More Treasury Meeting Views

by: John Lounsbury

There were actually two informal meetings for bloggers at the Treasury Department last week. The one I attended on Monday (reported here and here) and another on Wednesday. The Wednesday meeting was for some people who write on salary, as opposed to those at Monday’s meeting who do other things for a living and/or freelance their way through the economic/financial/investment blogosphere.

The Monday attendees were listed previously. Wednesday’s luminaries are listed below:

*Sorry, you have to scroll down to 11:55 am August 20 to see the piece. Klein’s blog has the inconvenience of not providing a separate link to each entry.

Missing the Wednesday meeting because of a security snafu, Matt Yglesias of Think posted some thoughts here anyway.

Since I last reported, other Monday attendees have written their thoughts:

Phil Davis has not posted his review of the meeting yet. I hope he is not too distracted by the need to take care of clients and activities like his raging debate with Karl Denninger at Raging to get his thoughts out. Phil should have some good perspective on issues related to bank accounting rules, the housing crisis and investing in banks. At Treasury, Phil brought up some ideas similar to those presented later in the week by PIMCO’s Bill Gross regarding a government backed mortgage refinancing endeavor.

In a private discussion with Phil after the Treasury meeting I opined that I couldn’t sign up for the general ideas that Phil threw out for discussion. Now that Bill Gross has offered some similar ideas, I guess that Phil will have to take into consideration the value of my opinion based on the relative magnitude of the wealth which Gross and I represent.

Some Things that Monday’s Attendees are Saying

Yves Smith, who is noted for her thorough, acerbic and penetrating dissection of economic issues, had (for me) a surprisingly dismissive attitude about the value of the meeting. She wrote:

Despite our heterogeneity, we all took a skeptical posture towards the Treasury team. One has to think they anticipate that, which then begs the question of what they expect to accomplish with these meetings. We aren’t journalists, so the access card does not work; the infrequency and format of these sessions means they don’t build personal rapport (and there are good reasons why not; from our end, it costs time and money to go to DC; from their end, we aren’t important enough to warrant more frequent contact).

So they may have other motivations, but a safe assumption is that they regard this as marketing, and a famous cliche is “50% of what I spend on advertising is wasted, I just don’t know which 50%.” We probably look like part of the wasted 50%, but they can’t be certain, and the costs to them of having this sort of meeting are low, so they might as well keep the experiment going.

We’d ask questions (usually too long and complicated), they’d offer replies which were sorta responsive but not really, in that the kept stressing what had been done and why that meant the banking system was much safer (higher capital requirements, living wills, central clearing of “standard” derivatives), and we weren’t buying it, but our pushback (predictably) went nowhere.

In a comment three days after the original post Yves wrote (in an intro to a link to the Waldman post):

I’m a bit astonished to find that Waldman found the session enjoyable. I was often annoyed and was finding it hard to maintain my usual WASP composure (but all annoyed WASPs do is put on a stony disapproving face, we really are not good at confrontation). I am also aware of the effect of having spent time there (my Santa Fe friends would call it being psychically attacked, the weird mental hangover which is finally wearing off is enough to make me start taking that sort of talk seriously).

Maybe Yves was suffering from too much “been there, done that”.

Mike Konczal was quite more positive in his post, although to read it you have to get by a photo of Mike standing in front of Robert Rubin’s portrait hanging in a Treasury hallway. What were you thinking Mike? If you wanted to pick a controversial secretary, you might have chosen Alexander Hamilton.

Konczal has some worthwhile discussion regarding housing programs, TBTF (too big to fail) and just how far the government should go in backstopping money market funds. A most important contribution, right at the beginning of the meeting, was Mike’s question about what are the metrics to measure success or failure of policy. There really was no decipherable response to that question. Mike kindly wrote: “They didn’t have much in terms of goalposts.”

For me the most penetrating point in Konczal’s post is the conclusion:

Overall, there seemed to be a sense of “we are done here” from the meeting. Maybe it was the fact that it is August, the informal manner of the meeting and a news cycle is driven by insane things, but there was a sense with the financial reform bill passed, deadlock in Congress and a Federal Reserve tip-toeing around its mandate things were going to slow down and options are more or less removed from the table. Which is a very scary thought with the economy the way it is.

Steve Waldman’s post takes current policy to task in some detail regarding derivatives, clearing houses, restructuring of GSEs (Fannie and Freddy), apparent over reliance on more stringent capital ratio requirements to be the keystone of future regulation, and lack of Main Street bailouts to counter some of the one sidedness of Wall Street bailouts. Steve’s post does not have crisp sound bites for extraction, but it flows very smoothly, is one of the most comprehensive reviews posted and is very good reading.

What are Wednesday’s Attendees Writing?

It turns out a lot less than Monday’s windbags. A recurring theme was complaint about the fact that the meetings (I guess they really mean the Wednesday meeting since none attended on Monday) was “background” only. There were no attributions allowed; nothing was on the record. While this was not a problem for someone like me who writes based on the best logical connections I can establish between sometime disparate facts, I can see how it is a problem for those with better access to news makers who are accustomed to being able to cut to the chase with direct quotations.

Felix Salmon’s article on Seeking Alpha summarizes a number of topics from Wednesday, including lack of Treasury concern about a bond bubble, a new concern from Treasury that the year-end Basel accords may not produce capital requirements stringent enough for U.S. needs (European banks are weaker), and that continued heavy government involvement in the housing market is planned. Felix wrote:

There’s no Bush-style policy of trying to maximize homeownership, or anything like that, and indeed Treasury now seems pretty resigned to the fact that its much-vaunted loan-modification program is going to have only a pretty marginal effect, doing more to delay foreclosures than to prevent them. But the very powerful government guarantee on Frannie’s bonds is here to stay, you won’t be surprised to hear. And even delaying foreclosures can be a good thing if it helps to give the broader economy a bit of time to recover.

This plays to the meme that I discerned in my second report:

Extend and pretend is official policy from what I can gather from this experience at Treasury.

Derek Thompson covered (briefly) several items that Felix Salmon did not. Among these:

  • Overall attitude at Treasury is realistic and realistically dire (legislative gridlock).
  • Social Security reform (possible income testing for benefits?)
  • 2011 economic policy (only “micro stimulation” due to legislative gridlock)
  • Treasury still is against extending Bush tax cuts
  • Tax reform pretty much off the table for 2011 (gridlock again?)

Shahien Nasiripour gave another reinforcement of my “extend and pretend is official policy” specifically for the mortgage foreclosure problem. It turns out he has recently developed that theme in significant detail. Nasiripour relates the things discussed in the Wednesday meeting to a broader range of news items in a way that none of the other attendees have (from both meetings).

Others will write about this open door program for invited bloggers at the Treasury. Elliott Morss has such an article that explores some of the questions that could have been asked by guests and weren’t. And, of course, my readers have not been shy in their comments describing how many things I missed that they would have liked discussed.

Disclosure: No stocks mentioned.