Monday, April 27, 2009

Treasury and "Least Cost Resolution"

It shouldn't surprise you to learn that I was not a fan of Gretchen Morgenson and Jo Becker's big profile of Tim Geithner in the NYT. As the late Tanta demonstrated time and again, Morgenson is an atrocious financial journalist. But I have neither the time nor the energy to highlight all of the errors and wildly misleading statements in the article. I do, however, want to highlight one ridiculous and nonsensical argument that Morgenson and Becker made in the article. They desperately tried to make something of the fact that the original template for Treasury's proposed resolution authority was a draft bill from Davis Polk & Wardwell, a large law firm that often represents Wall Street institutions. But the only argument they came up with doesn't even make sense:

[Treasury officials] point to several significant changes to that draft that "better protect the taxpayer," in the words of Andrew Williams, a Treasury spokesman. But others say important provisions in the original industry bill remain. Most significant, the bill does not require that any government rescue of a troubled firm be done at the lowest possible cost, as is required by the F.D.I.C. when it takes over a failed bank. Treasury officials said that is because they would use the rescue powers only in rare and extreme cases that might require flexibility. Karen Shaw Petrou, managing director of the Washington research firm Federal Financial Analytics, said it essentially gives Treasury "a blank check."
This is an absurd and incredibly ill-informed criticism. The "least cost resolution" provision (sec. 1823(c)(4)) requires the FDIC to use the resolution method that is least costly to the Deposit Insurance Fund. But there's a very famous exception to the least cost requirement known as the "systemic risk exception" (sec. 1823(c)(4)(G)), which, not surprisingly, provides that if there is a formal finding of "systemic risk," the FDIC doesn't have to use the least costly resolution method. A "systemic risk" finding requires written recommendations from the Fed and FDIC's boards of directors, as well as a determination of systemic risk by the Treasury Secretary after consultation with the President. (When the systemic risk exception was enacted in 1991, it was universally viewed as the formal adoption of a "too big to fail" policy.) This is precisely the situation Treasury's proposed resolution authority is designed for. Treasury's resolution authority would only kick in when there's a formal finding of systemic risk—that's why the bill is called, "The Resolution Authority for Systemically Significant Financial Companies Act of 2009." So of course the bill doesn't include a "least cost resolution" requirement. Right now the FDIC is bound by the least cost procedures when resolving a failed bank, except in cases of systemic risk. There is currently no equivalent to the systemic risk exception in the US Bankruptcy Code for nonbank financial institutions such as bank holding companies. The whole point of Treasury's proposed resolution authority is to extend the FDIC's systemic risk exception to the insolvency regime that governs large bank holding companies (e.g., Citigroup, BofA, JPMorgan, Wells Fargo). If there's no systemic risk finding, failed bank holding companies will still be handled by the bankruptcy courts. Treasury's proposal gives the government the same kind of discretion in cases of systemic risk that the FDIC has under the Federal Deposit Insurance Act. Any attempt to paint Treasury's proposal as somehow more Wall Street-friendly than the FDIC's insolvency regime because it doesn't include a "least cost resolution" requirement is based on a fundamental misunderstanding of the US insolvency laws.

10 comments:

Don said...

"The whole point of Treasury's proposed resolution authority is to extend the FDIC's systemic risk exception to the insolvency regime that governs large bank holding companies (e.g., Citigroup, BofA, JPMorgan, Wells Fargo)."

Oddly, that's what I was for in Sept when I backed a Swedish Type Plan. I also backed a full govt guarantee like the Swedish Plan, because only that will stop Debt-Deflation. Geithner is being ridiculed for that belief. Count me as happy to be ridiculed then.

What exactly did people believe would happen when they backed the Swedish Plan? I know what I meant.

Also, I am for taking controlling interest in banks if we have to, but it will be a mess. For one thing, it will still be a hybrid, because the other shareholders will have a fiduciary claim on how the govt manages the bank. Maybe I'm mistaken. In any case, I'm more than happy to say what I'm for and why. I'll quote other people because they express the points better and I don't make a living commenting on blogs, but I'll at least present my views.

Don the libertarian Democrat

Runescape Gold said...

it is really an amazing, beautiful, basic and heartfelt video of your good idea. I am just this type of lover of your respective perform! I'd require a bite of dessert away any woods each day.

Cheap RS Gold
Cheap MapleStory Mesos

Anonymous said...

Very interesting to read this article. I would like to thank you for the efforts you had made for writing this awesome article.tartanarmymessageboard.co.uk |

mikestoanelighting.co.uk |

workplace-wellness.co.uk |

thumbswood.co.uk |

oldfieldrealty.co.uk |

utilitysearches.co.uk |

bizzybooker.co.uk |

restaurantrecruit.co.uk |

vetequip.co.uk |

cafe-vn.co.uk |

Trần Duy Thuận said...

Trần Duy Thuận Blog đang cần nhận gia công tại nhà. Ai có cần người nhận gia công tại nhà tphcm liên hệ mình nhé. Truy cập vào đặt vé máy bay giá rẻ vietjet để có thêm kinh nghiệm khi đi máy bay nhé.

Fire Ball said...

Liệu có nên mua máy giặt cũ, hay tìm mua tủ lạnh cũ ở đâu? Nếu chưa tìm thấy nơi bán thì hãy ghé qua trung tâm điện máy cũ tại thằng ghờm shop. Với những snả phẩm điện máy, điện lạnh cũ, và máy lạnh cũ nội địa chắc chắn sẽ làm bạn hài lòng.


Nếu bạn người thích cập nhật kiến thức mới lạ, hữu ích thì hãy ghé qua chuyên mục tổng hợp kiến thức nơi tìm lời giải đáp cho những thắc mắc như: www là viết tắt của từ gì, deep là gì,...

kartu esia said...

OBAT HERBAL UNTUK BAB BERDARAH
OBAT KUTIL DI KEMALUAN UNTUK WANITA HAMIL
GEJALA PENYAKIT KUTIL KELAMIN DAN CARA MENGOBATINYA
ramuan alami sipilis
obat yang ampuh menghilangkan kutil
OBAT HERBAL UNTUK BAB BERDARAH
OBAT KUTIL DI KEMALUAN UNTUK WANITA HAMIL
GEJALA PENYAKIT KUTIL KELAMIN DAN CARA MENGOBATINYA
ramuan alami sipilis

obat herbal denature said...



obat kanker payudara herbal
obat herbal untuk kanker payudara yang manjur
obat herbal untuk kanker paru-paru
obat herbal untuk kanker prostat
obat herbal yang manjur untuk kanker serviks/rahim
obat kanker serviks yang ampuh
obat kanker serviks yang manjur dan aman
obat kanker payudara yang manjur dan aman
obat kutil kelamin tradisional yang paling manjur

Bambang Wisanggeni said...

pengobatan kutil kelamin
obat eksim
obat kanker payudara yang alami dan manjur
cara menghilangkan kutil kelamin
merontokkan kutil kelamin
obat kutil kelamin sampai tuntas
obat kutil kelamin di jakarta
obat kanker payudara di jakarta
obat kanker payudara di jogja
obat kanker serviks stadium 3
Tips mengobati kutil kelamin
ramuan alami untuk kutil kelamin
cara merontokkan kutil di kelamin
dulunya kencing nanah sekarang ada kutilnya
obat kutil
obat kutil apotik
obat kutil kelamin tradisional
obat sipilis yang sudah terbukti manjur dan aman

gajah biru said...

Obat Kutil Di Kemaluan Wanita | Penyakit Kelamin Wanita
Obat Penghilang Kutil Kelamin
Tanda-Tanda Kutil Kelamin Condyloma Acuminata Di Bibir Vagina
obat jengger ayam untuk wanita
Kutil Di Alat Kelamin Serta Cara Menghilangkanya
obat kutil kelamin tradisional
Obat Kutil Pada Memek | Cara Menyembuhkan Kutil Pada Kemaluan Wanita
Penyembuhan Kutil Di Bibir Vagina | Penyakit Kelamin Kutil
Penyebab Kutil Kelamin dan Cara Penyembuhanya
Tanda-Tanda Kutil Kelamin Condyloma Acuminata Di Bibir Memek
Cara Menghilangkan Kutil Di Kemaluan | Vagina, Anus, Atau Penis Tumbuh Kutil
Obat Menghilangkan Kutil Di Bibir Vagina
Tumbuh Kutil di Penis Dan Anus | Obat Herbal Penyakit Kelamin
Kenapa Ada Kutil Di bibir Vagina ? Cara mengobatinya Bagaimana?
Tanda-Tanda Kutil Kelamin Condyloma Acuminata Pada Wanita
Obat Kutil di Kemaluan Pria | PENYAKIT KELAMIN JENGGER AYAM

Tugiran Wibowo said...

Cara Menghilangkan kutil Di Kelamin Pria
Di Sekitar Penis Tumbuh Kutil ? Obatnya Apa ?
Berbahayakah Kutil Kelamin
Penyebab Kutil Kelamin Condyloma Acuminata
Tanda-Tanda Kutil Kelamin Condyloma Acuminata
Obat Kutil di Batang Zakar
Obat Kutil Di Kemaluan Wanita | Penyakit Kelamin Wanita
Obat Penghilang Kutil Kelamin
Tanda-Tanda Kutil Kelamin Condyloma Acuminata Di Bibir Vagina
obat jengger ayam untuk wanita
Kutil Di Alat Kelamin Serta Cara Menghilangkanya
Obat Penyakit kutil Kelamin Wanita
Tanda-Tanda Kutil Kelamin Condyloma Acuminata Pada Ibu Hamil
Cara Menghilangkan kutil Di Kelamin Pria