The Week Ahead: Ed’s Daily Notes for May 12th   Leave a comment

Aside from options expiration on Friday, here are the earnings reports to expect this week:

MONDAY: Dillard’s (DDS)
TUESDAY: Cisco Systems (CSCO), Deere & Company (DE), Macy’s (M)
WEDNESDAY: Wal-Mart (WMT), Nordstrom (JWN), Kohl’s (KSS), Advance Auto Parts (AAP)

One thing you will notice is we are getting a lot of earnings reports from retailers.

Wall Street Journal: Book Review: ‘Stress Test’ by Timothy F. Geithner

The book review above basically takes apart Tim Geithner’s self-praising book in a hard way:

Timothy Geithner, the former Treasury secretary (2009-13), believes in the forceful application of U.S. tax dollars when financial institutions are in crisis. It’s a belief he holds proudly. In “Stress Test,” Mr. Geithner makes a persuasive case that he is the man most responsible for the federal bailouts of 2008.

Some prefer to credit his Treasury predecessor, former Goldman Sachs CEO Hank Paulson. Others focus on the role of former Federal Reserve Chairman Ben Bernanke. But Mr. Geithner insists that, time and again as the crises flared in 2008, he was the most consistent and tireless advocate for government aid to struggling firms. His core principle is that, during a crisis, the creditors of large financial institutions should not suffer any losses.

…In “Stress Test,” Mr. Geithner argues that, though he understood that [Bear Stearns] “was not that big—only the 17th largest U.S. financial institution at the time”—its failure could have been catastrophic because “there were too many other firms that looked like Bear in terms of their leverage” and had similar exposure to devastating housing losses.

But that’s not what he was saying at the time, according to transcripts of the Fed’s Federal Open Market Committee. At a meeting on March 18, 2008, a few days after the Bear rescue, Fed governor Kevin Warsh said that financial institutions were undercapitalized. In other words, they had too much leverage and too much exposure to potential losses. Mr. Geithner objected, saying: “It is very hard to make the judgment now that the financial system as a whole or the banking system as a whole is undercapitalized. . . . But based on everything we know today, if you look at very pessimistic estimates of the scale of losses across the financial system, on average relative to capital, they do not justify that concern.”

Even more important is something that Warren Buffett told Geithner:

Mr. Geithner tells the story of Warren Buffett approaching him at a conference shortly after the rescue to offer congratulations. “I was sort of hoping you wouldn’t do it, because then everything would have crashed and I would have been first in line to buy,” said Mr. Buffett, according to the book. “It would have been terrible for the country, but I would’ve made a lot more money.” A scenario in which Mr. Buffett is snapping up bargains doesn’t sound like Armageddon.

As I have said all along, the bailouts were unnecessary. There are plenty of billionaires like Buffett to pick up the pieces. We would have taken a short-term hit, like we did anyway, without the cost to taxpayers. The ugly truth of the bailouts is they weren’t done to “save the financial system”. They were done to save the politicians’ buddies running Wall Street.


Posted May 12, 2014 by edmcgon in Economy, Federal Reserve, News, Politics

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