From: jesus475073@webtv.net   
      
   THE WARREN REPORT: 'LIQUIDATE   
   THE BANKS & FIRE THE EXECUTIVES'   
   By Mike Whitney   
   Online Journal Contributing Writer   
   Apr 14, 2009   
      
     Last Tuesday, a congressional panel headed by ex-Harvard law   
   professor Elizabeth Warren released a report on Treasury Secretary   
   Timothy Geithner's handling of the Troubled Assets Relief Program   
   (TARP). Warren was appointed to lead the five-member Congressional   
   Oversight Panel (COP) in November by Senate majority leader Harry Reid.   
   From the opening paragraph on, the Warren report makes clear that   
   Congress is frustrated with Geithner's so-called "Financial Rescue Plan"   
   and doesn't have the foggiest idea of what he is trying to do.   
      
     Here are the first few lines of "Assessing Treasury's Strategy:   
   Six Months of TARP": "With this report, the Congressional Oversight   
   Panel examines Treasury's current strategy and evaluates the progress it   
   has achieved thus far. This report returns the Panel's inquiry to a   
   central question raised in its first report: What is Treasury's   
   strategy?" Six months and $1 trillion later, and Congress still cannot   
   figure out what Geithner is up to. It's a wonder the Treasury secretary   
   hasn't been fired already.<<<<<   
      
     From the report: "In addition to drawing on the $700 billion   
   allocated to Treasury under the Emergency Economic Stabilization Act   
   (EESA), economic stabilization efforts have depended heavily on the use   
   of the Federal Reserve Board's balance sheet. This approach has   
   permitted Treasury to leverage TARP funds well beyond the funds   
   appropriated by Congress. Thus, while Treasury has spent or committed   
   $590.4 billion of TARP funds, according to Panel estimates, the Federal   
   Reserve Board has expanded its balance sheet by more than $1.5 trillion   
   in loans and purchases of government-sponsored enterprise (GSE)   
   securities.   
      
     The total value of all direct spending, loans and guarantees   
   provided to date in conjunction with the federal government's financial   
   stability efforts (including those of the Federal Deposit Insurance   
   Corporation (FDIC) as well as Treasury and the Federal Reserve Board)   
   now exceeds $4 trillion."   
      
     So, while Congress approved a mere $700 billion in emergency   
   funding for the TARP, Geithner and Bernanke deftly sidestepped the   
   public opposition to more bailouts and shoveled another $3.3 trillion   
   through the back door via loans and leverage for crappy mortgage paper   
   that will never regain its value. Additionally, the Fed has made a deal   
   with Treasury that when the financial crisis finally subsides, Treasury   
   will assume the Fed's obligations vis-a-vis the "lending facilities,"   
   which means the taxpayer will then be responsible for unknown trillions   
   in withering investments.   
      
     From the report: "To deal with a troubled financial system, three   
   fundamentally different policy alternatives are possible: liquidation,   
   receivership, or subsidization.   
   To place these alternatives in context, the report evaluates historical   
   and contemporary efforts to confront financial crises and their relative   
   success.   
     The Panel focused on six historical experiences:   
     (1) the U.S. Depression of the 1930s;   
      
     (2) the bank run on and subsequent government seizure of   
   Continental Illinois in 1984;   
      
     (3) the savings and loan crisis of the late 1980s and   
   establishment of the Resolution Trust Corporation;   
      
     (4) the recapitalization of the FDIC bank insurance fund in 1991;   
      
     (5) Sweden's financial crisis of the early 1990s;   
      
     and (6) what has become known as Japan's "Lost Decade" of the   
   1990s. The report also surveys the approaches currently employed by   
   Iceland, Ireland, the United Kingdom, and other European countries."   
      
     This statement shows that the congressional committee understands   
   that Geithner's lunatic plan has no historic precedent and no prospect   
   of succeeding.   
   Geithner's circuitous Public-Private Investment Program (PPIP) -- which   
   is designed to remove toxic assets from bank balance sheets -- is an   
   end-run around "tried-and-true" methods for fixing the banking system.   
   In the most restrained and diplomatic language, Warren is telling   
   Geithner that she knows that he's up to no good.   
      
     From the report: "Liquidation avoids the uncertainty and   
   open-ended commitment that accompany subsidization. It can restore   
   market confidence in the surviving banks, and it can potentially   
   accelerate recovery by offering decisive and clear statements about the   
   government's evaluation of financial conditions and institutions." The   
   committee agrees with the vast majority of reputable economists who   
   think the banks should be taken over (liquidated) and the bad assets put   
   up for auction.   
      
     This is the committee's number one recommendation. The committee   
   also explores the pros and cons of conservatorship (which entails a   
   reorganization in which bad assets are removed, failed managers are   
   replaced, and parts of the business are spun off) and government   
   subsidization, which involves capital infusions or the purchasing of   
   troubled assets.   
      
     Subsidization, however, carries the risk of distorting the market   
   (by keeping assets artificially high) and creating a constant drain on   
   government resources. Subsidization tends to create hobbled banks that   
   continue to languish as wards of the state. Liquidation, conservatorship   
   and government subsidization; these are the three ways to fix the   
   banking system.   
   There is no fourth way. Geithner's plan is not a plan at all; it's   
   mumbo-jumbo dignified with an acronym, PPIP.   
      
     The Treasury secretary is being as opaque as possible to stall for   
   time while he diverts trillions in public revenue to his scamster   
   friends at the big banks through capital injections and nutty-sounding   
   money laundering programs like the PPIP.   
     From the report: "Treasury's approach fails to acknowledge the   
   depth of the current downturn and the degree to which the low valuation   
   of troubled assets accurately reflects their worth. The actions   
   undertaken by Treasury, the Federal Reserve Board and the FDIC are   
   unprecedented. But if the economic crisis is deeper than anticipated, it   
   is possible that Treasury will need to take very different actions in   
   order to restore financial stability."   
      
     This is a crucial point; the toxic assets are not going to regain   
   their value because their current market price -- 30 cents on the dollar   
   for AAA mortgage-backed securities -- accurately reflects the amount of   
   risk they bear. The market is right and Geithner is wrong; it's that   
   simple. Many of these securities are comprised of loans that were issued   
   to people without sufficient income to make the payments.   
      
     These "liar's loans" were bundled together with good loans into   
   mortgage-backed securities. No one can say with any certainty what they   
   are really worth. Naturally, there is a premium for uncertainty, which   
   is why the assets are fetching a mere 30 cents on the dollar. This won't   
      
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