Treasury Secretary Tim Geithner roiled markets with comments made while being interviewed on several of the Sunday morning news programs, but the most disconcerting to investors had to be that some large U.S. banks likely will need large amounts of assistance before the credit crisis can be resolved.
Other choice missives:
It would be a mistake to think that banks can earn their way out of the current downturn without further government involvement.
The market will not solve this (financial crisis) and the great risk for us (the government) is that we do too little, not that we do too much.
We have roughly $135 billion left of uncommitted resources (out of the original $700 billion of TARP funds). The rest is out the door.
We have two choices: we can leave it as it is, hope banks will earn their way out of this process over time, and I am certain that will create the risk of a deeper, longer recession,
To get through this, governments need to act. There's a great obligation and responsibility for government to act to solve these things.
Geithner would not specify whether he expects to ask Congress for more money this year, though he did not rule it out.
The important thing is we are going to work with the Congress to make sure we have the resources needed to do this right.
If we get to that point, we’ll go to the Congress and make the strongest case possible and help them understand why this will be cheaper over the long run to move aggressively,”
Roger Ehrenberg on his Information Arbitrage blog addressed an important concern related to the PPIP; the fact that banks could choose not to participate.
The buyers are still running equity risk and will only submit bids that reflect their assessment of risk and return, he wrote. This may result in prices that are still far out-of-line with current bank carrying values, causing banks to reject the highest bids in a move to avoid further asset write-downs. So even a protracted auction process could result in a whole lot of nothing.
The regulator of Fannie Mae and Freddie Mac is considering giving the government-backed mortgage companies another role: helping to finance small mortgage banks.
A spokeswoman for the regulator, the Federal Housing Finance Agency, said it is looking at ways that the two companies might help revive the market for so-called warehouse loans, which are loans made to mortgage banks. This possible role for Fannie and Freddie is the latest sign of how they are being used increasingly as instruments of government policy rather than corporations focused on shareholder returns.
Demand for mortgages is surging as low interest rates prompt millions of Americans to refinance. New U.S. first-lien home-mortgage loans granted this year will surge to $2.78 trillion, up 72% from 2008's depressed level, the Mortgage Bankers Association predicts. But mortgage banks have been hobbled in recent months by a dearth of credit, making it hard for them to respond to that demand.