Geithner and Bernanke Under Suspicion
Published in Financial Times - Deutschland
(Germany) on 18 March 2009
by Tobias Bayer (link to original)
(Germany) on 18 March 2009
by Tobias Bayer (link to original)
Translated from
by Ron Argentati.
Edited by Christie Chu.
This week could bring a moment of truth for the United States: As Fed Chief Ben Bernanke announces the Fed’s future plans, Treasury Secretary Tim Geithner will address bank rescue plans on Thursday. Both are under the gun and have to produce.
The substantial market slide says volumes about the condition of international financial markets and the role played by the United States. Investor insecurity is immense – no wonder, considering America’s huge balance of trade deficit and a record national debt that’s expected to reach $2.5 trillion in new loans by the end of this year alone. And they’re also worried because there are no clear directions coming from either Secretary of the Treasury Timothy Geithner or Federal Reserve Chairman Ben Bernanke.
Take Tim Geithner, for example. President Obama is committed to him because of his skill, but Geithner has fallen short of expectations. His announced support plans for the banking system turned out rather vague and his plans for a “bad bank” for toxic assets have not yet noticeably progressed. The new buy-up program for consumer credit, the Term Asset-Backed Securities Loan Facility (TALF), is off to a shaky start and many participating banks still have many unanswered questions.
It’s becoming clear: The agency appears to be staffed with personnel who do not have the skills necessary to get the job done. Geithner himself has been hurled into the spotlight because of bonus payments at American International Group (AIG) and has had his attention diverted from the decisions he should be making. It remains to be seen what he will have to report on Thursday.
Now consider Ben Bernanke and the Federal Reserve. Whether his aggressive actions are paying off is difficult to say. The numerous liquidity programs have certainly eased burdens on the banks, but whether that has actually revived the markets is doubtful. For short-term bonds (commercial paper, or CP) the outstanding volume has shrunk significantly. Moreover, the Fed has become the dominant player in the CP area with a market share of some 39 percent, not a situation likely to ease many minds.
This aggressive course will be a burden for the future: Market participants, especially the banks, long for a continuation and scold the Fed because their balance sheets have decreased from $2.3 trillion down to about $1.9 trillion. For the coming meeting on Wednesday, they’re demanding that Bernanke and his colleagues give them a clear signal that they’re ready to buy up investments of all kinds; anything short of that will be a disappointment that robs reserve bankers of their freedom of choice.
There’s a lot to be discussed here. Opinions within the Fed as to how to proceed, especially when buying government bonds, diverge widely. The danger of buying treasuries is that once they start down that path, it will be hard to reverse. In a worst-case scenario, investors would dump the government bonds on the Fed’s doorstep and assume they could continue doing so forever. What that would mean for inflation and the dollar doesn’t bear contemplating.
The price development of the 29-year U.S. government bond is a no confidence vote for American financial and monetary policy. Geithner and Bernanke would be well advised to explain it all clearly. Anything other than that would be disastrous for financial markets.
The substantial market slide says volumes about the condition of international financial markets and the role played by the United States. Investor insecurity is immense – no wonder, considering America’s huge balance of trade deficit and a record national debt that’s expected to reach $2.5 trillion in new loans by the end of this year alone. And they’re also worried because there are no clear directions coming from either Secretary of the Treasury Timothy Geithner or Federal Reserve Chairman Ben Bernanke.
Take Tim Geithner, for example. President Obama is committed to him because of his skill, but Geithner has fallen short of expectations. His announced support plans for the banking system turned out rather vague and his plans for a “bad bank” for toxic assets have not yet noticeably progressed. The new buy-up program for consumer credit, the Term Asset-Backed Securities Loan Facility (TALF), is off to a shaky start and many participating banks still have many unanswered questions.
It’s becoming clear: The agency appears to be staffed with personnel who do not have the skills necessary to get the job done. Geithner himself has been hurled into the spotlight because of bonus payments at American International Group (AIG) and has had his attention diverted from the decisions he should be making. It remains to be seen what he will have to report on Thursday.
Now consider Ben Bernanke and the Federal Reserve. Whether his aggressive actions are paying off is difficult to say. The numerous liquidity programs have certainly eased burdens on the banks, but whether that has actually revived the markets is doubtful. For short-term bonds (commercial paper, or CP) the outstanding volume has shrunk significantly. Moreover, the Fed has become the dominant player in the CP area with a market share of some 39 percent, not a situation likely to ease many minds.
This aggressive course will be a burden for the future: Market participants, especially the banks, long for a continuation and scold the Fed because their balance sheets have decreased from $2.3 trillion down to about $1.9 trillion. For the coming meeting on Wednesday, they’re demanding that Bernanke and his colleagues give them a clear signal that they’re ready to buy up investments of all kinds; anything short of that will be a disappointment that robs reserve bankers of their freedom of choice.
There’s a lot to be discussed here. Opinions within the Fed as to how to proceed, especially when buying government bonds, diverge widely. The danger of buying treasuries is that once they start down that path, it will be hard to reverse. In a worst-case scenario, investors would dump the government bonds on the Fed’s doorstep and assume they could continue doing so forever. What that would mean for inflation and the dollar doesn’t bear contemplating.
The price development of the 29-year U.S. government bond is a no confidence vote for American financial and monetary policy. Geithner and Bernanke would be well advised to explain it all clearly. Anything other than that would be disastrous for financial markets.
One only has to look at corp bonuses in difficult times to see the direction America is heading. This is not the America that Roosevelt encountered when he had to deal with what we term the great depression. Wealth can be as harsh of lesson as poverty. Greed and arrogance can overwhelm a country and cause a great decline in morality and wealth.
We have lived off of borrowed money for over 3 decades.
This is no recession but a decline of wealth of a country due to many factors.
Deregulation, mega military budget that exceeds all other industrialized countries combined, wars for profits, free trade policies that failed, corporations that control congress and the media, a privatized health care system that leaves 47 million without health care insurance, and private insurance companies more interested in profits than health care.
Even major universities are part of the mega industrial military complex in America to receive grants and research.
America is a failed state but then American style capitalism goes against every universal law I know of. Not religious laws but universal laws.
Few will understand my words, very few.
We Americans are learning what works and what does not work. It will be a difficult lesson but then most lessons of this magnitude are always difficult to learn.