Geithner Is Done

He has bothered me since he was first announced as the Candidate to head the US Treasury. He always struck me as Paulson-Light. He was put in place to protect the Bank Shareholder at the expense of the US Taxpayer.

His appointment was a sick joke from Day 1. How the heck does a tax cheat end up running the IRS? Ridiculous! How can there be any integrity under those circumstances?

Bernanke and Geithner testify before Congress that all the banks are solvent. Nobody believes their lies any more. Their policies have been a disaster. The market has crashed. The economy is frozen and in a Depression. At the airport tonight, there are 3 passengers in line and 14 guys scanning luggage. The economy is frozen. To me, that is a Depression.

Too Big Has Failed
In case you missed it on Friday, there was a speech given by Thomas M. Hoenig. Mr. Hoenig is the President of the Federal Reserve Bank of Kansas City. Here is his speech –

http://www.kc.frb.org/speechbio/hoenigPDF/Omaha.03.06.09.pdf

This speech is a seminal even. I think it puts Hoenig in line to run the Fed, just as Bernanke’s “Deflation – Making Sure It Doesn’t Happen Here” speech set him up to replace Greenspan.

Make no mistake about it, Mr Hoenig did not just wake up on Friday morning and decide to give this speech. His policy proposals are 180 degrees from what the Obama Administration is pedaling. This leads me to believe that Obama is about to do a Mea Culpa and fire his current advisors.

I expect Geithner to be out of a job in the very near future. He will be replaced by FDIC head Sheila Bair, Paul Volcker or Mr Hoenig (if I had to guess). Summers in gone too. Volcker will get one of these two jobs.

At some point, Obama will have to give in to the reality that his policies are wrong and harming the country and its citizens. The sooner he does, the sooner the economy recovers. If not, then the Depression becomes his Iraq War, where the President is a prisoner to his ideology and drives the Nation off of a cliff.

Here is some of what Mr Hoenig said. Tell me if it reminds you of what I have been saying for the last 7 months. The solutions are obvious. We just need a leader with some guts to take on the interests of the Banking Lobby and begin the heavy lifting –

“We have been slow to face up to the fundamental problems in our financial system and reluctant to take decisive action with respect to failing institutions” (page 2)

“We understandably would prefer not to “nationalize” these businesses, but in reacting as we are, we nevertheless are drifting into a situation where institutions are being nationalized piecemeal without resolution of the crisis.” (page 2)

“Any financial crisis leaves a stream of losses among the various participants, and these losses must ultimately be borne by someone. To start the resolution process, management responsible for the problems must be replaced and the losses identified and taken. Until these kinds of actions are taken, there is little chance to restore market confidence and get credit markets flowing. It is not a question of avoiding these losses, but one of how soon we will take them and get on to the process of recovery.” (pages 4-5)

“When examining previous financial crises, in other countries as well as in the United States, large institutions have been allowed to fail. Banking authorities have been successful in placing new and more responsible managers and directors in charge and then recapitalizing them. There is also evidence suggesting that countries that have tried to avoid taking such steps have been much slower to recover, and the ultimate cost to taxpayer has been larger.” (page 5)

“…TARP began without a clear set of principles and has proceeded with what seems to be an ad hoc and less-than-transparent approach in the case of banks judged “too big to fail” (page 7)

“Resolving the Current Crisis”

“First, the losses in the financial system won’t go away – they will only fester and increase while impeding our chances for a recovery”

“Second, we must take a consistent, timely, and specific approach to major institutions and their problems if we are to reduce market uncertainty and bring in private investors and market funding.”

“Third, if institutions -- no matter what their size – have lost market confidence and can’t survive on their own, we must be willing to write down their losses, bring in capable management, sell off and reorganize misaligned activities and businesses, and begin the process of restoring them to private ownership.” (page 9)

“Our bank resolution framework focuses on timely action to protect depositors and other claimants, while limiting spillover effects to the economy. Insured depositors at failed banks typically gains full and immediate access to their funds, while uninsured depositors often receive quick, partial payouts based on expected recoveries.” (page 10)

“These options focus on transferring important banking functions over to sound banking organizations with capable management, while putting shareholders at failed banks first in line to absorb losses.” (page 10)

“Shareholders would be forced to bear the full risk of the positions they have taken and suffer the resulting losses.” (page 11)

“In fact, for failed institutions that have proven to be too big or too complex to manage well, steps must be taken to break up their operations and sell them off in manageable pieces.” (page 12)

“If an institution’s management has failed the test of the marketplace, these managers should be replaced. They should not be given public funds and micro-managed, as we are now doing under TARP, with a set of political strings attached.” (page 13)

“The issue that we should be most concerned about is what approach will produce consistent and equitable outcomes and will get us back on the path to recovery in the quickest manner at a reasonable cost.” (page 14)