Timothy Geithner Addresses the Top "Five Myths About TARP"

U.S.Treasury Secretary Timothy Geithner took to The Washington Post opinion pages this past Sunday to address what he calls five myths about the Troubled Assets Relief Program, known by its acronym TARP.

TARP has become broadly unpopular in the country, but Geithner and other Obama administration leaders have been working lately to get out the news that TARP will ultimately result in a much smaller cost to taxpayers than is popularly believed:

[T]he cost of the TARP, which succeeded in reducing the overall economic damage, will be considerably lower than once feared. In fact, the direct budget cost of the program and our full investment in the insurer AIG is likely to come in well under $50 billion -- $300 billion less than estimated by the Congressional Budget Office last year. And taxpayers are likely to receive an impressive return (totaling tens of billions) on the investments made under the TARP outside the housing market.

Even looking beyond the TARP to the losses associated with Fannie Mae and Freddie Mac's pre-crisis mistakes, the direct costs of the government's overall rescue strategy are likely to be less than 1 percent of GDP. By comparison, the much less severe savings and loan crisis of the late 1980s and early 1990s cost 2 1/2 times that as a share of our economy.

In the article, Geithner addresses other concerns of critiques, such as that TARP helped Wall Street and not Main Street, that it led to greater presidential control over the economy, and other claims.

Read his entire article here.

Bring your own questions for the Treasury secretary when you see Timothy Geithner live at The Commonwealth Club of California this Monday, October 18, in Palo Alto for a 1:00 p.m. program. Details and ticket information are now available.

Eliot Spitzer on Confronting the Financial Crisis

Former New York Governor Eliot Spitzer came to The Commonwealth Club of California in San Francisco this week to talk about "The Cataclysm of 2008-2009."

Spitzer, who served as New York State's attorney general before assuming the governorship, had a reputation as AG for going after corporate white collar crime and Wall Street figures. That history has earned him more than a few enemies in the business community, but it also gave him a point of view on the large-scale financial meltdowns, chicanery, and mistakes that have come to light in the economic crisis.

Listen to audio of his speech here.

The Story Behind Bank Re-Regulation

President Obama threw down a challenge to the banking industry yesterday when he announced plans to increase regulation on large banks, undoing decades of deregulatory efforts that reached their height in 1999 with the repeal of the Glass-Steagall Act. Glass-Steagall was a Depression-era law that separated commercial and investment banking. In making the announcement, the president was adopting the plan long advocated by former Federal Reserve Chairman Paul Volcker.

Richard Kovacevich, the now-retired chairman of Wells Fargo & Company, explained the long history of banking deregulation during a major speech to The Commonwealth Club in San Francisco on October 21, 2008. He discussed the competition between banks and non-bank financial organizations, and the restrictions on how banks could do business, that left big banks feeling as if they had to compete with one hand tied behind their backs.

In the United States, up until the 1980s, banks were highly regulated, with severe restrictions on what products could be offered. Regulators determined the maximum [interest] rates that could be paid on deposits -- known as Regulation Q -- and state usury laws dictated the maximum amount you could charge for loans. Since banks were not allowed to pay a market rate of interest, they gave premiums, so-called "toasters," to open or increase deposits. Banks were restricted to branches in only their home state, and only very few states had statewide branching. This made all banks geographically concentrated.

The large banks then began to find innovative ways around restrictions, creating new financial products and lobbying for legislative changes. That work reached its apex in the 1999 Glass-Steagall repeal.



You can watch Kovacevich's complete speech -- plus his Q&A with the audience -- in the video above.

In the wake of the worldwide financial panic of the past year and a half, governments around the globe have reacted with various announced plans to try to reign in banking systems they deem to have overstepped their bounds. On November 10, 2009, former Goldman Sachs Managing Director Nomi Prins told The Commonwealth Club that the risks posed by these "too big to fail" institutions is even greater today and that a deep re-structuring of banking is necessary. Listen to the audio of Prins' speech here.

The Financial Times notes that this will be a long process, and the end result is not yet known. "Bankers  said the lack of detail and the likelihood of a protracted debate in Congress would give them the chance both to lobby for changes and to adapt their businesses, with, for example, Goldman [Sachs] possibly givin gup the financial holding company status it adopted in the financial crisis," the paper reported today.

Jonah Lehrer Video: Financial Decision-Making in the Brain

Science blogger Jonah Lehrer returned to The Commonwealth Club in January. In this excerpt, he discusses the psychology of financial decision making. Did you buy or sell a good stock? Lehrer might know more about why you did it than you do.

Pelosi Calls for Commission to Investigate Wall Street

With an eye toward quelling the populist anger roiling across the nation, House Speaker Nancy Pelosi today called for the creation of a commission to root out the causes of Wall Street's meltdown patterned after an obscure Depression-era committee.

In San Francisco to speak about her book encouraging the rise of women in society at a gathering for the Commonwealth Club of California, Pelosi said Americans are angry with the economy and bonuses given to AIG, and at least 75 percent of them want an investigation into the missteps that led to this recession.

"That's what we would do with this commission, is to make sure it does not happen again," she said.

Pelosi spoke with Treasury Secretary Timothy Geithner this morning about the plan to emulate the Pecora Commission created in 1932. That commission, named after Deputy District Attorney of New York County Ferdinand Pecora, followed two failured attempts but ultimately benefited by Franklin Roosevelt's election to the presidency. The commission's findings led to the Securities Act of 1933 and the creation of the Securities and Exchange Commission – itself alleged by many to have been lax in regulating Wall Street (with Bernard Madoff's infamous Ponzi scheme being the poster boy for this age).

“Some people can tell you one piece of it. Others can tell you another piece of it. It's really hard to know. Do you understand it?” Pelosi asked rhetorically. “We need a clearer understanding of how we got here.”

Pelosi is not the first politician to allude to the Pecora Commission in recent weeks. Democratic Sen. Byron Dorgan called for a new iteration of the committee along with the resurrection of the Glass-Steagall Act, which separated commercial and investment banking. Many believe its repeal in 1999 was the impetus for banks and investment firms like Citigroup and Travelers to merge and allow the subprime credit markets to run rampant. (Wells Fargo Chairman Dick Kovacevich gave the banks' side of the deregulation story in a speech to The Commonwealth Club in 2008. Click here to view video.) A New York Times editorial last month also called for a Pecora-like commission to be created.

Besides making news with her call for a Wall Street investigation, Pelosi had a full schedule. Earlier in the day, appearing on the local Fox affiliate KTVU, Pelosi characterized an upswing of “Tea Party” tax protests as window dressing for elite conservative interests that mainly wanted lower taxes, mocking them as “Astroturf” or fake “grassroots.”

The Speaker also drew upon her personal biography to encourage woman to continue reaching for more positions of power. Her book, Know Your Power: A Message to American Daughters urges women to get involved in all aspects of community service. Pelosi is the daughter of the Baltimore establishment and said she found politics both exciting and distasteful. “It taught me I didn't want to be a part of it,” she said.

While raising five children with husband Paul Pelosi – who incidentally spent the speech doting over their newest grandchildr – she slowly became immersed in Bay Area politics with her big break occurring in 1976 when she secured Maryland for a youthful Jerry Brown in the Democratic presidential primaries. Pelosi joked, though, that the then-governor of California had a problem with saying, “thank you,” but he nonetheless found time to praise her for delivering Maryland to his campaign.

Reich's Assessment of the Economy Has Been Spot On

"2009 is likely to be a very hard year."

Robert Reich could have easily uttered this sentence within the last week. Instead, he used those words to describe the prospects for the economy during a September 2008 speech at The Commonwealth Club.

Of course, any cynic or chronic pessimist could have seen the worsening of the economy persisting into this year or longer, but the former labor secretary under President Clinton and current professor at Cal has been one of the few sounding the alarms over the economy for some time.

His assessment of the then-pending $700 billion bailout to Wall Street sounds dead on today. “The bailout will not ultimately do much," said Reich, "It will provide a one-shot shot of confidence. It will stop the bleeding, but it will not end the underlying problem.”

Indeed, today, many wonder what the initial half of the bailout money went toward. Without reliable accounting of the dollars, some wonder whether financial institutions are hoarding the relief money while credit markets still languish. Reich pointed out that the financial dilemma the country faces is actually a "crisis of trust" and, though the bailout in September was a message to investors that the government is willing to do something big to alleviate the problems, it will not fix the long-term problems with the economy without substantial oversight and a strong monetary policy.

He did focus on one interesting unintended consequence of the bailout: a resumption of avarice. “You take greed away from Wall Street and what you have is pavement,” he said to a round of guffaws.

Reich says corporate leaders and their earning are predicated on the short term. In this situation -- where the government has, in effect, subsidized the down side to investing -- he says the "risk is greater" that corporations will continue to dabble in seizing the quick buck.

Today, as President-elect Barack Obama attempts to push another large round of stimulus benefits through Congress, Reich's 2008 words are useful; he urged listeners not to view the next president's capacity to apply his agenda in Washington as being depressed.

Reich recounted how during the beginning of Clinton's term in 1993, the discovery of larger deficits forced the new president to pare back some of his campaign promises. Don't necessarily believe it this time around, said Reich, because the September bailout is technically not an expenditure. The money will be borrowed from Asian and Middle Eastern countries, he said, which are more than happy to invest in relatively safe Treasury bills, something that has indeed occurred.

Because many in the Obama administration believe expanding the deficit to stoke the poor economy falls in line with the Keynesian mantra of infrastructure spending, balancing the budget is far from the most important policy objective and should allow the incoming president to hold his campaign promises intact.

Robert Reich will try his hand again at making sense of the economy while peering into the future this Wednesday at The Commonwealth Club of California's Annual Bank of America-Walter E. Hoadley Economic Forecast. The event will be held at the Hotel Nikko at 222 Mason St. with lunch at 11:45 a.m. and the program starting at 12:30 p.m.

FDR Called for the Rights of the Individual; Will Obama Do the Same?

FDR'S FAMOUS COMMONWEALTH CLUB SPEECH REVERBERATES TODAY

President-elect Barack Obama has not saved the economy yet, but his victory last month is going a long way toward saving the publishing industry.

Doris Kearns Goodwin's two-year-old book Team of Rivals has becoming a bestseller on the heels of countless references to it and Obama's desire to create the same open-ended discussion in his own cabinet. (Listen to Kearns Goodwin discuss the book at The Commonwealth Club.) Of course, newspapers and magazines around the country couldn't keep enough copies on newsstands with the visage of Obama during the days after the election.

Now, it's all about making the link between the Depression-era beginning of Franklin D. Roosevelt's presidency and Obama's today.

One of the better and most specific books concerning our current period of economic upheaval and presidential transition is Jonathan Alter's The Defining Moment: FDR's Hundred Days and the Triumph of Hope.

Alter posits that FDR's common jibe of being a "traitor to his class" was born out of his battle with polio. This debilitating illness forced him to gain an understanding with those less fortunate. It could be said that Obama's background and his fight with race in America would allow for the same empathy.

One interesting chapter in the book details how FDR broke convention tradition by accepting the nomination the day after. Though flying by aircraft was not particularly safe in 1932, FDR flew to Chicago for the mere spectacle of such arrival. Recall how Obama, on short notice, chose to accept the nomination in an 80,000-seat football stadium instead of at the convention hall and packed nearly 100,000 into Chicago's Grant Park on election night.

But it is one of FDR's most famous speeches that reveals a plausible connection between the two leaders.

On September 23, 1932, he gave what Alter calls "a dividing line in his political evolution." during a speech at The Commonwealth Club of California. The speech ranks as one of the club's most famous moments. (Read the entire speech here.)

The address has been characterized as un-Roosevelt-like in its clarity and bluntness. Alter says this was because the speech was barely read over beforehand by FDR; therefore, the candidate was unable to "sand the edges and apply his usual caution."

The Commonwealth Club speech is now seen as the first clear rationale behind the New Deal and, more important, redefined the idea of the individual. Some of FDR's rhetoric seems pedestrian today, yet it was revolutionary to a country set in an economic free fall and wallowing in self-doubt.

Every man has a right to life; and this means that he has also a right to make a comfortable living. He may by sloth or crime decline to exercise that right; but it may not be denied him. We have no actual famine or death; our industrial and agricultural mechanism can produce enough and to spare. Our government formal and informal, political and economic, owes to every one an avenue to possess himself of a portion of that plenty sufficient for his needs, through his own work.

University of Chicago professors Jane Dailey and David Nirenberg bring the speech and the current state of our financial atmosphere into perspective in an article in Dissent magazine from last September.

As we watch (at current estimates) more than a trillion dollars in collective savings disappear into the whirlpool that was once Wall Street, we are already hearing calls for such restrictions and regulations. These calls are not misplaced, but they are not enough. We also need what Roosevelt provided three-quarters of a century ago: a politically convincing and principled way of imagining a relationship between the economic and political rights of the individual and those of the collective, which he called the “economic constitutional order.”

They go on to urge this simple bit of advice: "In order to know what we want to regulate or whom we have to bailout, we first need to know what and whom we want to protect."

Financial Lessons from 1929?

So what comes next? If the various national and global financial rescue initiatives have, as some argue, staved off collapse, what sort of economy are we looking at for the next year or two?

As noted in our previous blog posting on the financial crisis, even optimistic projections about what's coming up are not, well, optimistic. The Financial Times newspaper reports today that the current thinking of economists is that collapse of the system has been averted and we're not headed for another depression; nonetheless, says the FT, we could be in for the worst recession since 1982.

We won't try to predict what will happen here; that's for others to do. But we did take a look into the archives of The Commonwealth magazine and found one of the earliest Commonwealth Club speeches reacting to the stock market crash of 1929. Titled "The Panic of 1929," the December 6, 1929, speech by William C. Van Antwerp of E.F. Hutton, offered some initial reaction to the market panic and included some surprisingly thought-provoking ruminations on the human spirit.

Here are some excerpts from Mr. Van Antwerp's speech:

A panic is a state of mind in which fear supplants reason. It cannot be stopped by statute law or arrested by the police. The best that can be said of such a phenomenon is that it doesn't occur very often.

In the panic of 1907, there were fundamental conditions that were not sound -- in 1929, we merely suffered a case of nerves following a debauch. It is not to be expected that sound and conservative industry will be shaken this time.

This present panic had its roots back in 1917, when our masses found that they could invest money in bits of paper called Liberty Bonds. From investing to speculating was an easy step.

Whether it be public excess, saxaphones or modern art, the American public always goes too far. If we emerge from our excesses somewhat sadly, we are also somewhat wiser.

The stock market was running wide open and good judgment was forgotten. Most of the post-mortem warnings we now hear about were never given until after the panic occurred.

The recent rise had to stop in one way if it did not in another. Even a billion dollar pool would not have averted the panic.

We have for some time been "rotten rich" -- now for a short time we are to be merely "affluent."

President Hoover will bring into action the confidence reserves which everybody knows we possess. When we start forward again as we surely shall, trade and prosperity will go forward to heights not now imagined.

What do you think about Mr. Van Antwerp's ideas? How applicable are they to today? Leave a comment and let us know.

Financial Crisis: The Who, What, When, Where and Why

As of this writing, the Dow Jones is down 306 points, just two days after European governments super-charged the world's markets by laying out aggressive programs to deal with the frozen credit markets. The United States also announced a program to deal with the crisis, but markets have been weak-to-faltering even as the newspaper headlines start to sound optimistic for the first time in weeks.

What is happening? What will happen next?

Much of the problem stems from the easy credit and large amounts of money lenders were pushing into the housing market for many years. And though some critics have put blame on the people who bought subprime loans and other insufficiently securitized financing, "the people who should have know what they were doing was people who had experience lending money," said former Secretary of Labor Robert Reich in a Commonwealth Club speech October 1, 2008 (see the embedded video above for his complete speech). "I think they did know what they were doing."

Perhaps they didn't. In the same speech, Reich said that he spoke with Wall Street financiers about the various financial instruments they were using to repackage bulk loans and sell them to investors. "Two years ago I asked a hedge fund manager, 'Please explain to me what's in your hedge fund,'" said Reich. He said the fund manager laughed and replied, "I have no idea."

"Thanks to high technology, you could slice and dice these [financial] packages into your appetite of risks," Steve Forbes told The Commonwealth Club on August 7, 2008. "You could have packages of sub-prime mortgages; you could own a piece of it that may be worth today 80, 90 cents on the dollar. you could own another piece that is zero cents on the dollar. Lots of institutions didn't even really realize how much of this junk they had until the crisis hit."

That, say experts, has led to the frozen credit markets, where banks are unwilling to lend to other banks because they literally don't know if the other bank's liabilities in bad loans are frighteningly awful or just frightening. Therefore, we've seen governments stepping in to provide liquidity for banks and trying to provide the confidence banks need to make the loans.

Where this will all lead is not clear, though even the optimistic predictions of many economists is that the United States is in for a serious recession lasting one or two years. That has people and businesses battening down the hatches and preparing for a tough time.

"The consensus among mainstream economists is if – if – we can avoid a meltdown, this is likely to be an extended but comparatively shallow recession," said Peter Gosselin, a financial journalist who spoke on a Commonwealth Club Inforum panel on "Surviving the Great Recession." He added that even a "shallow" recession can be very serious. That panel discussion was in July, but even then Gosselin said the country was likely to hit a crisis soon. Events would soon prove him correct.

ADDENDUM: The Dow Jones closed down about 733 points.

Complete Video: Gov. Arnold Schwarzenegger on Climate Change, Finance Crisis

Above, courtesy of our video partners at Fora.tv, is the complete video of California Gov. Arnold Schwarzenegger's sold-out speech to The Commonwealth Club. He spoke on the anniversary of AB32, the state's landmark global-warming legislation, and in a wide-ranging Q&A with Club Vice President Greg Dalton he discusses the global financial crisis, dealing with Detroit, his expectations for the next president, and much more.

Gov. Schwarzenegger on the Federal Government Action on Wall Street