Wednesday, January 11, 2012
Geithner gets flak for poor info on TARP
From The Hindu
Every now and then news of the United States government exiting
specific investments it had made since 2008 under the Troubled Asset Relief
Programme (TARP) has trickled out of the Treasury. First, it was banking majors
such as Goldman Sachs and Morgan Stanley which made hasty bids to repay TARP
funds and resuscitate their market reputations. Next auto majors such as
Chrysler carved a slower, more painful path out of government ownership.
In most cases, the message coming out of the Treasury was that the
federal government's return on the taxpayer dollar was profitable, no whisper of
the costs. All that is about to end.
This week an outspoken government watchdog, the Government
Accountability Office (GAO), literally rapped the Treasury and its boss
Secretary Tim Geithner on their knuckles for failing to reveal sufficient
information about the costs associated with the government's staccato exits from
the so-called ‘bailout' investments.
In a report the GAO said, “Although Treasury regularly reports on
the cost of TARP programs and has enhanced such reporting over time, GAO's
analysis of Treasury press releases about specific programmes indicate that
information about estimated lifetime costs and income are included only when
programmes are expected to result in lifetime income.”
In other words, the Treasury has not been adequately revealing
programme-specific cost information to the public for any TARP programs that
were going to impose a heavy cost on the exchequer with little revenue to offset
that cost. For example, the GAO noted, the Treasury issued a press release for
its bank investment programs, including its Capital Purchase Program aimed at
injecting capital into financial institutions — and in these cases most, if not
all, of the programmes would result in lifetime income, or profit.
However, the GAO added, “Press releases for investments in AIG
[the American International Group, a TARP-supported insurance corporation], a
programme that is anticipated to result in a lifetime cost to Treasury, did not
include programme-specific cost information.” Although press releases for
programmes expected to result in a cost to Treasury provide useful transaction
information, they exclude lifetime, program-specific cost estimates, the GAO
complained.
With many TARP programs continuing to be in various stages of
unwinding and some programmes, such as those seeking to address the foreclosure
crisis, remaining active, the Treasury may jeopardise market stability if it
proceeds any further down this opaque path, the GAO's report suggests. It
cautions that even as late as September, 2011, about half of Treasury's 116
contracts remained active, along with 14 of the 17 financial agency agreements.
That wasn't the last word from the GAO either, for it also issued
a parting shot on the timing of the market exits themselves. The GAO said that
the Treasury had articulated “broad principles for... exiting TARP programs as
soon as practicable and seeking to maximise taxpayer returns, goals that at
times conflict.”
It again cited the case of AIG, which back in 2009 had caused a
cloud of controversy over Secretary Geithner after one of his staff, Neil
Barofsky, criticised the use of $62.1 billion of the funds to prop up several
banks insured by AIG. The GAO said that to now unwind the AIG investments
required the Treasury to actively manage the timing of its exit as it balances
its competing goals. “Consequently, the timing of Treasury's exit from TARP
remains uncertain,” the watchdog said.
Labels: bailout plan, Government Accountability Office, investments, Tim Geithner, Treasury, U.S. economy
Friday, October 08, 2010
Financial system is the Achilles' heel of advanced nations
From The Hindu
The economic recovery under way has been proceeding broadly as expected, but downside risks remain elevated and the global financial system is the Achilles' heel of this recovery, according to the International Monetary Fund (IMF).
In releasing two key documents on the state of the global economy — the October 2010 World Economic Outlook (WEO) and the Global Financial Stability Report (GFSR) — the IMF provided a cautious outlook that comprised both gradual improvements in economic conditions and significant uncertainty in Western economies.
In doing so, the Fund, however, made a distinction between the growth trajectories of developed economies on the one hand and emerging markets such as India and China on the other. In the WEO, it noted that most advanced economies still faced “large adjustments,” that their recoveries were advancing at a sluggish pace, and that high unemployment still posed major social challenges.
However, in contrast, the WEO noted that many emerging and developing economies were again witnessing “strong growth,” because they did not experience major financial excesses immediately before the recession of 2009.
In what might be a reference to the ongoing controversy over China's currency value and its role in creating a trade surplus for the country the IMF said that the recovery would require external rebalancing, with “an increase in net exports in deficit countries, such as the U.S., and a decrease in net exports in surplus countries, notably emerging Asia.”
The WEO also made reference to the effectiveness of the overhaul of financial regulation in European countries and the U.S., arguing that “the repair and reform of the financial sector need to accelerate to allow a resumption of healthy credit growth.”
In terms of the financial system itself, the Fund stuck a note of concern in the GFSR, which pointed out that progress toward global financial stability experienced a setback since April, and the recent turmoil in sovereign debt markets in Europe had highlighted “increased vulnerabilities of bank and sovereign balance sheets arising from the crisis.”
The GFSR further noted that while the financial situation has subsequently improved, owing to the “forceful response by policymakers which helped to stabilise funding markets and reduce tail risk,” substantial market uncertainties persisted.
Touching on emerging markets in particular the IMF said in the WEO that many of them had successfully concluded first-generation reforms that improved macroeconomic policy frameworks, strengthening their resilience to macroeconomic shocks.
However, it cautioned, in order to sustain or further raise potential growth and employment, it would be necessary to simplify product and services market regulation, raise human capital, and build critical infrastructure.
The Fund argued that such reforms would help absorb growing capital inflows in a productive manner, “which would accelerate global income convergence and external rebalancing.”
Labels: bailout plan, financial crisis
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