The dollar made a nice upside move in overnight markets after Treasury Secretary Tim Geithner told ABC News program This Week that “some banks are going to need some large amounts of assistance,” implying that the banking crisis was far from over. The dollar gained as S&P futures declined and as global equity markets fell, with the Nikkei off over 4%.
Also hurting sentiment was news that the government had ousted General Motors CEO Rick Wagoner.
Geithner was all over the Sunday news programs with a few other choice tidbits as well, including a warning (obviously to lawmakers) that terms of the $500 billion public-private investment program (PPIP) to aid banks “cannot change” for investors or they’ll lose confidence in the plan, which basically was an attempt by the Obama administration to reassure potential investors that they won't come after their profits should accrue as a result of participating in the effort.
There's a rather odd dichotomy between the public and private sector these days in that outrage over things like bonuses in the financial industry needs to be tempered with the idea that profits and bonuses are the reward for risk-taking, something which is in very short supply at the moment as Mr. Geithner was careful to point out.
“To get out of this we need banks to take a chance on businesses, to take risks again” in order for the U.S. economy to recover from the recession.
General Motors' Chief Executive Officer Rick Wagoner was forced out after President Obama’s task force decided he was unable to craft a plan to save the automaker he ran for more than eight years.
“On Friday I was in Washington for a meeting with administration officials,” Wagoner said today in a statement. “In the course of that meeting, they requested that I ‘step aside’ as CEO of GM, and so I have.”
Obama’s task force pointed to GM’s failure to win concessions from bondholders, a step needed to cut the automaker’s debt and ensure future viability, as one reason the government needed a new plan. GM’s latest debt exchange offer, made March 24, wasn’t likely to win bondholders’ approval because it’s less lucrative than the terms the U.S. required for the company to keep the first $13.4 billion in loans. However, bondholders likely made a bad deal for themselves because the government will likely push for even deeper cuts in debt now.
The administration's auto team also said that it doesn't believe Chrysler is viable as a stand-alone company and suggested that the best chance for success for both GM and Chrysler may well require utilizing the bankruptcy code in a quick and surgical way.
After more than a month of analysis, the administration's auto task force determined that neither company had put forward viable plans to restructure and survive, but the verdict was even gloomier for Chrysler. The government said it would provide the automaker with capital for 30 days to cut a workable arrangement with Fiat SpA, the Italian auto maker that has a tentative alliance with Chrysler.
If the two reach a definitive alliance agreement, the government would consider investing as much as $6 billion more in Chrysler. If the talks fail, the company would be allowed to collapse.