From MortgageLoan.com: Bad Bank Out, Limiting Executive Pay and Expanding Mortgage Lending In?
Wall Street reveilled briefly in the prospect of "bad banks," aggregating toxic mortgage loans into a government controlled bank. Likewise, they reacted aggressively on the hint that the plan is shoved to the back burner.
The same questions that plagued the original plan to buy up troubled mortgages, hits this new plan. Pricing of these illiquid assets clogging bank balance sheets and restricting lending is problematic. Pricing too low hits banks with massive writedowns, potentially weakening more banks. However, pricing too high leaves taxpayers with generations of debt.
In exchange President Obama tells Matt Lauer, during an NBC Super Bowl pre-game interview, he was focused on getting lenders receiving TARP and other government assistance to lend. President Obama also scolded Wall Street for paying out over $8 billion in executive bonuses in 2008. This and similar remarks coming from the White House and House Democrats indicate a goal to place more accountability on firms receiving taxpayer money.
Speaking on Sunday's This Week political talk show, House Financial Services Committee Chairman Barney Frank said, "You're going to see the Obama administration push for much more lending...There are going to be some real rules in there." What will this mean for implementation of these programs? Many banks may be reticent about participating with significant bureaucratic overhead being proposed.
Newly appointed Treasury Secretary Timothy Geithner is headed to a Democratic congressional retreat this week as he works on a TARP overhaul that is expected to have much stricter rules. Tops on that list of new rules is executive pay restrictions.
Geithner, during his confirmation hearing, told the Senate Finance Committe that participating banks would have to lend in exchange for additional TARP funding. "As a condition of federal assistance, healthy banks without major capital shortfalls will increase lending," said Geithner.
Although there is a lot of motion in Washington, lawmakers are heading down all the same paths reviewed during the original October 2008 crisis. Will these actions emerge with different results?
