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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (117787)	2/19/2009 9:54:47 AM
From: GuinnessGuy	2 Recommendations Read Replies (1) \| Respond to of 132070

Mike, Give these guys a loop-hole and it's back to business as usual on the street: ------------------------------------------------ There's Virtue In Geithner's Vague Bank Plan At least he doesn't want to guarantee more bad debt. By Matthew Richardson and Nouriel Roubini Wall Street Journal, February 18th 2009 On Jan. 27, Bank of America sold a whopping $6 billion of three-year notes at a yield of 2.2% -- a good 3.5% less than what its other bonds of similar maturity were trading for. How did it manage this feat? For a mere fee of 0.75%, BofA accessed the FDIC's Temporary Liquidity Guarantee Program, which backs all bank debt of less than three-year maturity with the full faith and credit of the U.S. government. In essence, they got to issue debt at government rates. Since the program started last Nov. 25, BofA has gone to the well 11 times for a total of $35.5 billion. Other banks have lined up 91 times for a staggering $168 billion. They include GE Capital ($27 billion), Citigroup ($24 billion), J.P. Morgan ($19 billion), Morgan Stanley ($19 billion), and Goldman Sachs ($15 billion). Feelings about the liquidity guarantee program weren't always so rosy. On Oct. 31, 2008, the law firm Sullivan & Cromwell wrote the FDIC on behalf of nine banks, arguing that the government program to back the bonds of financial firms did not provide strong-enough guarantees. The letter asked that the guarantee cover principal and interest payment obligations as they became due, backed by the full faith and credit of the U.S. government. The guarantee was included three weeks later when the final rule was issued. No prize for guessing which banks signed the letter. The government's motivation for this program is to get banks back in the lending game. But in an economic and financial crisis, we want healthy banks to lend to creditworthy institutions and individuals, not for unhealthy banks to take another flyer on credit spreads. There is, however, a remarkable coincidence between the banks with the largest writedowns -- one measure of sickness -- and those accessing the FDIC program. It's not as if we haven't seen this before. On Sept. 7, 2008, the government put Fannie Mae and Freddie Mac into conservatorship. They were bankrupt because of an accumulated portfolio of $1.5 trillion worth of mortgage-backed securities, of which $225 billion was subprime mortgages and the other $1.275 trillion were illiquid prime mortgages. While some of Fannie and Freddie's portfolios were hedged against interest rate movements using interest rate swaps, the subprime portion was an outright bet on default rates of low quality mortgages. How much cushion did they have? Only $1 of capital for every $25 of debt. What type of crazy creditor would lend to them? Almost anyone, because the debt had the implicit, now explicit, guarantee of the U.S. government. With the economic dangers we now face, do we really want to go down this road again? We don't, and that's why, for all the criticism, Treasury Secretary Tim Geithner's plan -- call it Bailout 2.0 -- does have a silver lining. It stops the madness. Yes, Bailout 2.0 lacks details, but it is clear it won't propose more bank freebies -- no new loan guarantee programs or backstops of losses on their bad assets, or government capital infusions in the form of underpriced preferred shares. Now the banks will have to prove themselves via a "stress test" on their solvency to access new capital. It won't be a pretty picture. And by the way, if banks want Uncle Sam to buy all those "toxic" assets, the government is now going to do it alongside private capital. These investors aren't going to overpay, so that game is up as well. Since Mr. Geithner's plan has been unveiled, the stock prices of the financial sector are off about 19%. This is not necessarily a bad thing. The banks were expecting another handout. While it was not his intention, the reality is that Mr. Geithner is going to confirm the insolvency of the financial system. Once we face this truth, there really isn't much left to do but nationalize. We are not talking about the government operating the banks for the long-term. But, as was done in Scandinavia in the early 1990s, we are talking about orderly clean up, then reselling the banks to private investors. The good news is that much of the risk will be borne by the banks' common and preferred shareholders and their long-term unsecured creditors -- as opposed to by taxpayers. This makes sense since shareholders and creditors were the ones who bet on banks in the first place. We'll also stop repeating the mistakes we made with Fannie and Freddie. Messrs. Richardson and Roubini are professors who have contributed to the NYU Stern School of Business book, "Restoring Financial Stability: How to Repair a Failed System," forthcoming by John Wiley & Sons.

To: Knighty Tin who wrote (117787)	2/21/2009 11:37:29 AM
From: longnshort	3 Recommendations Read Replies (1) \| Respond to of 132070

One Pentagon official, speaking anonymously because no one had been authorized to discuss the report publicly, said it showed that the Bush administration created a humane detention camp that has been unfairly characterized by critics. Speaking of the remaining 245 detainees there, this official said the report underscored that if the men are moved, they may “go from a humane environment to a less humane environment.” Guantánamo Meets Geneva Rules, Study Finds February 21, 2009 By WILLIAM GLABERSON A Pentagon report requested by President Obama on the conditions at the Guantánamo Bay detention center concludes that the prison complies with the humanitarian requirements of the Geneva conventions, but it makes many recommendations for increasing human contact among the prisoners, according to two government officials who have read portions of it. The review, requested by President Obama on the second day of his administration, is due to be delivered to the White House this weekend. The request, made as part of a plan to close the center within a year, was widely seen as an effort by the new administration to defuse the power of allegations during the Bush administration that there were widespread abuses at Guantánamo, and that many detainees were suffering severe psychological effects after years of isolation. The review, conducted by Adm. Patrick M. Walsh, the vice chief of naval operations, describes a series of steps that could be taken to allow detainees to speak to one another more often and to engage in group activities, the government officials said. For years, critics of the prison have said that many detainees spend as many as 23 hours a day within the confines of cement cells and were only permitted recreation alone in fenced-off outdoor pens. The report, which Admiral Walsh is scheduled to discuss publicly at the Pentagon next week, is being presented to a White House that some government officials have described as caught off guard by the extreme emotions and political cross-currents provoked by Guantánamo. Some critics said that the report’s conclusions are likely to intensify the debate about the prison, and put the Obama White House for the first time in the position of defending it. Included in the report are recommendations to increase social contact among the 16 prisoners described by the Bush administration as “high value detainees,” the men once held in secret overseas prisons by the Central Intelligence Agency. Among them are the accused architects of many major terrorist attacks, including those of Sept. 11, 2001. According to one official, the report notes that some detainees have great difficulty communicating from cell to cell, a contention that many detainees’ lawyers have also made. Though many detainees at Guantánamo are held in their cells alone, the Pentagon has long insisted that none of the men are held in solitary confinement. Military officials instead have said the prisoners are held in “single-occupancy cells.” A Pentagon official who has seen the report said that a military team with Admiral Walsh conducted a detailed review of many specific allegations of abuse that critics have made about the prison, and that the team concluded that the Pentagon was in compliance with the requirements of the Geneva conventions. The review included some of the most contentious issues, including the forced feeding of hunger-striking detainees and claims that a large number of the prisoners are suffering from psychosis as a result of conditions in the detention center. The White House did not immediately respond on Friday to a request for comment. It has been clear that some Pentagon officials have continued to press the case that the Bush administration’s approach to handling detainee issues — and the Guantánamo Bay prison itself — should not be abandoned. The report is likely to continue that behind-the-scenes struggle. One Pentagon official, speaking anonymously because no one had been authorized to discuss the report publicly, said it showed that the Bush administration created a humane detention camp that has been unfairly characterized by critics. Speaking of the remaining 245 detainees there, this official said the report underscored that if the men are moved, they may “go from a humane environment to a less humane environment.” Critics of the Guantánamo Bay detention center, which is located on the grounds of an American naval base at the eastern end of Cuba, have been preparing for Admiral Walsh’s report. They said they were concerned that the new administration would use it to avoid major alterations to Guantánamo during the year President Obama has said it may take to close the prison. Gitanjali Gutierrez, a lawyer for Guantánamo detainees at the Center for Constitutional Rights, said that she and other lawyers found that conditions have remained bleak there even after the start of the new administration. Ms. Gutierrez said that a report by the rights center, to be released next week, concludes that two major prison buildings at the detention camp, known as Camp 5 and Camp 6, should be closed immediately. She said prisoners there continue to be held in what she called isolation for as long as 24 hours a day, that psychological difficulties are treated as disciplinary infractions, and that many cells in the two concrete buildings are windowless. Although reporters have been permitted on Pentagon-led tours of many part of the prison, the Pentagon has barred interviews with detainees. Ms. Gutierrez said detention camp officials have recently increased detainees’ opportunities for recreation and social interaction. She said detainees’ lawyers have been concerned that some of those moves were in anticipation of visits now being made by senior members of the new administration. The attorney general, Eric H. Holder Jr., is due to visit on Monday. “This is really running the risk that the review is just a big whitewash,” Ms. Gutierrez added, “and we expect more of the new administration.” Copyright 2009 The New York Times Company nytimes.com