This is going to get interesting. The head of the Congressional Oversight Panel, Elizabeth Warren, is expected to issue a report this week calling on the Treasury to get much tougher with the big recipients of TARP funds. And if the report in the Guardian is right, the recommendations have been softened a tad so as not to be too hard on Treasury Secretary Timothy Geithner.
From the Guardian:
Elizabeth Warren, chief watchdog of America’s $700bn (£472bn) bank bailout plan, will this week call for the removal of top executives from Citigroup, AIG and other institutions that have received government funds in a damning report that will question the administration’s approach to saving the financial system from collapse.
Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government’s Troubled Asset Relief Program (Tarp), is also set to call for shareholders in those institutions to be “wiped out”. “It is crucial for these things to happen,” she said. “Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade.” ….
Yves here. Note that Warren did not indicate how much (in absolute or relative terms) a bank has to have received for the COP to deem it to be subject to those measures. The report may give a clearer indication of the criteria. Back to the article:
Warren also believes there are “dangers inherent” in the approach taken by treasury secretary Tim Geithner, who she says has offered “open-ended subsidies” to some of the world’s biggest financial institutions without adequately weighing potential pitfalls. “…
She said she did not want to be too hard on Geithner but that he must address the issues in the report. “The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous.”
The report will also look at how earlier crises were overcome….”Three things had to happen,” Warren said. “Firstly, the banks must have confidence that the valuation of the troubled assets in question is accurate; then the management of the institutions receiving subsidies from the government must be replaced; and thirdly, the equity investors are always wiped out.”
Geither appears to be trying to make it sound as if he is more in alignment with the some of the report’s recommendations than he actually is. From the New York Times:
Treasury Secretary Timothy F. Geithner says he is prepared to oust the senior management and directors at banks that require extensive aid from the federal government.
“If in the future, banks need exceptional assistance in order to get through this, then we will make sure that assistance comes,” while ensuring that taxpayers are protected, Mr. Geithner said Sunday in an interview on “Face the Nation” on CBS. “Where that requires a change in management and the board, then we will do that.”
Yves again. Ahem, Warren is saying these steps should already have been taken. However, Geither no doubt hopes that saying he is in concept willing to get tough with bank executives is as far as he needs to go.