while the Fed has good information about what its banks are doing, and can send in extra examiners when warranted, it has no idea what is up with the biggest players in the credit markets...
Here is a conclusion to a speech (Hedge Funds and Derivatives and Their Implications for the Financial System) given two years ago:
"The changes in the financial system since 1998 confront us with a mix of benefits and challenges. The larger size and scope of the core institutions, the greater opportunities for risk transfer and hedging provided by innovation in derivatives, the improvements in risk management, the larger role played by a much expanded number and more diverse mix of private fund managers seem likely to have improved the stability and resilience of the financial system across a broader range of circumstances.
The same factors that may have reduced the probability of future systemic events, however, may amplify the damage caused by and complicate the management of very severe financial shocks. The changes that have reduced the vulnerability of the system to smaller shocks may have increased the severity of the large ones.
Supervisors need to continue to focus attention on reducing the vulnerability of the market to these low probability, but extreme events, while preserving the benefits that have come with these changes in financial markets. The limitations of the conventional risk-management tools in assessing potential losses in the adverse tail of possible outcomes in today’s financial system magnify the risk that individual institutions will operate with less of a cushion than might be desirable for the market as a whole.
As the structure of markets change, we need to continue to review whether the overall framework of supervision over the core banks and investment banks provides the right balance of efficiency and resilience for the system as a whole. The capital requirements and other constraints we place on the regulated institutions have played an important role in encouraging the transfer of risk to a broader range of institutions, including the leveraged private pools of capital. As the aggregate size and importance of those funds increases, distress among those institutions can have greater effects on overall market dynamics, potentially increasing risks to the regulated core. Over time, this will force us to consider how to adapt the design and scope of the supervisory framework to achieve the protection against systemic risk that is so important to economic growth and stability.
For the present, however, our hierarchy of priorities should focus on improving supervisory incentives to make counterparty discipline more effective and to strengthen the resilience of the core institutions to more adverse economic and financial conditions."
www.ny.frb.org/newseve...
----------------------...
"These concerns have been heightened in some quarters by the problems currently being experienced in the subprime mortgage sector. It will take some time before the full implications are understood and the full impact can be assessed. As of now, though, there are few signs that the disruptions in this one sector of the credit markets will have a lasting impact on credit markets as a whole. "
Yes, he is a real visionary.
God Save America!
More blind leading the blind. He's not going to save anyone.