blog.hsh.com

Today was former Treasury Secretary Henry Paulson’s turn to testify in front of a Congressional committee regarding the Bank of America (BofA), Merrill Lynch merger. Previous testimony from BofA chief Ken Lewis claimed that his bank was strong armed by Federal regulators into accepting the merger that he had resisted. Today, Paulson had this to say:

“I further explained to [Lewis] that, under such circumstances, the Federal Reserve could exercise its authority to remove management and the board of Bank of America.”

Read the rest of this entry »

UPDATE1: Since Congress is looking for someone to blame, who’s going to be the fall guy — will it be Bernanke, Paulson, or Lewis? Former Treasury Secretary Henry Paulson is already out of office, so he makes a good candidate. BofA chief Ken Lewis is the head of an already shaky institution, and his head has been rumored to be on the chopping block for some time now. Then there’s Fed chief Ben Bernanke — his term as Federal Reserve Chairman ends at the ends of January.

While a case could certainly be made for any of the three, Megan McArdle of the Atlantic says that, “firing Bernanke lets Obama portray all of the failures of this year as Bush errors in policy or appointment.” But would that be the smartest move?

Not even three months after the last administration left office, we have our first in-depth view inside the inter-workings of the former Treasury Department.

Phillip Swagel, assistant Treasury Secretary from December 2006 until January 2009, will present his 50-page essay tomorrow to the Brookings (Institution) Panel on Economic Activity entitled “The Financial Crisis: An Inside View.”

Swagel says that former Treasury Secretary Henry Paulson’s original intentions were to buy bank assets, not shares with the TARP money, and that he knew he would receive significant backlash for changing his course of action.

Henry Paulson’s last month as Treasury Secretary is likely to be a quiet one, barring any unforeseen financial emergencies. Mr. Paulson has made a few statements as of late suggesting that the probability of any final big-ticket decisions by him is slim.

In a CNBC interview, Mr. Paulson said he does not plan to seek the second half of the TARP funds. Yet, Paulson did refer to the Treasury’s ongoing attempt to provide the Big Three with a bridge loan, funded by the remaining billions of the TARP’s first installment:

“You will lend” was the implicit message passed on to the initial nine banks that received capital injections as apart of the $250 billion TARP program. “We expect all participating banks to continue to strengthen their efforts to help struggling homeowners,” said Treasury Secretary Henry Paulson in a New York Times article yesterday. The simple message here is, “if you’re deemed too big to fail, you must function.”

The Treasury Department is well on its way to rebalancing the entire structure of the banking system. Not only is the Treasury asking the chosen financial institutions that are receiving capital in exchange for preferred shares to jump start the credit markets, they are also urging new bank mergers in order to create fewer, but stronger institutions:

Crude-oil futures made history yesterday surging as much as $25 a barrel, the highest one-day gain since 1984, as investors took advantage of the opportunity to seize up one of the few remaining profitable investments:

It all just “underscores that energy is the only place to expect outsized profits these days and the money is flocking into that market,” he (Neal Ryan, a managing partner at Ryan Oil & Gas Partners) said.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson are testifying before the Senate Banking Committee this morning on the financial markets and the pending government bailout.

Click here to listen live on CNBC.

Bernanke’s Testimony, from the Wall Street Journal:

Our friends at Calculated Risk posted a very interesting piece yesterday which discusses the primary proponent behind Paulson’s plan, asking and attempting to answer the simple question, “Will it work?”

Will the plan achieve the primary goal? I think the answer is yes. By removing these troubled assets from the balance sheets of the financial institutions, the banks will able to lend again without lingering doubts about their solvency and viability. At first glance, the size of the plan seems sufficient.

Treasury Secretary Henry Paulson revealed plans today to develop a government facility that would deal with clearing bad debt. Paulson’s plan would allow financial institutions to clear bad assets off of company balance sheets. The facility would be designed to overtake bad assets, and dispose of them in an orderly fashion. “A government move to help pull bad assets off the books may be the next step,” said HSH Vice President Keith Gumbinger.

Although it may sound like another bailout, the government may be willing to take, or buy, the bad debt no investor is interested in buying. “This would prevent another Merrill Lynch situation from developing — a dumping of assets into an already glutted marketplace,” said Gumbinger. “There are simply no buyers for some assets in this market.”

For those of you out there asking, “I thought this Fannie and Freddie business happened a couple weeks ago? If Fannie and Freddie are so essential to the survival of our housing market, why hasn’t anything been done yet; what’s the problem?”

The problem is the government can’t agree on how to fix the problem. The “rescue” plan has been looped into an ongoing housing bill being bounced around Washington. Just this morning, Treasury Secretary Henry Paulson made another statement urging lawmakers to pass legislation that would allow the government to financially support the two quasi-government structures if necessary. The Fed rescued Bear Stearns and that seemed to work out fine. So again, what’s the hold up?