Wednesday, August 12, 2009

Elizabeth Warren: Geithner Spreading $2 Bets All over the table in Vegas

Elizabeth Warren, Chair of the Congressional Oversight Panel charged with inspection of the bank bailout funds through TARP appeared on "Morning Joe" today. Warren described the initial half of the bailout funds $350 billion spent by Paulson as the "Don't Ask Don't Tell," funding meaning the money was given to the banks without requiring financial institutions to report how it was being spent. Geithner is spending the second half spreading it around in smaller doses to cover potential threats in many different facets of the financial industry. The bottom line, however, financial institutions are still holding much of the troubled assets on their books rather than selling them and taking the losses that would necessarily follow the assets being sold at their more realistic market value.
"By and large, the toxic assets that brought us to this point are still on the books of the banks," she said.

Warren makes it clear the threats arising from these assets are far from over. Watch the video; it is rather long but an interesting and often disturbing exchange.

Warren seems concerned the larger threat still looming is in the commericial mortgage market which is largely held by mid-sized and smaller financial institutions. Should a small bubble begin to emerge in the market, we could easily end up where we were last Fall. When pressed by Scarborough as to whether the bailouts saved the economy from a complete collapse, Warren appears somewhat reluctant to give an opinion. She does finally admit that though there would have been some pain and some large institutions would no longer be in business, it seemed unlikely the death spiral would have occurred.

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