Sunday, May 3, 2009

Time for Mr. Geithner to bow out

Original Link:

By Drew Friedman

Geithner’s new plan to save the banks is a sham. It would convert the taxpayer’s stock in banks from preferred to common equity. It would do two things:

1. Screw over taxpayers by converting their safer and dividend-paying preferred stock into common equity. Less return for us, more risk.

2. Artificially make banks balance sheets look healthier, because of the way preferred and common stock are treated on balance sheets.

More financial wizardly isn’t what we need right now. And this deal screws the taxpayers even worse than Geither and the boys already have. If you’re thinking, “hey, wait! Geithner’s only been in office for 100 days”, keep reading. Geithner has been a key player in orchestrating these bailouts from the get-go.

Way too close to the banks

Dealbook’s piece last week blew the lid off Geithner’s extremely close ties to the financial industry. It also exposed some of his more embarrassing and ridiculous proposals, quotes, and philosophies. Here are some of classic quotes:

the government has to take risk, and we are going to be doing things which ultimately — in order to get the credit flowing again — are going to benefit the institutions that are at the core of the problem

That admission is unforgivable. He is simply not asking enough sacrifice from bailed out banks. Everyone should have to take a haircut (or be wiped out if necessary): common equity, bondholders, and overpaid executives.

As President of the NY Federal Reserve, he “proposed asking Congress to give the president broad power to guarantee all the debt in the banking system”

The proposal was largely dismissed at the time as being too risky for taxpayers. But since then the taxpayer has guaranteed around $9 trillion risky assets. Geithner, either as NY Fed Pres, or Treasury Secretary, was instrumental in all of this. From the start, he has been one of the architechts of this transfer of wealth from taxpayers to banks. He is very much a part of the problem.

Time to seek employment elsewhere, Tim Geithner. William K. Black or Simon Johnson will make a fine replacement for you. If Lloyd Blankfein gets tapped to replace him, I may consider taking up residence in Antartica.

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