By Michael Gray
What exactly is Treasury-designate Tim Geithner being told by White House economic guru Larry Summers about the banking bailout plan?

Not much from what I hear. Geithner is not in the loop, he has been pushed to the sidelines because of his tax dodging trouble. There is a slight concern in the administration about his confirmation passing, so Summers is keeping him in the dark, as well as waiting for his passage before naming a new NY Fed president.
http://mgray12.wordpress.com/2009/01/21/a-quick-what-if/

The talk prior to the Inaugural was to hit the ground running Day One. Now after being fully briefed, the administration is perhaps weeks away from unveiling its plan.

The only economic news coming from the Obama administration is how they will not have the same PR blunders as the Bush administration did with their TARP money being used on new office furniture, bonus-pool cash or long weekend corporate retreats.

The truth is Team Summers really doesn’t know what it can do for the banking industry. They have a hybrid Nationalization/Bad Bank model, which is a compromise that has no one happy and everyone questioning its ability to salvage the banks enough to allow them to begin lending.

If you start from the premise that the top 500 banks globally are insolvent you will be closer to the truth than you are now. So the administration realizes that no course of action can or will solve the problem.

And now Summers is in the same place Hank Paulson was three months ago saying a daily mantra, “Let’s keep the ATMs working.’’

Under a hybrid Nationalization/Bad Bank model, the Fed would have to price some of the toxic paper. Once that is done you have perhaps half of the $140T of bad paper in Citigroup, JPMorgan Chase and Bank of America marked to a market.

Not a great scenario, unless you wish to dwarf the Lehman bankruptcy filing in the disaster column, because all banking and fiat currencies crash at that moment paper that is on the books at par is marked at 30 cents to the dollar.

GE

GE Chairman Jeff Immelt doth protest too much. On earnings call Immelt vowed to continue paying a dividend of all of ’09 despite the companies reliance on backstopping the commercial paper market, where GE has to go for daily funding of operations.

GE needed to raise its bad loan reserve levels on its credit division by $1B to $10B. Last month the company guided to a $9B charge.

GE is the largest US non-bank financial company. Just how long before it becomes a bank-holding company.

Prior to earnings announcement GE announced massive layoffs in it GE Capital finance division. Reports put the number at close to 11,000 employees.

GE is also GE tapping into federal lending programs that will provide up to $230 billion in liquidity for the troubled international conglomerate.

This will be the last quarter for a GE dividend of anything more than the government-mandated penny a share.

EU Debt Market

EU finance ministers will meet later this month to begin talks of a unified debt market for all its members. The action comes as ratings agencies have downgraded many smaller member states to just above junk status.

Ireland, Greece, Portugal, Slovenia and Italy are on watch lists for further cuts. The costs of servicing continuing operations have soared since the recession began for these countries.

Germany and France are said to oppose the action since the cost of funding their debt will rise in a European-wide debt market.

I see the action as weakening the euro further by splitting off the haves and the have-nots with the euro zone.

I have predicted that the euro will be losing members in 09 as countries look to boost their own economies by manipulation currency exchanges in devaluing their currency.

China and England have used this ploy recently with quite successful results so others will follow. Germany needs to have control of its currency so its economy does not fall any further.

For more on Wall and Washington and the cratering economy see: http://mgray12.wordpress.com