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America Everything is Going To Be Alright

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Guest Dragon

American companies have forgotten the importance of research and development. The only good thing they know is how to market products that are made elsewhere. But, Americans have lost a sense of innovation. Now that there is a global slowdown of products being created, Americans will begin to understand the concept of stagnation. Innovation is the fundamental source of increasing wealth in an economy. The Asian tigers will change how the world works. Americans are lazy and will suffer because of it. There was a time when getting rich meant working hard, being thrift, and putting in significant amounts of time. Now everyone just cares to be like Hollywood movie stars. Maybe one day a Chinese will become the President of USA. Until then if you are looking for optimism and positive outlook for the future, move to China.

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Guest ChrisWu

Americans would have a civil war before they voted in a Chinese. I do not understand why P.R. China continues to buy US government debt. China already trades in Euros with Chavez and in Yuan (元) with eight of her Asian neighbours.

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Americans would have a civil war before they voted in a Chinese. I do not understand why P.R. China continues to buy US government debt. China already trades in Euros with Chavez and in Yuan (元) with eight of her Asian neighbours.


Tell that to Congressman David Wu. Read his release below. China invests in U.S. treasuries because it is the safest place to gain interest on their money.


WASHINGTON, D.C. — Today Congressman David Wu released the following statement in response to President Barack Obama’s signing of a presidential memorandum that protects scientific integrity across the federal government, insulating it from political influence:


“After eight long years, we now have a president who believes that, like oil and water, good science and political influence do not mix. As an ardent supporter of scientific integrity, I applaud President Obama’s commitment to protecting scientists and scientific results from the influence of politics and ideology.


From climate change to NASA, to the way our water management policies affect salmon stocks, we rely on sound science to form the basis for sound policy. We must trust that the scientific evidence produced by the federal government is based on a rigorous, independent investigation and that it is being portrayed accurately. While that has not always been the case in the recent past, today President Obama set the tone for the future.


In the coming months and years we will be working to treat and cure debilitating diseases, keep our food supply safe, change our energy consumption patterns, protect our planet, and further explore space. Science is the foundation for all of these endeavors. By protecting science from distorting forces, we are setting the stage for the discoveries of the future.”


My credit is not the greatest, but the bank gave me a loan to buy a tractor with a backhoe and a loader. I appreciate the fact that this loan will greatly help out my farm.


The Eagle is waking up.

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Guest Enron

Investors are at their most optimistic about the global economy since December 2005, , according to

the Merrill Lynch Survey of Fund Managers for March. For the first time in more than three years, investors do not predict lower global economic growth over the next 12 months.


March's survey shows signs that investors want to believe in an economic recovery. However, caution on banks is firmly capping risk appetite," said Gary Baker, Banc of America Securities-Merrill Lynch

co-head of international investment strategy. "How investors resolve this anomaly between growth optimism and risk reluctance will determine the fate of equity markets this spring," said Michael Hartnett, Banc of America Securities-Merrill Lynch co-head of international investment strategy.


A net 41 percent of respondents are underweight equities, up from a net 34 percent in February. World equities fell by 15.5 percent during the days the survey took place. Investors appeared to have flooded into bonds with a net 26 percent of the panel overweight the assets class, up sharply from a net 7 percent the previous month. Average cash balances rose to 5.2 percent from 4.9 percent in February.


While the U.S. continues to fuel economic optimism, investors have become more bullish about emerging markets, especially China.

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Guest Ron_*

We need to throw FREE TRADE out the window. The United States has gone from a high of 78% of GDP in manufacturing based economy to a paltry 14% and as a result we are not able to take the hit from the housing crisis. Manufacturing has been and always will be the strong backbone of any economy. What is hard to swallow is now a good chunk of our defense capabilities have been outsourced. The World economy has succeeded in bringing America to its knees. Look at history. This happened to Rome, Babylon, Persia, Assyria, Greece, and now the United States is on the verge of allowing it to happen again.

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Guest LAW_*

Bank stocks soared Wednesday after the Federal Reserve announced plans to buy up to $300 billion of long-term Treasurys, expanding its commitment to pump money into the financial system and encourage lending.


The KBW Bank Index, which tracks 24 of the nation's largest banks, surged more than 11 percent following the Fed's announcement at midafternoon.




the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments.


Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

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Guest James S.

The United States is by far the richest country in the world. Profit Motive vs. Public Welfare is the real discourse on what the American population wants.

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The population wants to have a giant party and get drunk. We open up the Capitol and charge admission. We will get Congress real saucy mixing tequila with kamekaze and Rossi. Bouncing beer maidens can serve fudge brownies covered in ganja butter. We can write historic bills with crayons all while our eyes flutter and our heads twirl. And everything will be ok. I love this country.

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After Barack obama dumb down the economy the way HE DID "Just to push his agenda through".


I'm still waiting for Regulation that will keep us from going through this AGAIN, and President Obama Has still NOT addressed this as well.


Barack Obama didn't even have the sense enough to hold an Economic Summit with Economists, and forensic accountants on how to best approach this on top of it all "For a Smart guy? He sure IS making alot of DUMB decisions”.


Having the most expensive inauguration in History,LAVISH White House parties that are NOT related to National, International Business, as well as Public Relations as it applies to the said above, DOES NOT inspire me in ANY WAY SHAPE OR FORM.


Still passing out the same old misinformation scare tactics. Your party is falling apart. That is what happens when you are not friends with the middle class.


I had to post this for those of you that are truly interested in the welfare of our country...


Fiscal Responsibility Summit Report


Today, the Administration is releasing the Fiscal Responsibility Summit Report that the President announced during the final session of the Summit on February 23.


The Summit was convened so that the President could solicit ideas and discuss solutions to our long-term fiscal imbalance with a broad array of national leaders—from both political parties, from in and out of government, and from Washington, DC and the country as a whole. The President and the Administration are committed to seeking out the best ideas, wherever they may be found, and the Fiscal Responsibility Summit was an important early step in this vital effort.


The Report offers a summary of the Summit’s events, which encapsulates the comments and insights contributed by the full array of Summit participants.


As I have stated elsewhere, our nation is currently being forced to grapple with a pair of trillion-dollar deficits. One is the trillion-dollar deficit between what the economy is producing each year and what it could produce. The other is the trillion-dollar budget deficits that this Administration is inheriting.


The first deficit, the trillion-dollar income gap this year, is an urgent crisis. The longer it persists, the more jobs that are lost, the more income that households lose, and the more businesses that are closed. The Recovery Act that was enacted last month is intended to address that crisis.


The second deficit, the budget deficit, may be somewhat less urgent, but it's no less important. Over the medium to long term, the nation is on an unsustainable fiscal course, and to be responsible, we must begin the process of fiscal reform now.


That's why the President convened the Fiscal Responsibility Summit, because we can no longer let the urgent get in the way of the important. In charting a new fiscal course, we need to be clear in diagnosing the problem. The single most important thing we can do to put this nation back on a sustainable long-term fiscal course is to slow the growth rate of health care costs.


So, as I stated during my remarks at the Summit, let me be very clear: Health care reform is entitlement reform. The path to fiscal responsibility must run directly through health care.


This is part of the reason why the President had said, time and again, that he is committed to reforming the health system this year. And at the Summit, there was consensus on this point across a range of voices. From Senator Alexander and Douglas Holtz-Eakin on one side of the aisle, to Senator Baucus and Senator Dodd and Representative Waxman on the other, all agreed to try to tackle health care this year.


With the President’s leadership, and with the support of a diverse set of voices, we can reform health care this year, start to bend the curve on long-term costs, and get our economy back on a path of long-term fiscal sustainability.

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Guest Enron

You are quite right. This was a very large meeting of minds. But, I am not so sure what was learned will be implemented.


Dr. Zandi is the chief economist and co-founder of Moody’s Economy.com, where he directs the company’s research and consulting activities. He’s one of the best big picture guys in the business. His most recent book, “Financial Shock,” was widely praised for its lucid explanation of the housing bust. What’s less well known about Mark is that he donated the royalties from that book to a

fund to invest in low-wealth neighborhoods. He was also an economic adviser to John McCain’s campaign.


Robert Greenstein, founder and executive director of the invaluable Center on Budget and Policy Priorities. Bob and the Center are very well-known to us, as they have been the go-to resource for consistently reliable analysis on matters of budgets and fiscal policy at every level of government. Bob was awarded the MacArthur Fellowship in 1996, and last year he received both the John W. Gardner Award from Independent Sector and the Heinz Award for Public Policy in recognition of his work to improve the economic outlook for many of America’s poor citizens.


First session moderators were Peter Orszag, Director of the Office of Management and Budget, and Melody Barnes, Director of the Domestic Policy Council.


Second session moderators were Chair of the National Economic Council, Lawrence Summers, and Counselor to the Treasury Secretary, Gene Sperling.


Third session moderators were Timothy Geithner, Secretary of the Treasury, and Christina Romer, Chairwoman of the Council of Economic Advisors.


Fourth session moderators were Ray LaHood, Secretary of Transportation, and Rob Nabors, Deputy Director of the Office of Management and Budget.


Fifth session moderators were Secretary of the Department of Homeland Security, Janet Napolitano, and Deputy Secretary of State for Management, Jack Lew.


The members of Congress who attended the first session were: Senator Baucus, Representative Clyburn, Senator Alexander, Representative Waxman, Senator Dodd, Representative Barton, Senator Enzi, Representative Miller, Senator Nelson (NE), Senator Specter, Representative Kind, Representative Lee, and Representative Castle.


The members of Congress who attended the second session were: Senator Durbin, Representative Boehner, Representative Hoyer, Representative Cantor, Senator Klobuchar, Senator Graham, Representative Tanner, Representative Boyd, and Representative Grijalva.


Members of Congress who attended the third session were: Senator Baucus, Representative Rangel, Representative Camp, Senator Snowe, Senator Carper, Senator Cornyn, Representative Velazquez, Representative McCotter, Representative Matheson, and Representative Price of North Carolina.


The members of Congress who attended the fourth session were: Senator Conrad, Representative Spratt, Senator Gregg, Representative Ryan, Senator Inouye, Representative Obey, Representative Van Hollen, Senator Bayh, and Representative Herseth Sandlin.


Members of Congress who attended the fifth session were: Senator Levin, Senator McCain, Senator Lieberman, Senator Collins, Representative Towns, Representative Issa, Senator McCaskill, Representative Tauscher, and Representative Price of Georgia.


Other attendees from the Administration were: Ezekiel Emanuel, Senior Counselor to the Director of the Office of Management and Budget, Phil Schiliro, Assistant to the President for Legislative Affairs.


The outside attendees of the first session were: Gerald McEntee (AFSCME), Karen Davis (Century Foundation), Ron Pollack (Families USA), Robert Reischauer (Urban Institute), Douglas Holtz-Eakin, Richard Umbdenstock (American Hospital Association), Nancy Neilson (American Medical Association), Drew Altman (Kaiser Family Foundation), Rebecca Patton (American Nurses Association), Bill Novelli (AARP), Ho Luong Trani (Asian and Pacific Islander American Health Forum), Andrew Stern (SEIU), Jackie Johnson Pata (National Congress of American Indians), Dean Baker (Center for Economic and Policy Research), Dennis Van Roekel (National Education Association), Stuart Butler (Heritage Foundation), John Castellani (Business Roundtable), Eleanor Smealii (Feminist Majority), and Eleanor Hinton Hoytt (Black Women’s Health Imperative).


The outside attendees of the second session were: Doug Elmendorf (CBO), David Walker (Peterson Institute), Pete Peterson (Peterson Institute), Heidi Hartmann, (Institute for Women’s Policy Research), John Sweeney (AFL-CIO), Roger Ferguson (TIAA-CREF), Randi Weingarten (American Federation of Teachers), Barbara Kennellyi (National Committee to Preserve Social Security and Medicare), Marty Ford (Consortium for Citizens with Disabilities), Susan Eckerly (NFIB), Ed Coyle (Alliance for Retired Americans), Kevin Hassett (American Enterprise Institute), Maya Rockeymoore (CBCF), Fernando Torres Gilii (UCLA), Don Danner (National Association of Independent Businesses), Laura Murphy (National Urban League), and Joe Salmonese (Human Rights Campaign).


The outside attendees of the third session were: Joe Minarik (Committee for Economic Development), Fred Goldberg (Skadden Arps), Lawrence Mishel (Economic Policy Institute), Maya MacGuineas (Committee for a Responsible Federal Budget), Michael Graetz (Columbia University), Sarah Wartell (Center for American Progress), Gary Flowers (Black Leadership Forum), Janet Murguia (National Council of La Raza), Aimee Baldillo (Asian American Justice Center), William Gale (Brookings/Tax Policy Center), and John Cavanagh (Institute for Policy Studies).


The outside attendees for the fourth session were: Mark Zandi (Moody’s), Bob Bixbyi (Concord Coalition), Robert Greenstein (Center on Budget and Policy Priorities), Bill Spriggs (Howard University), Al From (Progressive Policy Institute), and Roger Hickey (Campaign for America’s Future).


The outside attendees for the fifth session were: Anna Burger (Change to Win), Hillary Shelton (NAACP), Larry Korb (Center for American Progress), Joe Flynn (American Federation of Government Employees), and Martin Regalia (U.S. Chamber of Commerce).

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Guest The White House

The President calls for a coordinated approach to three central issues, namely the need to "stimulate growth" (pointing to the Recovery Act as an example); the need to "restore the credit that businesses and consumers depend upon" including an "honest assessment of the balance sheets of our major banks" (pointing to the plans laid out yesterday); and extending "a hand to countries and people who face the greatest risk" to help emerging economies remain stable and avoid plunging the global economy into deeper trouble.


The President closes with a broader vision:


While these actions can help get us out of crisis, we cannot settle for a return to the status quo. We must put an end to the reckless speculation and spending beyond our means; to the bad credit, over-leveraged banks and absence of oversight that condemns us to bubbles that inevitably bust.


Only coordinated international action can prevent the irresponsible risk-taking that caused this crisis. That is why I am committed to seizing this opportunity to advance comprehensive reforms of our regulatory and supervisory framework.


All of our financial institutions -- on Wall Street and around the globe -- need strong oversight and common sense rules of the road. All markets should have standards for stability and a mechanism for disclosure. A strong framework of capital requirements should protect against future crises. We must crack down on offshore tax havens and money laundering.


Rigorous transparency and accountability must check abuse, and the days of out-of-control compensation must end. Instead of patchwork efforts that enable a race to the bottom, we must provide the clear incentives for good behavior that foster a race to the top.


I know that America bears our share of responsibility for the mess that we all face. But I also know that we need not choose between a chaotic and unforgiving capitalism and an oppressive government-run economy. That is a false choice that will not serve our people or any people.

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Guest Office of Senator Dick Durbin

Assistant Senate Majority Leader Dick Durbin (D-IL) introduced legislation to create the Financial Product Safety Commission - a single government agency in charge of ensuring that the offering of financial products to consumers is responsible, accountable, and transparent. Joining Durbin as cosponsors were Senator Chuck Schumer (D-NY), Senator Ted Kennedy (D-MA) and Representatives Bill Delahunt (D-MA) and Brad Miller (D-NC).


“It’s time to put the needs of American families above the interests of Wall Street,” Durbin said. “This new financial oversight agency would look out for consumers first, acting quickly to protect members of the public from predatory practices and ensuring that companies are held accountable when they abuse, deceive or take advantage of the consumer they claim to be helping. The current crisis has diminished consumer protections and eroded consumer confidence. It’s time we reversed that trend.”


The legislation would improve the fractured oversight of the nation’s financial markets, in which at least 10 federal regulators have responsibility for consumer financial products but none have oversight as its primary objective. In this absence of meaningful oversight, the number of excessively costly or predatory consumer financial products has exploded.


“In the past 30 years, the legal rules for mortgages, credit cards, and every other kind of consumer loan have moved consistently in one direction­ - against the family,” said Elizabeth Warren, Harvard Law Professor and Chairwoman of the Congressional Oversight Board for the $700 billion Trouble Asset Relief Program. “The Financial Product Safety Commission promises to reverse that direction, putting in place a structure to make the rules a little fairer and to give families a fighting chance against any lenders that make their profits by tricks and traps.”


The Financial Product Safety Commission, originally conceived by Professor Warren, will add consumer protection to the factors lenders must consider in creating and offering financial products. It will identify the practices that undermine sound markets and put a stop to them before they again bring the entire financial market to its knees.


"Changes in the credit markets have made debt far riskier for consumers today than a generation ago. Ordinary credit transactions have become extremely complex undertakings and consumers are at the mercy of those who write the contracts. Consumers deserve to have someone on their side – a regulator that will watch out for the average American to ensure products work, without any hidden dangers or unreasonable tricks. The time is right for a financial services regulator with a consumer focus," Schumer said.


“I am pleased to join with Senators Durbin, Schumer, Kennedy and Congressman Brad Miller to introduce legislation that protects the consumer from questionable mortgages, credit cards and other risky financial products” said Delahunt. “We’ve learned from the depth of the current economic crisis that the American consumer has been taken advantage of by unscrupulous mortgage companies, lenders and other creditors. The Consumer Financial Products Safety Commission will specifically be empowered to ban dangerous financial instruments from the marketplace, in much the same way that the FDA protects the consumer from unsafe food.”


“Our economy is in a deep hole dug by the financial industry. For years they defended every consumer lending practice, regardless of how predatory the practice appeared on its face, as necessary to make credit available to ordinary Americans. And the result was eye-popping profits for the industry and millions of middle-class Americans hopelessly in debt, trapped by indefensible fees and penalties explained in legalese in tiny print. We can’t let that happen again,” said Congressman Miller.


The Financial Product Safety Commission would:


Reduce consumer risk in using financial products by preventing predatory or deceptive financial practices and educating consumers on the responsible use of financial products and services;

Coordinate enforcement with the other federal and state regulators and with the private sector to establish a floor beneath which consumer financial product safety could not fall; and

Report regularly to the public regarding the state of consumer financial product safety and recommend the steps that should be taken to improve the value of financial products for consumers.


The bill is supported by over 55 national and state organizations, including Consumer Federation of America, Center for Responsible Lending, Leadership Conference on Civil Rights, NAACP, La Raza, AFL-CIO, SEIU, National Consumer Law Center, Consumers Union, Public Citizen, and US PIRG.


Durbin has actively worked to address some of the many causes of the current economic crisis. Last month, he introduced the Protecting Consumers from Unreasonable Credit Rates Act which would eliminate the excessive rates and fees that some consumers are charged for payday loans, car title loans, and other types of credit. He is the author of the Helping Families Save Their Homes in Bankruptcy Act which would allow families facing foreclosure to keep their homes by altering the terms of their mortgages in bankruptcy court.

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Guest LAW_*



We, the Leaders of the G20, have taken, and will continue to take, action to strengthen regulation and supervision in line with the commitments we made in Washington to reform the regulation of the financial sector. Our principles are strengthening transparency and accountability, enhancing sound regulation, promoting integrity in financial markets and reinforcing international cooperation. The material in this declaration expands and provides further detail on the commitments in our statement. We published today a full progress report against each of the 47 actions set out in the Washington Action Plan. In particular, we have agreed the following major reforms.


Financial Stability Board


We have agreed that the Financial Stability Forum should be expanded, given a broadened mandate to promote financial stability, and re-established with a stronger institutional basis and enhanced capacity as the Financial Stability Board (FSB).

The FSB will:


• assess vulnerabilities affecting the financial system, identify and oversee action needed to address them;

• promote co-ordination and information exchange among authorities responsible for financial stability;

• monitor and advise on market developments and their implications for regulatory policy;

• advise on and monitor best practice in meeting regulatory standards;

• undertake joint strategic reviews of the policy development work of the international Standard Setting Bodies to ensure their work is timely, coordinated, focused on priorities, and addressing gaps;

• set guidelines for, and support the establishment, functioning of, and participation in, supervisory colleges, including through ongoing identification of the most systemically important cross-border firms;

• support contingency planning for cross-border crisis management, particularly with respect to systemically important firms; and

• collaborate with the IMF to conduct Early Warning Exercises to identify and report to the IMFC and the G20 Finance Ministers and Central Bank Governors on the build up of macroeconomic and financial risks and the actions needed to address them.


Members of the FSB commit to pursue the maintenance of financial stability, enhance the openness and transparency of the financial sector, and implement international financial standards (including the 12 key International Standards and Codes), and agree to undergo periodic peer reviews, using among other evidence IMF / World Bank public Financial Sector Assessment Program reports. The FSB will elaborate and report on these commitments and the evaluation process.


complementing the other’s role and mandate.

International cooperation

To strengthen international cooperation we have agreed:

to establish the remaining supervisory colleges for significant cross-border firms by June 2009, building on the 28 already in place;

to implement the FSF principles for cross-border crisis management immediately, and that home authorities of each major international financial institution should ensure that the group of authorities with a common interest in that financial institution meet at least annually;

to support continued efforts by the IMF, FSB, World Bank, and BCBS to develop an international framework for cross-border bank resolution arrangements;

the importance of further work and international cooperation on the subject of exit strategies;

that the IMF and FSB should together launch an Early Warning Exercise at the 2009 Spring Meetings.


Prudential regulation


We have agreed to strengthen international frameworks for prudential regulation:


until recovery is assured the international standard for the minimum level of capital should remained unchanged;

where appropriate, capital buffers above the required minima should be allowed to decline to facilitate lending in deteriorating economic conditions;

once recovery is assured, prudential regulatory standards should be strengthened. Buffers above regulatory minima should be increased and the quality of capital should be enhanced. Guidelines for harmonisation of the definition of capital should be produced by end 2009. The BCBS should review minimum levels of capital and develop recommendations in 2010;

the FSB, BCBS, and CGFS, working with accounting standard setters, should take forward, with a deadline of end 2009, implementation of the recommendations published today to mitigate procyclicality, including a requirement for banks to build buffers of resources in good times that they can draw down when conditions deteriorate;

risk-based capital requirements should be supplemented with a simple, transparent, non-risk based measure which is internationally comparable, properly takes into account off-balance sheet exposures, and can help contain the build-up of leverage in the banking system;

the BCBS and authorities should take forward work on improving incentives for risk management of securitisation, including considering due diligence and quantitative retention requirements, by 2010;

all G20 countries should progressively adopt the Basel II capital framework; and

the BCBS and national authorities should develop and agree by 2010 a global framework for promoting stronger liquidity buffers at financial institutions, including cross-border institutions.


The scope of regulation


We have agreed that all systemically important financial institutions, markets, and instruments should be subject to an appropriate degree of regulation and oversight. In particular:

we will amend our regulatory systems to ensure authorities are able to identify and take account of macro-prudential risks across the financial system including in the case of regulated banks, shadow banks, and private pools of capital to limit the build up of systemic risk. We call on the FSB to work with the BIS and international standard setters to develop macro-prudential tools and provide a report by autumn 2009;

large and complex financial institutions require particularly careful oversight given their systemic importance;

we will ensure that our national regulators possess the powers for gathering relevant information on all material financial institutions, markets, and instruments in order to assess the potential for their failure or severe stress to contribute to systemic risk. This will be done in close coordination at international level in order to achieve as much consistency as possible across jurisdictions;

in order to prevent regulatory arbitrage, the IMF and the FSB will produce guidelines for national authorities to assess whether a financial institution, market, or an instrument is systemically important by the next meeting of our Finance Ministers and Central Bank Governors. These guidelines should focus on what institutions do rather than their legal form;

hedge funds or their managers will be registered and will be required to disclose appropriate information on an ongoing basis to supervisors or regulators, including on their leverage, necessary for assessment of the systemic risks that they pose individually or collectively. Where appropriate, registration should be subject to a minimum size. They will be subject to oversight to ensure that they have adequate risk management. We ask the FSB to develop mechanisms for cooperation and information sharing between relevant authorities in order to ensure that effective oversight is maintained where a fund is located in a different jurisdiction from the manager. We will, cooperating through the FSB, develop measures that implement these principles by the end of 2009. We call on the FSB to report to the next meeting of our Finance Ministers and Central Bank Governors;

supervisors should require that institutions which have hedge funds as their counterparties have effective risk management. This should include mechanisms to monitor the funds’ leverage and set limits for single counterparty exposures;

we will promote the standardisation and resilience of credit derivatives markets, in particular through the establishment of central clearing counterparties subject to effective regulation and supervision. We call on the industry to develop an action plan on standardisation by autumn 2009; and

we will each review and adapt the boundaries of the regulatory framework regularly to keep pace with developments in the financial system and promote good practices and consistent approaches at the international level.




We have endorsed the principles on pay and compensation in significant financial institutions developed by the FSF to ensure compensation structures are consistent with firms’ long-term goals and prudent risk taking. We have agreed that our national supervisors should ensure significant progress in the implementation of these principles by the 2009 remuneration round. The BCBS should integrate these principles into their risk management guidance by autumn 2009. The principles, which have today been published, require:

firms' boards of directors to play an active role in the design, operation, and evaluation of compensation schemes;

compensation arrangements, including bonuses, to properly reflect risk and the timing and composition of payments to be sensitive to the time horizon of risks. Payments should not be finalised over short periods where risks are realised over long periods; and

firms to publicly disclose clear, comprehensive, and timely information about compensation. Stakeholders, including shareholders, should be adequately informed on a timely basis on compensation policies to exercise effective monitoring.

Supervisors will assess firms’ compensation policies as part of their overall assessment of their soundness. Where necessary they will intervene with responses that can include increased capital requirements.

Tax havens and non-cooperative jurisdictions

It is essential to protect public finances and international standards against the risks posed by non-cooperative jurisdictions. We call on all jurisdictions to adhere to the international standards in the prudential, tax, and AML/CFT areas. To this end, we call on the appropriate bodies to conduct and strengthen objective peer reviews, based on existing processes, including through the FSAP process.

We call on countries to adopt the international standard for information exchange endorsed by the G20 in 2004 and reflected in the UN Model Tax Convention. We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of information. We welcome the new commitments made by a number of jurisdictions and encourage them to proceed swiftly with implementation.

We stand ready to take agreed action against those jurisdictions which do not meet international standards in relation to tax transparency. To this end we have agreed to develop a toolbox of effective counter measures for countries to consider, such as:


increased disclosure requirements on the part of taxpayers and financial institutions to report transactions involving non-cooperative jurisdictions;

• withholding taxes in respect of a wide variety of payments;

• denying deductions in respect of expense payments to payees resident in a non-cooperative jurisdiction;

• reviewing tax treaty policy;

• asking international institutions and regional development banks to review their investment policies; and,

• giving extra weight to the principles of tax transparency and information exchange when designing bilateral aid programs.

We also agreed that consideration should be given to further options relating to financial relations with these jurisdictions

We are committed to developing proposals, by end 2009, to make it easier for developing countries to secure the benefits of a new cooperative tax environment.

We are also committed to strengthened adherence to international prudential regulatory and supervisory standards. The IMF and the FSB in cooperation with international standard-setters will provide an assessment of implementation by relevant jurisdictions, building on existing FSAPs where they exist. We call on the FSB to develop a toolbox of measures to promote adherence to prudential standards and cooperation with jurisdictions.

We agreed that the FATF should revise and reinvigorate the review process for assessing compliance by jurisdictions with AML/CFT standards, using agreed evaluation reports where available.

We call upon the FSB and the FATF to report to the next G20 Finance Ministers and Central Bank Governors’ meeting on adoption and implementation by countries.

Accounting standards

We have agreed that the accounting standard setters should improve standards for the valuation of financial instruments based on their liquidity and investors’ holding horizons, while reaffirming the framework of fair value accounting.

We also welcome the FSF recommendations on procyclicality that address accounting issues. We have agreed that accounting standard setters should take action by the end of 2009 to:

• reduce the complexity of accounting standards for financial instruments;

• strengthen accounting recognition of loan-loss provisions by incorporating a broader range of credit information;

• improve accounting standards for provisioning, off-balance sheet exposures and valuation uncertainty;

• achieve clarity and consistency in the application of valuation standards internationally, working with supervisors;

• make significant progress towards a single set of high quality global accounting standards; and,

• within the framework of the independent accounting standard setting process, improve involvement of stakeholders, including prudential regulators and emerging markets, through the IASB’s constitutional review.


Credit Rating Agencies


We have agreed on more effective oversight of the activities of Credit Rating Agencies, as they are essential market participants. In particular, we have agreed that:


• all Credit Rating Agencies whose ratings are used for regulatory purposes should be subject to a regulatory oversight regime that includes registration. The regulatory oversight regime should be established by end 2009 and should be consistent with the IOSCO Code of Conduct Fundamentals. IOSCO should coordinate full compliance;

• national authorities will enforce compliance and require changes to a rating agency’s practices and procedures for managing conflicts of interest and assuring the transparency and quality of the rating process. In particular, Credit Rating Agencies should differentiate ratings for structured products and provide full disclosure of their ratings track record and the information and assumptions that underpin the ratings process. The oversight framework should be consistent across jurisdictions with appropriate sharing of information between national authorities, including through IOSCO; and,

• the Basel Committee should take forward its review on the role of external ratings in prudential regulation and determine whether there are any adverse incentives that need to be addressed.


Next Steps


We instruct our Finance Ministers to complete the implementation of these decisions and the attached action plan. We have asked the FSB and the IMF to monitor progress, working with the FATF and the Global Forum, and to provide a report to the next meeting of our Finance Ministers and Central Bank Governors.

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Guest LAW_*

London Summit – Leaders’ Statement

2 April 2009


1. We, the Leaders of the Group of Twenty, met in London on 2 April 2009.

2. We face the greatest challenge to the world economy in modern times; a crisis which has deepened since we last met, which affects the lives of women, men, and children in every country, and which all countries must join together to resolve. A global crisis requires a global solution.

3. We start from the belief that prosperity is indivisible; that growth, to be sustained, has to be shared; and that our global plan for recovery must have at its heart the needs and jobs of hard-working families, not just in developed countries but in emerging markets and the poorest countries of the world too; and must reflect the interests, not just of today’s population, but of future generations too. We believe that the only sure foundation for sustainable globalisation and rising prosperity for all is an open world economy based on market principles, effective regulation, and strong global institutions.

4. We have today therefore pledged to do whatever is necessary to:


 restore confidence, growth, and jobs;

 repair the financial system to restore lending;

 strengthen financial regulation to rebuild trust;

 fund and reform our international financial institutions to overcome this crisis and prevent future ones;

 promote global trade and investment and reject protectionism, to underpin prosperity; and

 build an inclusive, green, and sustainable recovery.


By acting together to fulfil these pledges we will bring the world economy out of recession and prevent a crisis like this from recurring in the future.


5. The agreements we have reached today, to treble resources available to the IMF to $750 billion, to support a new SDR allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs, to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, constitute an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy. Together with the measures we have each taken nationally, this constitutes a global plan for recovery on an unprecedented scale.


Restoring growth and jobs


6. We are undertaking an unprecedented and concerted fiscal expansion, which will save or create millions of jobs which would otherwise have been destroyed, and that will, by the end of next year, amount to $5 trillion, raise output by 4 per cent, and accelerate the transition to a green economy. We are committed to deliver the scale of sustained fiscal effort necessary to restore growth.


7. Our central banks have also taken exceptional action. Interest rates have been cut aggressively in most countries, and our central banks have pledged to maintain expansionary policies for as long as needed and to use the full range of monetary policy instruments, including unconventional instruments, consistent with price stability.


8. Our actions to restore growth cannot be effective until we restore domestic lending and international capital flows. We have provided significant and comprehensive support to our banking systems to provide liquidity, recapitalise financial institutions, and address decisively the problem of impaired assets. We are committed to take all necessary actions to restore the normal flow of credit through the financial system and ensure the soundness of systemically important institutions, implementing our policies in line with the agreed G20 framework for restoring lending and repairing the financial sector.


9. Taken together, these actions will constitute the largest fiscal and monetary stimulus and the most comprehensive support programme for the financial sector in modern times. Acting together strengthens the impact and the exceptional policy actions announced so far must be implemented without delay. Today, we have further agreed over $1 trillion of additional resources for the world economy through our international financial institutions and trade finance.


10. Last month the IMF estimated that world growth in real terms would resume and rise to over 2 percent by the end of 2010. We are confident that the actions we have agreed today, and our unshakeable commitment to work together to restore growth and jobs, while preserving long-term fiscal sustainability, will accelerate the return to trend growth. We commit today to taking whatever action is necessary to secure that outcome, and we call on the IMF to assess regularly the actions taken and the global actions required.


11. We are resolved to ensure long-term fiscal sustainability and price stability and will put in place credible exit strategies from the measures that need to be taken now to support the financial sector and restore global demand. We are convinced that by implementing our agreed policies we will limit the longer-term costs to our economies, thereby reducing the scale of the fiscal consolidation necessary over the longer term.


12. We will conduct all our economic policies cooperatively and responsibly with regard to the impact on other countries and will refrain from competitive devaluation of our currencies and promote a stable and well-functioning international monetary system. We will support, now and in the future, to candid, even-handed, and independent IMF surveillance of our economies and financial sectors, of the impact of our policies on others, and of risks facing the global economy.


Strengthening financial supervision and regulation


13. Major failures in the financial sector and in financial regulation and supervision were fundamental causes of the crisis. Confidence will not be restored until we rebuild trust in our financial system. We will take action to build a stronger, more globally consistent, supervisory and regulatory framework for the future financial sector, which will support sustainable global growth and serve the needs of business and citizens.


14. We each agree to ensure our domestic regulatory systems are strong. But we also agree to establish the much greater consistency and systematic cooperation between countries, and the framework of internationally agreed high standards, that a global financial system requires. Strengthened regulation and supervision must promote propriety, integrity and transparency; guard against risk across the financial system; dampen rather than amplify the financial and economic cycle; reduce reliance on inappropriately risky sources of financing; and discourage excessive risk-taking. Regulators and supervisors must protect consumers and investors, support market discipline, avoid adverse impacts on other countries, reduce the scope for regulatory arbitrage, support competition and dynamism, and keep pace with innovation in the marketplace.


15. To this end we are implementing the Action Plan agreed at our last meeting, as set out in the attached progress report. We have today also issued a Declaration, Strengthening the Financial System. In particular we agree:


to establish a new Financial Stability Board (FSB) with a strengthened mandate, as a successor to the Financial Stability Forum (FSF), including all G20 countries, FSF members, Spain, and the European Commission;

 that the FSB should collaborate with the IMF to provide early warning of macroeconomic and financial risks and the actions needed to address them;

 to reshape our regulatory systems so that our authorities are able to identify and take account of macro-prudential risks;

to extend regulation and oversight to all systemically important financial institutions, instruments and markets. This will include, for the first time, systemically important hedge funds;

 to endorse and implement the FSF’s tough new principles on pay and compensation and to support sustainable compensation schemes and the corporate social responsibility of all firms;

 to take action, once recovery is assured, to improve the quality, quantity, and international consistency of capital in the banking system. In future, regulation must prevent excessive leverage and require buffers of resources to be built up in good times;

to take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information;

 to call on the accounting standard setters to work urgently with supervisors and regulators to improve standards on valuation and provisioning and achieve a single set of high-quality global accounting standards; and

 to extend regulatory oversight and registration to Credit Rating Agencies to ensure they meet the international code of good practice, particularly to prevent unacceptable conflicts of interest.


16. We instruct our Finance Ministers to complete the implementation of these decisions in line with the timetable set out in the Action Plan. We have asked the FSB and the IMF to monitor progress, working with the Financial Action Taskforce and other relevant bodies, and to provide a report to the next meeting of our Finance Ministers in Scotland in November.


Strengthening our global financial institutions


17. Emerging markets and developing countries, which have been the engine of recent world growth, are also now facing challenges which are adding to the current downturn in the global economy. It is imperative for global confidence and economic recovery that capital continues to flow to them. This will require a substantial strengthening of the international financial institutions, particularly the

IMF. We have therefore agreed today to make available an additional $850 billion of resources through the global financial institutions to support growth in emerging market and developing countries by helping to finance counter-cyclical spending, bank recapitalisation, infrastructure, trade finance, balance of payments support, debt rollover, and social support. To this end:


 we have agreed to increase the resources available to the IMF through immediate financing from members of $250 billion, subsequently incorporated into an expanded and more flexible New Arrangements to Borrow, increased by up to $500 billion, and to consider market borrowing if necessary; and

 we support a substantial increase in lending of at least $100 billion by the Multilateral Development Banks (MDBs), including to low income countries, and ensure that all MDBs, including have the appropriate capital.


18. It is essential that these resources can be used effectively and flexibly to support growth. We welcome in this respect the progress made by the IMF with its new Flexible Credit Line (FCL) and its

reformed lending and conditionality framework which will enable the IMF to ensure that its facilities address effectively the underlying causes of countries’ balance of payments financing needs, particularly the withdrawal of external capital flows to the banking and corporate sectors. We support Mexico’s decision to seek an FCL arrangement.

19. We have agreed to support a general SDR allocation which will inject $250 billion into the world economy and increase global liquidity, and urgent ratification of the Fourth Amendment.


20. In order for our financial institutions to help manage the crisis and prevent future crises we must strengthen their longer term relevance, effectiveness and legitimacy. So alongside the significant increase in resources agreed today we are determined to reform and modernise the international financial institutions to ensure they can assist members and shareholders effectively in the new challenges they face. We will reform their mandates, scope and governance to reflect changes in the world economy and the new challenges of globalisation, and that emerging and developing economies, including the poorest, must have greater voice and representation. This must be accompanied by action to increase the credibility and accountability of the institutions through better strategic oversight and decision making. To this end:


 we commit to implementing the package of IMF quota and voice reforms agreed in April 2008 and call on the IMF to complete the next review of quotas by January 2011;

 we agree that, alongside this, consideration should be given to greater involvement of the Fund’s Governors in providing strategic direction to the IMF and increasing its accountability;

 we commit to implementing the World Bank reforms agreed in October 2008. We look forward to further recommendations, at the next meetings, on voice and representation reforms on an accelerated timescale, to be agreed by the 2010 Spring Meetings;

 we agree that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process; and

 building on the current reviews of the IMF and World Bank we asked the Chairman, working with the G20 Finance Ministers, to consult widely in an inclusive process and report back to the next meeting with proposals for further reforms to improve the responsiveness and adaptability of the IFIs.


21. In addition to reforming our international financial institutions for the new challenges of globalisation we agreed on the desirability of a new global consensus on the key values and principles that will promote sustainable economic activity. We support discussion on such a charter for sustainable economic activity with a view to further discussion at our next meeting. We take note of the work started in other fora in this regard and look forward to further discussion of this charter for sustainable economic activity.

Resisting protectionism and promoting global trade and investment


22. World trade growth has underpinned rising prosperity for half a century. But it is now falling for the first time in 25 years. Falling demand is exacerbated by growing protectionist pressures and a withdrawal of trade credit. Reinvigorating world trade and investment is essential for restoring global growth. We will not repeat the historic mistakes of protectionism of previous eras. To this end:


 we reaffirm the commitment made in Washington: to refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organisation (WTO)

inconsistent measures to stimulate exports. In addition we will rectify promptly any such measures. We extend this pledge to the end of 2010;

 we will minimise any negative impact on trade and investment of our domestic policy actions including fiscal policy and action in support of the financial sector. We will not retreat into financial protectionism, particularly measures that constrain worldwide capital flows, especially to developing countries;

 we will notify promptly the WTO of any such measures and we call on the WTO, together with other international bodies, within their respective mandates, to monitor and report publicly on our adherence to these undertakings on a quarterly basis;

 we will take, at the same time, whatever steps we can to promote and facilitate trade and investment; and

 we will ensure availability of at least $250 billion over the next two years to support trade finance through our export credit and investment agencies and through the MDBs. We also ask our regulators to make use of available flexibility in capital requirements for trade finance.


23. We remain committed to reaching an ambitious and balanced conclusion to the Doha Development Round, which is urgently needed. This could boost the global economy by at least $150 billion per annum. To achieve this we are committed to building on the progress already made, including with regard to modalities.


24. We will give renewed focus and political attention to this critical issue in the coming period and will use our continuing work and all international meetings that are relevant to drive progress.

Ensuring a fair and sustainable recovery for all


25. We are determined not only to restore growth but to lay the foundation for a fair and sustainable world economy. We recognise that the current crisis has a disproportionate impact on the vulnerable in the poorest countries and recognise our collective responsibility to mitigate the social impact of the crisis to minimise long-lasting damage to global potential. To this end:


 we reaffirm our historic commitment to meeting the Millennium Development Goals and to achieving our respective ODA pledges, including commitments on Aid for Trade, debt relief, and the Gleneagles commitments, especially to sub-Saharan Africa;

 the actions and decisions we have taken today will provide $50 billion to support social protection, boost trade and safeguard development in low income countries, as part of the significant increase in crisis support for these and other developing countries and emerging markets;

 we are making available resources for social protection for the poorest countries, including through investing in long-term food security and through voluntary bilateral contributions to the World Bank’s Vulnerability Framework, including the Infrastructure Crisis Facility, and the Rapid Social Response Fund;

 we have committed, consistent with the new income model, that additional resources from agreed sales of IMF gold will be used, together with surplus income, to provide $6 billion additional concessional and flexible finance for the poorest countries over the next 2 to 3 years. We call on the IMF to come forward with concrete proposals at the Spring Meetings;

 we have agreed to review the flexibility of the Debt Sustainability Framework and call on the IMF and World Bank to report to the IMFC and Development Committee at the Annual Meetings; and

 we call on the UN, working with other global institutions, to establish an effective mechanism to monitor the impact of the crisis on the poorest and most vulnerable.


26. We recognise the human dimension to the crisis. We commit to support those affected by the crisis by creating employment opportunities and through income support measures. We will build a fair and family-friendly labour market for both women and men. We therefore welcome the reports of the London Jobs Conference and the Rome Social Summit and the key principles they proposed. We will support employment by stimulating growth, investing in education and training, and through active labour market policies, focusing on the most vulnerable. We call upon the ILO, working with other relevant organisations, to assess the actions taken and those required for the future.


27. We agreed to make the best possible use of investment funded by fiscal stimulus programmes towards the goal of building a resilient, sustainable, and green recovery. We will make the transition towards clean, innovative, resource efficient, low carbon technologies and infrastructure. We encourage the MDBs to contribute fully to the achievement of this objective. We will identify and work together on further measures to build sustainable economies.


28. We reaffirm our commitment to address the threat of irreversible climate change, based on the principle of common but differentiated responsibilities, and to reach agreement at the UN Climate Change conference in Copenhagen in December 2009.


Delivering our commitments


29. We have committed ourselves to work together with urgency and determination to translate these words into action. We agreed to meet again before the end of this year to review progress on our commitments.

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Guest Human_*

I got news for you BlingBling, for your group to be thinking of another stimulus package denotes that the first one was just a political pay off to his cronies. Not easy for your side to make the case for it.


Blingbling you may be a robot, but I am not.


I have actually evened out the playing field when it came to certain high profile political events related to Latin America that then President Bush did not want the Latin American Leaders to be aware of.


I have also gotten certain people working for your savior at the Old Executive Office Building, and I am a Republican LOL.


And Blingbling, I am not the one using scare tactics; it’s your group under the leadership of Barack Obama.


When I posted that we did need the first tarp, I wasn't trying to scare anyone, just telling them “General Public" the truth.


Did you come out here on this message board agreeing with me? NO, you "Blingbling" were mighty silent there man.


And when Barack Obama passes his so called "Stimulus Plan" I actually am building a small army of lawyers "It's growing too" to go after the waste, and abuse that WILL occur.


The most conservative number that I have gotten is 10% of the "Stimulus Package" that will be wasted. Others are saying 30%, but I will stick with the 10%, anything else will be just icing on top of the cake.


Lucky for this Republican, many democrats are in the financials, bad for your side though.


Still passing out the same old misinformation scare tactics. Your party is falling apart. That is what happens when you are not friends with the middle class.


I had to post this for those of you that are truly interested in the welfare of our country...

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Guest LAW_*

The voice of reason is stepping down. Gary Stern is retiring. Stern forecasted last week that the the U.S. economic recession could end around mid-year, giving way to a subdued recovery before healthy growth kicks in from mid-2010. But, he warned that not enough has been done to reduce creditors' expectations of TBTF protection. Much of this was discussed at the London Summit.


In this essay,we first briefly explain why the government’s response to the 2007–08 financial turmoil although justified, expanded the safety net and exacerbated the existing too big to fail (TBTF)

problem. A larger TBTF problem is costly, having the capability to sow the seeds of future financial crises, which means we should begin now to develop a new approach to manage TBTF.


The Federal Reserve’s expansion of the safety net was not subtle or implied. The Federal Reserve took on risk normally borne by private parties when it supported JPMorgan Chase’s purchase of Bear Stearns. The Federal Reserve also opened the discount window to select investment banks (i.e., primary dealers).


One could describe the former action as onetime and the latter program as temporary. But such a characterization obscures the message these actions send.


Through these efforts, the Federal Reserve sought to limit the collateral damage or spillovers caused by the failure of a large financial firm.


The failure of a large financial firm means that other large financial firms might not have loans paid back or otherwise receive funds owed to them by the failing entity. In another case, the failure of a large financial firm could prevent it from providing critical services to financial market participants such as clearing and settlement of financial transactions. In both examples, the shock to financial firms could impair their normal operations, which could injure their customers and the rest of the economy.


The bigger the government safety net, the more the government shifts risk from creditors of financial firms to taxpayers. With less to lose, creditors have less incentive to monitor financial firms and to discipline risk-taking.


U.S. commercial banks come to expect complete government support if their bank fails.


Reporting on these cases, sometimes months before the run on Bear Stearns, had at times explicitly raised the specter of government support. The initial rescue in 2007 and later nationalization

of Northern Rock in 2008 by the British government may have contributed to the speculation.


Policymakers would be more willing to let large firms fail if they thought the fallout would be constrained. Closing firms while they still have some capital left is one example of this approach (although we recommend modifications to the current “prompt closure” regime).


Policymakers consider implementing a form of “coinsurance” for uninsured creditors, whereby such creditors must take some loss if their financial firm becomes insolvent.


Who could have foreseen, critics might ask, that losses originating in subprime mortgages would ultimately lead to a freeze in the secured funding markets on which Bear Stearns and others relied?


The fact is the relative importance of commercial banks in the United States has been diminishing steadily.



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Guest Zeitgeist

If you took out all the people at the top who are engaged in global hegemonic rule, it would simply be a matter of time before another group stepped in to seek the same ambition. Therefore, it isn't the individual people or groups that are the problem. It is actually the conditions upon which those people have been accustomed and indoctrinated by.

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Guest Zeitgeist
There isn't enough currency in the world to rescue the current system. Gold and silver are the only real value in a world full of "worthless paper," in which villains of the financial meltdown created in order to rip off the hard-working masses. Our leaders try to control panic by not accurately stating the unemployment rate. We hear our leaders in the media state the unemployment rate for February was 8.1%




Our leaders fail to mention that they discounted the part-time labor force that work less than 35 hours a week and the growing discouraged labor force who have given up looking for a job. The Labor Under Utilization rate for February 2009 was 14.8%




Our labor system is setup so that people must be "employed" in order to gain money to survive, while the actual contribution that these occupations have to society are highly suspect, showing that "jobs" often exist simply to keep people doing "something" in order to live and support the economic structure. This is a waste of human life...

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Guest NY Banker

United States stock indexes posted gains on Friday, marking a four-week long positive streak. This comes despite a report released by the US Labor Department on the same day, which said that the US economy shed 663,000 jobs in March, with the unemployment rate reaching 8.5%, the highest since 1983.


The Dow Jones Industrial Average posted a modest gain of half a percent or 39 points, ending the day at 8,017. The index has not closed above 8,000 since February. The last time the Dow had risen for four weeks in a row was between September and October of 2007, when the stock index reached its all-time high of over 14,000. The streak is the index's best since 1993.


The broader S&P 500 gained eight points, or one percent, by the closing bell. The Nasdaq Composite had the largest gains of the three indexes, up 1.2% to 1,622. Both the S&P and the Dow gained over 3% over the course of the week, while the Nasdaq was up almost 5%.



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Guest Pam Douglas

The Office of the Comptroller of the Currency (OCC) today released a list of Community Reinvestment Act (CRA) performance evaluations that became public during the period of March 15, 2009 through April 14, 2009. The list contains only national banks and insured federal branches of foreign banks that have received ratings. The possible ratings are outstanding, satisfactory, needs to improve, and substantial noncompliance.


Of the 32 evaluations made public this month, 6 were outstanding, 26 were satisfactory, and none were needs to improve. None were substantial noncompliance. Evaluations are available from links on http://www.occ.treas.gov/cra/apr09.htm. The OCC's World Wide Web site (http://www.occ.treas.gov) also offers access to a searchable list of all public CRA evaluations (http://www.occ.treas.gov/cra/crasrch.htm). Copies of the actual evaluations may be obtained by submitting a request electronically through the OCC's online FOIA site https://appsec.occ.gov/publicaccesslink/. You can also obtain copies by writing to the Office of the Comptroller of the Currency, Communications Division, Mailstop 2-3, Washington, DC 20219. When requests are made electronically, remember to include your postal mail address. Facsimile requests may be sent to (202) 874-5274.

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Guest Treasury Department

Treasury Secretary Tim Geithner

Written Testimony

Congressional Oversight Panel


The challenges that our financial system faces are complex, interrelated, and the result of developments over many years. Earlier in this decade, a combination of fundamental factors and financial innovations generated unsustainable bubbles in many housing markets across the country. When those bubbles began to burst, starting in early 2006, housing price declines led to a sharp acceleration in mortgage delinquencies and charge-offs. Those unanticipated losses revealed deep-seated problems in our financial and economic systems. A protracted period of rapid innovation, excessive risk taking, and inadequate regulation produced a financial system that was far more fragile than was generally appreciated during the boom times.


In the years before the crisis, businesses, consumers, and importantly financial institutions had become increasingly complacent about risk. The volatility of the U.S. economy appeared to decline after the stabilization of inflation in the early 1980s. In recent years, savings outside the United States surged, generating strong global demand for financial assets, particularly U.S. financial assets. Nominal interest rates generally trended lower, and became less volatile, in the years before the current crisis.


The financial system itself was evolving at a rapid pace in the decades before the current crisis. Advances in information technology dramatically reduced transaction costs and made it possible for banks and other financial institutions to introduce a tremendous range of new products, including everything from ATMs to new complex financial contracts. In some areas, such as transaction services and credit cards, new technologies created economies of scale that favored large institutions. Just a few large firms are now responsible for processing the preponderance of credit card transactions. In other ways, advances in information technology favored markets over institutions. In recent decades, securities markets have grown more rapidly than financial institutions. For example, the share of securitized products in overall private financial intermediation grew from just 4 percent in 1980 to 26 percent in 2007. Over the same period, the share of banks and thrifts, which rely primarily on deposits, fell from 62 percent to 30 percent. The explosive growth of financial derivatives was also fueled by rapid advances in information technology. Given that much of this development occurred in a relatively stable macroeconomic environment, financial innovation in many cases increased complexity without sufficient concern for how new products would respond to shocks.


The combination of a stable macroeconomic environment, with strong risk appetite, and significant structural changes in the financial system, led to a buildup of leverage and risk throughout the system. That buildup was compounded by compensation systems that were not aligned with the long-term interests of shareholders, giving many managers and employees incentives to take excessive risks. Investors looked for higher returns by taking on greater exposure to the risk of infrequent but severe losses. At the same time, consumers, businesses, and a range of financial entities became too reliant on easy access to the credit that major financial institutions could readily provide. Misaligned incentives without transparency, market discipline, or appropriate regulation widened conflicts of interest throughout the financial system.


Our regulatory system did not respond adequately to the challenges inherent in this environment. Regulators did little to contain the risks posed by the growth in complex financial instruments. The structure of our regulatory system is unnecessarily complex and fragmented. It operates with large gaps in meaningful oversight. Investment banks, the holding companies and affiliates of large insurance companies, finance companies, and the government-sponsored enterprises were subject to only limited oversight. These highly leveraged institutions lacked strong, federal, prudential regulation and supervision, and they did not have established access to central bank liquidity. Moreover, they were permitted by law to choose among regulatory regimes, often allowing them to avoid a stronger regulatory authority that might have been applied if they had been supervised as bank holding companies.


Starting in 2007, unexpected losses experienced by major banks on mortgage-backed securities set off a vicious cycle. The losses reduced their capital, which forced them to pull back on lending. This put downward pressure on asset prices, which generated further losses for the banks. Tightening financial conditions became a drag on the broader economy. As workers lost jobs and as prospects for businesses darkened, prospective losses on consumer and business loans increased. As the scale of the potential financial losses increased, market concerns about the viability of individual institutions started to emerge.


In March of 2008, these pressures led to an acute funding crisis for the investment bank Bear Stearns. In an emergency operation, JP Morgan purchased Bear Stearns after the Federal Reserve agreed to effectively ring fence roughly $30 billion of Bear Sterns' assets. Following the Bear Stearns rescue, pressures in financial markets eased for a time. But the economy continued to weaken, and alarm bells were sounded about the lack of tools available to the government to contain the emerging crisis.


Amidst rising unemployment and a significant correction in housing prices, delinquencies on conventional mortgages increased sharply. This was a significant challenge for Fannie Mae and Freddie Mac, government sponsored enterprises (GSEs) operating in the secondary market for home mortgages. Market pressures on the GSEs intensified over the summer as housing prices fell sharply and the performance of conventional mortgages deteriorated further. Moreover, the GSEs' forays into investments in alternative mortgage products turned out to be a brutal mistake. In early September, the decision was taken to put Freddie Mac and Fannie Mae into conservatorship. That decision had adverse consequences for the GSEs' shareholders and this heightened pressures on other troubled financial intermediaries. After intense discussions with federal authorities and potential private investors, Lehman Brothers filed for bankruptcy protection less than a week after the GSEs were put into conservatorship. Because the government lacked the necessary tools to contain the fallout, the Lehman failure had an immediate impact on short-term money markets, particularly money market mutual funds and the market for commercial paper. A few days later, the Federal Reserve stepped in to provide substantial support to AIG because of the broad potential for contagion to many other financial institutions that would have followed its failure. These events significantly heightened market participants' fears that rising losses might irreparably deplete the capital of major financial institutions. In this volatile environment, special guarantee programs for money market mutual funds and parts of the commercial paper market were established. Importantly, the U.S. Congress passed the Emergency Economic Stabilization Act of 2008 (EESA) establishing the Trouble Assets Relief Program (TARP). EESA also increased the limit on the Federal Deposit Insurance Corporation (FDIC) deposit insurance, and the FDIC established a new guarantee facility for medium-term bank borrowing.


Acute concerns about the viability of major U.S. financial institutions persisted, inducing a further retraction in the credit markets and a more severe economic contraction. As a result, the Department of the Treasury shifted the focus of TARP from purchasing "toxic" assets to providing new capital to banks. Treasury established the Capital Purchase Program (CPP) to provide capital support for U.S. banks using TARP funds with the goal of ensuring that they could continue to play their important role in the credit markets and maintain lending to consumers and businesses.


In early phases of the crisis, some financial institutions were able to raise significant amounts of private capital. But as the crisis deepened, and asset markets became more distressed, uncertainty about the value of bank assets became an obstacle to raising private capital. The initial thrust of CPP was to inject capital into all major institutions in an environment where systemic risk appeared significant.


The intense financial stresses generated by these developments in September and October of 2008 had a profound effect on the U.S. and global economies. U.S. consumers and businesses became much more cautious and cut back their spending as credit became scarce. The sharp fall in equity prices since the summer, in addition to falling house prices, generated significant declines in household wealth. Similar pressures emerged in other countries. The United Kingdom and Western Europe had been facing financial pressures similar to those in the United States since mid-2007. To some degree, this reflected the fact that European financial institutions held U.S. mortgage-backed securities. But it also reflected the fact that their financial systems suffered from many of the same problems as ours. Much of the global economy was already slowing over the summer of 2008, but acute financial stress in September and October also generated sharp declines in economic activity around the world. Domestic demand slowed in much of the world, particularly where financial stresses were acute, but there was an almost unprecedented collapse in global trade. Capital flows to emerging economies were also affected. The negative feedback between financial stress and collapsing economic activity had become global.


The Obama Administration's Response


Policy interventions at the end of 2008 were, in the end, successful in achieving the vital, but narrow, objective of preventing a major systemic meltdown. Acute concerns about counterparty risk within the financial system that had peaked in the wake of the failure of Lehman Brothers eased towards the end of the year. For example, the spread between three-month interbank interest rates and the market's expectation for short-term rates over the same period, a measure of distress in money markets, fell from a peak of 365 basis points in early October to about 100 basis points in early January. Even with that improvement, the spread remained high relative to the levels before the crisis; it averaged about 10 basis points in the first half of 2007.


While overt concerns about systemic risk had diminished since October, as President-Elect Obama and his economic team prepared their economic program, they faced a grave and rapidly evolving set of challenges in the financial sector.


The outlook for the economy was deteriorating rapidly and that had important implications for the financial sector. Economic data that became available in November and December pointed to a very sharp fall of in economic activity. For example, U.S. auto sales for October, which were released on November 3, were reported at a 10.6 million annual rate. This compares to an average level of 12.9 million in the third quarter. On December 4, it was reported that payroll employment had fallen by 533,000 in November.[1] This was the largest monthly decline since the deep recession of 1973-74. Quickly worsening prospects for the economy meant that likely losses for U.S. financial institutions were rising sharply as well, and this heightened concerns about the adequacy of their capital.


The disruptions to the financial system were the major factor undermining the economy. Liquidity in a broader range of securities markets, including the market for long-term Treasuries, fell sharply. Credit spreads for virtually all credit products reached historic highs in the fourth quarter. Loan growth and bond issuance slowed in the fourth quarter. In particular, the issuance of new asset-backed securities (ABS) essentially came to a halt in October. Part of the decline in credit growth reflected falling demand for credit as consumers and businesses became more cautious. But a variety of factors pointed to meaningful constraints on the supply of credit. For example, a record number of banks reported tightening credit standards in the fourth quarter.


In this context, doubts about the viability of major institutions persisted. Fannie Mae, Freddie Mac, AIG, Citigroup and Bank of America had all received substantial government support by mid-October. But these institutions had complex and opaque balance sheets that were heavily exposed to the deteriorating economy. Given the economic and financial environment, including illiquid markets and "fire sale" asset prices, investors were not convinced that the actions taken to that point were sufficient to ensure that the institutions were sound. Those doubts were reflected in pressure on equity prices and credit spreads. Further actions were ultimately necessary to shore up market confidence in these institutions.


In this context, President Obama decided that a new approach was needed. Leaving that situation unaddressed would have undoubtedly risked a deeper recession and more damage to the productive capacity of the American economy. It would have resulted in higher unemployment and greater failures of businesses, and it would have greatly undermined the substantial spending and tax incentives in the American Recovery and Reinvestment Act (ARRA). In addition, given the substantial burden placed upon the American taxpayers, there was deep public anger, skepticism about whether the government was using taxpayer money wisely, and a perceived lack of transparency, all of which led to eroding confidence.


In response to this inheritance, President Obama, upon taking office, outlined a series of changes designed to improve transparency, accountability, and oversight. This included a number of new online resources so that Americans could see exactly how their money was being spent; a


[1] The estimated change in payroll employment in November was later revised to a decline of 597,000.


monthly lending and intermediation survey to better gauge, in ways readily accessible to the public, the performance of banks participating in the CPP; and strong taxpayer protections to ensure that Americans receive a return on these long term investments, and are not rewarding failure, including with respect to executive compensation.


Alongside the reforms, earlier this year we laid out a broad strategy designed to address the five major challenges facing the financial system.


First, since the onset of the crisis, major financial institutions have reported unprecedented losses. Looking ahead, substantial additional shortfalls are all but certain. Uncertainty about the real value of distressed assets and the ability of borrowers to repay loans has contributed to a decline in the confidence required for the private sector to make much needed equity investments in our major financial institutions. We must ensure that individual banks have sufficient capital to absorb future losses, even under adverse circumstances, and still be able to provide the credit the economy needs. Moreover, we cannot allow doubts about the viability of major institutions to undermine the financial system as a whole. The U.S. government must continue those policies critical to sustaining confidence in the core of the system.


Second, the breakdown of key markets for new securities has constrained the ability of even creditworthy small businesses and families to get the loans they need. In today's financial system, markets for asset-backed securities, as opposed to just deposit-taking banks and thrifts, raise a substantial portion of the funds that ultimately support new credit creation. It is essential that we get these markets working again so that families and businesses can have access to credit on reasonable terms.


Third, a range of legacy assets remain on the books of major banks. Pressure on banks to shrink their balance sheets has depressed the prices of these assets to "fire sale" levels and liquidity for these assets is limited. Uncertainty about the value of legacy assets is undermining confidence in major banks and impairing their ability to raise capital. We need to increase liquidity for legacy assets, break the cycle of deleveraging, and improve price discovery.


Fourth, the ongoing adjustment in the housing market remains at the center of the economic and financial crises. Falling home prices are a major financial challenge for many families. At the same time, financial losses related to the housing sector adjustment continue to be a significant headwind for banks and other financial institutions. Foreclosures are particularly problematic because they not only impose significant financial and emotional burdens on families, they are also costly for communities and banks. For all these reasons, addressing the housing crisis and reducing foreclosures is an important objective.


Finally, the lack of a modern regulatory regime and resolution authority helped create the current crisis, and it will limit our ability to address future crises until we put in place fundamental reforms. We need to expand our capacity to contain systemic risk. We have to make sure that when households make the choice to borrow, or to invest their savings, there are clear and fair rules of the road that prevent manipulation, deception, and abuse. Our regulatory structure must assign clear authority, resources, and accountability for each of its key functions. We must also seek to ensure that international rules for financial regulation are consistent with the high standards we will be implementing in the United States. The Federal government needs new tools for dealing with situations where the solvency of major financial institutions is called into question.


Capital Assistance Program


Currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators. However, concerns about economic conditions – combined with the destabilizing impact of distressed "legacy assets" – have created an environment under which uncertainty about the health of individual banks has sharply reduced lending across the financial system, working against economic recovery. For every dollar that banks are short of the capital they need, they will be forced to shrink their lending by eight to twelve dollars. Conversely, every additional dollar of capital gives banks the capacity to expand lending by eight to twelve dollars. Providing confidence that banks have a sufficient level of capital even if the economic outlook deteriorates is a necessary step to restart lending so that families have access to the credit they need to buy homes or pay for college, and businesses can get the loans they need to expand. Moreover, reassuring investors that banks have sufficient resources to weather even a very adverse economic scenario will make it possible for banks to raise additional private capital.


One of the major components of the Administration's Financial Stability Plan (FSP) is the Capital Assistance Program (CAP). The CAP is designed to ensure that individual banks have sufficient capital even in adverse circumstances. This strategy begins with the idea that in order to ensure our largest banks have adequate capital to weather a more severe economic scenario and continue to lend, we must first accurately diagnose their problems. Federal banking agencies will soon complete a forward looking assessment or "stress test" for the 19 largest banks. The stress tests will determine the capital needs of these banks by estimating losses that they might face if economic conditions were to deteriorate more than expected over the next two years, as well as the appropriate level for loss loan reserves at the end of the period. The analysis will take into account the likely path of earnings for individual banks over the same period. By focusing on individual banks, this approach allows the analysis to take into account the unique exposures that individual banks face as well their individual prospects for generating earnings.


If a judgment is made, in consultation with management, that a bank needs additional capital, it will be encouraged to raise that capital from private sources. Where needed, the CAP will provide additional capital in the form of convertible preferred stock as a backstop until private capital becomes available. Furthermore, all eligible banking organizations, not just the 19 organizations undergoing the stress test, will be able to apply to issue to Treasury convertible preferred stock equal to between one and two percent of their risk-weighted assets.


Because today's financial system is highly interconnected, a failure of a major financial institution can create severe challenges for the financial system and the wider economy. The events of last September and October are a concrete reminder of this very real threat. Maintaining confidence in key financial institutions, particularly as they raise new capital and restructure, has to remain a central objective of financial policy.


On February 10, Treasury, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve clearly stated their commitment to ensuring that confidence is maintained in the core of the financial system.[2] These institutions put in place a range of programs over the last year and are committed to continuing these programs to help reinforce confidence in core institutions, including a variety of guarantee programs, to ensure that key institutions continue to have access to stable funding. In March, the FDIC extended its Temporary Liquidity Guarantee Program (TLGP).[3] Under this program banks and other eligible financial institutions can issue medium-term debt that carries an FDIC guarantee. This program was an important factor in helping to stabilize the banking system in the wake of the failure of Lehman Brothers. Treasury has also recently extended its Money Market Funds Guarantee Program through September 18, 2009. [4]


Consumer and Business Lending Initiative


Securitization has come to play a very important role in the U.S. financial system. Banks develop and maintain expertise in originating certain types of loans. This includes loans to individuals through credit cards, mortgages, student loans, and other forms of consumer credit as well as loans to businesses, particularly those that are not able to raise funds directly in securities markets. In recent years, an increasing portion of these loans have been aggregated into pools and sold as so-called ABS. The rapid growth of the market for ABS in the years before the current crisis increased the supply of credit available to individuals and small businesses because once banks pool and sell loans to the securitization market, it opens up their balance sheet to create new loans.


As the economy deteriorated over the summer of 2008, credit spreads on ABS began to rise, and the disruptions that followed the failure of Lehman Brothers severely disrupted the market of newly issued ABS. Issuance of consumer ABS averaged $20 billion per month in 2007, and $18 billion per month during the first half of 2008. However, ABS issuance slowed sharply in the third quarter before coming to a virtual halt in October 2008. The closure of this market is a major constraint on the supply of new credit to individuals and businesses, particularly in an environment where banks have little scope to expand their balance sheets.


An important part of the Obama Administration's FSP is a significant expansion of the Term Asset-Backed Securities Loan Facility (TALF) through the Consumer Business Lending Initiative. The TALF is designed to jumpstart the securitization markets, which in turn will increase lending throughout the economy. Under the TALF, the Federal Reserve extends loans to investors who purchased newly issued ABS. Treasury has committed funds under the TARP program to provide a degree of credit protection for the Federal Reserve's TALF loans. The program was initially proposed in November 2008, with a focus on highly-rated ABS backed by student loans, auto loans, credit card loans, and loans guaranteed by the Small Business Administration (SBA). As part of President Obama's FSP, we announced an expansion of the size and scope of the program, increasing the scale of potential ABS funding under TALF.


In March, the first transactions – Four deals, including three auto securitizations and one credit card securitization, were brought to the market. These transactions totaled approximately $8.5 billion, with just under $5 billion financed through TALF. Recently, Treasury and the Federal Reserve expanded TALF to include newly or recently issued AAA-rated ABS backed by four additional types of consumer and business loans – mortgage servicing advances, loans or leases relating to business equipment, leases of vehicle fleets, and floor plan loans.


The terms of the funding provided under TALF, including fees, are set in a way that is designed to limit the risks faced by U.S. taxpayers while still meeting the objective of encouraging lending to consumers and small businesses. The amount and cost of funding that is provided varies depending on the perceived riskiness of the assets being financed. Treasury and the Federal Reserve used conservative assumptions when calibrating the limits on the funding provided given the uncertain economic environment.


In recent years, securitization has supported over 40 percent of lending guaranteed by the Small Business Administration. As a result of the severe dislocations in the credit markets that began in October 2008, however, both lenders that originate loans under SBA programs and the "pool assemblers" that package such loans for securitization have experienced significant difficulty in selling those loans or securities in the secondary market. This, in turn, has significantly reduced the ability of lenders and pool assemblers to make new small business loans. As a result, while the SBA typically guarantees about $20 billion in loans annually, new lending was trending below $10 billion earlier this year.


On March 16, 2009, Treasury announced a program to unlock credit for small businesses as part of the Consumer and Business Lending Initiative. As part of the program, Treasury will make up to $15 billion in TARP funds available to make direct purchases to unlock the secondary market for the government-guaranteed portion of SBA 7(a) loans as well as first-lien mortgages made through the 504 program. These purchases, combined with higher loan guarantees and reduced fees implemented under the American Recovery and Reinvestment Act of 2009, will help provide lenders with the confidence that they need to extend credit, knowing that if they make an SBA loan, they will be able to sell it and access the liquidity necessary to do further lending.


Public Private Investment Program


A variety of troubled legacy assets is congesting the U.S. financial system. The vicious cycle of deleveraging has pushed some asset prices to low levels. The difficulty of obtaining private financing on reasonable terms to purchase these assets has reduced secondary market liquidity and disrupted normal price discovery. While economic fundamentals have deteriorated substantially in this crisis, there is ample evidence that current market prices for many legacy assets include substantial liquidity discounts. [5] Such discounts constrain the economic capital of U.S. financial institutions, reducing their ability to provide new credit. Moreover, uncertainty about the value of legacy assets is constraining the ability of financial intuitions to raise private capital.


The Public Private Investment Program (PPIP) is intended to restart the market for these assets while also restoring bank balance sheets as these devalued loans and securities are sold. Using $75 to $100 billion in capital from EESA and capital from private investors – as well as funding enabled by the Federal Reserve and FDIC – PPIP will generate $500 billion in purchasing power to buy legacy assets, with the potential to expand to $1 trillion over time. By providing a market for these assets, PPIP will help improve asset values, increase lending capacity for banks, and reduce uncertainty about the scale of losses on bank balance sheets – making it easier for banks to raise private capital and replace the capital investments made by Treasury.


By following three basic principles, PPIP is designed as part of an overall strategy to resolve the crisis as quickly as possible with the least cost to the taxpayer. First, by partnering with the FDIC, the Federal Reserve, and private sector investors, we will make the most of taxpayer resources under TARP. Second, PPIP will ensure that private sector participants invest alongside the government, with the private sector investors standing to lose their entire investment in a downside scenario and the taxpayer sharing in profitable returns. Third, the program will use competing private sector investors to engage in price discovery, reducing the likelihood that the


government will overpay for these assets. By contrast, if the government alone purchased these legacy assets from banks, it would assume the entire share of the losses and risk overpaying. Alternatively, if we simply hoped that banks would work off these assets over time, we would be prolonging the economic crisis, which in turn would cost more to the taxpayer over time. PPIP strikes the right balance, making the most of taxpayer dollars, sharing risk with the private sector, and taking advantage of private sector competition to set market prices for currently illiquid assets.


The program has two major components, one each for securities and loans. The Legacy Securities Program initially will target commercial mortgage-backed securities and residential mortgage-backed securities. Treasury will partner with approved asset managers. Pre-approved asset managers will have an opportunity to raise private capital for a public-private investment fund ("PPIF"). Treasury will invest equity capital from the TARP in the PPIF on a dollar-for-dollar basis with participating private investors. [1] Additional funding will be available either directly from Treasury or through TALF. The program is designed to encourage participation by a wide range of investors, and we extended the application deadline to facilitate that objective.


The Legacy Loans Program is designed to attract private capital to purchase eligible legacy loans and other assets from participating banks through the availability of FDIC debt guarantees and Treasury equity co-investments. Under the program, PPIFs will be formed – with up to 50 percent equity participation by Treasury – to purchase and manage pools of legacy loans and other assets purchased from U.S. banks and savings associations. The FDIC will provide a guarantee of debts issued by PPIFs and collect a guarantee fee. The FDIC will be responsible for overseeing the formation, funding, and operation of legacy loan PPIFs and for overseeing and managing the debt guarantees it provides to the PPIFs. [2]


The terms of the funding provided under both parts of PPIP, including fees, will be set in a way that is designed to limit the risks faced by U.S. taxpayers while still meeting the objective of generating new demand for legacy assets. In addition, those participating in the program will be subject to a significant degree of oversight to ensure that their actions are consistent with the objectives of the program.




As we are all painfully aware, the collapse of the housing price bubble, and the sharp reversal in lending standards that helped fuel that bubble, has had a devastating effect on the financial sector and on homeowners alike, with dire consequences for the economy overall. In addition to reducing household wealth across the country, and thereby further intensifying the economic contraction, falling home prices and extraordinarily tight lending standards have trapped homeowners in their old mortgages. Even many homeowners who made what seemed to be conservative financial decisions three, four, or five years ago find themselves unable to benefit from the low interest rates available to unencumbered borrowers today. At the same time, increases in unemployment and other recessionary pressures have continued to impair the ability of some otherwise responsible families to stay current on mortgage payments.


As a result, as many as 6 million families are expected to face foreclosure in the next several years. Foreclosures have massive negative externalities – such as reducing surrounding home values, and increasing vacancies, homelessness, and violent crime. In some studies, foreclosure on a home has been found to reduce the prices of nearby homes by as much as 9 percent.


Since January, the Administration has made significant progress in developing and implementing a comprehensive plan for stabilizing our housing market, the centerpiece of which is the Making Home Affordable Program (MHA). By reducing foreclosures around the country, the average homeowner could see their house price bolstered by as much as $6,000 as a result of this plan, and up to 9 million homeowners may increase the affordability of their mortgages and avoid preventable foreclosures.


MHA targets the root causes of the foreclosure crisis directly. First, the refinancing program expands access to refinancing for families whose homes have lost value. Second, the modification plan commits $75 billion to loan modifications that will provide sustainably affordable mortgage payments for borrowers. The focus of the plan is affordability because providing borrowers with payments they can afford, including those with negative equity, will keep millions from being foreclosed on in a way that is most effective for taxpayers. A third part of the plan supports refinancing more generally by increasing confidence in the GSEs.


MHA's design centers on two key ideas. First, MHA creates detailed standard industry guidelines for loan modifications, with the goal of helping to transform the industry standard to a product better for all borrowers, both within and outside of MHA. In the past, a lack of common standards has limited loan modifications, even when they are likely to both reduce the chance of foreclosure and raise the value of the securities owned by investors. Second, the innovative pay for success structure of the program aligns the incentives of servicers, investors, and borrowers to voluntarily modify mortgages in a way that will be affordable for borrowers in the long-term, cost-effective for taxpayers, and profitable for lenders. In addition, when Hope for Homeowners has been expanded and improved, we also intend to position this program as a critical part of MHA.


Our progress in implementing MHA to date has been substantial. We have introduced detailed guidelines for loan modifications which will establish a new standard practice for affordable modifications in the industry. We have already signed contracts with the top servicers covering a majority of loans nationwide for our loan modification program. Servicers have begun executing refinancings and modifications under our program, and our program has helped push interest rates to historic lows, increasing refinancing nationwide. For example, Fannie Mae did $77 billion in refinancings in March, its largest one-month volume since 2003.


We have launched MakingHomeAffordable.gov, a consumer website for the program, which has had 11.2 million page views in less than a month. These are just a few of the many steps that have been taken to implement these programs.


We have also expanded the efforts of the federal government to combat mortgage rescue fraud and put scammers on notice that we will not stand by while they prey on homeowners seeking help under our program.


We are also supporting or are working on additional measures to stabilize housing, all of which are aimed at supporting the success of MHA in keeping homeowners in their homes or in finding alternative and less damaging "exit strategies" for borrowers who own homes that they are clearly unable to afford, even under favorable mortgage terms. These measures include reform of the bankruptcy code to allow judicial modifications of home mortgages, a second lien program under MHA, further details on a short sales and deeds-in-lieu program, and, as noted, the strengthening of Hope for Homeowners.


We will continue to explore additional ways to help the housing market and report on ongoing progress as we push forward.


Regulatory Reform


The programs outlined above are designed to help rehabilitate our financial sector and, as quickly as possible, turn it into a source of support for our economy rather than a drag on it. But this effort will not be fully successful unless a broader set of reforms is put in place. Our regulatory and market infrastructure has to catch up to significant changes that have occurred in our financial sector in recent decades.


The rapid growth of the largest financial institutions, and their increasing interconnections through securities markets, have heightened systemic risk in the system. In response, we need to expand our capacity to contain systemic risk. This crisis – and the cases of firms like Lehman Brothers and AIG – has made clear that certain large, interconnected firms and markets need to be under a more consistent and more conservative regulatory regime. It is not enough to address the potential insolvency of individual institutions – we must also ensure the stability of the system itself.


Financial innovation has expanded the financial products and services that are available to consumers. These changes have brought many benefits. But we have to make sure that when households make choices to borrow, or to invest their savings, there are clear and fair rules of the road that prevent manipulation, deception, and abuse. Lax regulation has left too many households exposed to deception and abuse. While outright fraud like that perpetrated by Bernie Madoff is already illegal, these cases highlight the need to strengthen supervision and enforcement across the financial sector. We need meaningful disclosures that actual consumers and investors can understand. We need to promote simplicity, so that financial choices offered to consumers are clear, reasonable, and appropriate. Further, there needs to be clear accountability for protecting consumers and investors alike.


The rapid pace of development in the financial sector in recent decades has meant that gaps and inconsistencies in our regulatory system have become more meaningful and problematic. Financial activity has tended to gravitate to parts of the system that are regulated least effectively. Looking ahead, our regulatory structure must assign clear authority, resources, and accountability for each of its key functions.


The financial landscape has become ever more global in recent years. Advances in information technology have made it easier to invest abroad, which has expanded and accelerated cross-border capital flows. Greater global macroeconomic stability has also helped to accelerate financial development around the world. To keep pace with these trends, we must ensure that international rules for financial regulation are consistent with the high standards we will be implementing in the United States. Additionally, we must seek to materially improve prudential supervision, tax compliance, and restrictions on money laundering in weakly-regulated jurisdictions.


Finally, the recent financial crisis has shown that the largest financial institutions can pose special risks to the financial system as a whole. In addition to regulating these institutions differently, we must give the Federal government new tools for dealing with situations where their solvency is called into question. Treasury has proposed legislation for a resolution authority that would grant additional tools to avoid the disorderly liquidation of systemically significant financial institutions that fall outside of the existing resolution regime for banks under the FDIC.


Status of TARP


TARP, established under EESA, has been a vital part of our efforts to rehabilitate the financial sector. Since the Congress released the second half of the $700 billion allocated to Treasury through EESA, we have unveiled our FSP in an effort to use the full range of tools at our disposal to create the foundations for an economic recovery. Table 1 below summarizes current projections concerning the remaining funds available as part of the FSP.


When President Obama took office, Treasury had already committed over half of the funds allocated for the Troubled Assets Relief Program. Today, Treasury estimates that there is at least $134.6 billion in resources authorized under EESA still available. This figure assumes – as reported by the Government Accountability Office – that the projected amount committed to existing programs will be $590.4 billion (of which $355.4 billion was committed under the previous administration), but also anticipates that $25 billion will be paid back under the CPP over the next year. Because the most relevant consideration is what funds will remain available for new programs, we believe that our estimates are conservative for two reasons. First, our estimates assume 100 percent take-up of the $220 billion made available for our housing and liquidity programs, which require significant voluntary participation from financial participants. If any of those programs experience less than full take-up, additional funds will be available. Secondly, our projections anticipate only $25 billion will be paid back under CPP over the next year, a figure lower than many private analysts expect.



In the attached table, we have broken down our commitment of EESA funds under four categories:


Exceptional Relief: Funds committed for exceptional relief to specific financial institutions and the auto industry.

Capital Purchase Program.

Housing and Liquidity Initiatives: New initiatives directed towards addressing weaknesses in the housing and credit markets.


In addition to the programs discussed above, Treasury has stated its intention to provide additional support to the auto industry – contingent on an acceptable restructuring – as well as capital under the Capital Assistance Program. We believe that even under the conservative estimate of available funds described here, we have the resources to move forward in implementing all aspects of our FSP.


Indicators on interbank lending, corporate issuance, and credit spreads generally suggest that credit conditions have improved significantly in the past few months. The LIBOR-OIS spread, an indicator of major banks' willingness to lend, has fallen to about 90 basis points, down from its October peak of 365. Additionally, corporate bond issuance and issuance of asset back securities both rose in March after grinding to a halt in October and November.


However, reports on bank lending show significant declines in consumer loans, including credit card loans, and commercial and industrial loans. It is also important to point out that the cost of credit and terms of credit, even where they have recently declined, are still elevated.




Upon taking office, President Obama committed to increased transparency, accountability, and oversight in our government's approach to stabilizing the financial system. Treasury is committed to an open and transparent program with appropriate oversight.


We have launched a reinvigorated public communications initiative designed to more directly communicate how our policies will stabilize the financial system and restore the flow of credit to consumers and businesses. A key element to this enhanced public outreach effort is providing user-friendly resources online. Last month, Treasury launched a new website, FinancialStability.gov, that details financial stability programs in a simplified format. In addition, Treasury has taken a number of steps to better measure whether financial stability programs are increasing the flow of credit to consumers and businesses. In January, we launched a monthly lending and intermediation survey to better gauge, in a way readily accessible to the public, the performance of banks participating in the CPP. The most recent results, covering February 2009, demonstrate that the largest CPP banks continue to lend and refinance despite the increasingly severe headwinds posed by this economic downturn. Absent Treasury capital provided through the CPP, lending levels would likely have been substantially lower.


Treasury announced on January 28, 2009, that it would begin posting all of its investment contracts on our website within ten business days of each transaction's closing. Treasury is in the process of posting all the contracts signed prior to January 28 to the website as well.


Treasury looks forward to continuing to work with our four oversight bodies – the Financial Stability Oversight Board, the Inspector General, the Comptroller General, and the Congressional Oversight Panel. Transparency will not only give the American people comfort in our stewardship of these funds, it will give the markets confidence that we are stabilizing and strengthening the financial system.


Executive Compensation


Compensation systems in many financial institutions played a material role in creating this financial crisis. They gave individuals incentives to focus on short-term profits at the expense of long-term value. In many institutions they did not reward sound risk management. Going forward, it is important that everyone in financial institutions – from traders to executives – have compensation that is closely and tightly aligned with sound risk management and long-term value for their financial institution and the economy as a whole. We have to be careful, however, not to destroy beneficial forms of incentive compensation or to restrict financial firm compensation packages so severely as to drive the most talented people out of the U.S. financial sector. We will engage in a thorough review of this issue, and we want to hear the ideas and analysis of experts throughout the country. I anticipate that we will look for ways to orient compensation towards long-term performance. Had this been done earlier, I think a certain amount of the pain caused by this financial crisis and the resulting loss of public trust that has resulted could have been mitigated.


In accordance with ARRA provisions, Treasury will be conducting a review of TARP recipient compensation for the 25 most highly-compensated employees. In addition, the Administration is currently working to develop an Interim Final Rule (IFR) that will set clear standards of acceptable compensation for recipients of federal assistance under EESA. While the IFR will be effective immediately upon publication, Treasury will invite public comment during a sixty-day period and will consider all comments in developing a final rule.


February 10, 2009: Treasury Introduced the Financial Stability Plan (FSP)


To address the financial crisis – a crisis of confidence, of capital, of credit, and of consumer and business demand - FSP is designed to attack the credit crisis on all fronts. Restarting our economy and creating jobs requires ensuring that businesses with good ideas have the credit to grow and expand, and working families can get the affordable loans they need to meet their economic needs. To protect taxpayers and ensure that every dollar is directed toward lending and economic revitalization, FSP will institute a new era of accountability, transparency and conditions on the financial institutions receiving funds.


February 18, 2009: Treasury Introduced the Making Home Affordable Plan (MHA)


The collapse in home prices served as the catalyst for the current financial crisis, harming both household balance sheets as well as much of the financial sector. MHA includes a refinancing program that provides the opportunity for 4 to 5 million homeowners to refinance their mortgages and reduce their monthly payments, a $75 billion loan modification program that keeps 3 to 4 million families in their homes, and provides support for low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.


Since the introduction of MHA, consumers have seen record low interest rates helping to alleviate pressure on homeowners. Also, the first loan modification contracts have already been signed in an effort to bring monthly payments to sustainable levels.


February 25, 2009: Treasury Introduced the Capital Assistance Program (CAP) and Measuring Capital Needs


Treasury launched CAP in order to ensure that institutions have enough capital to lend - even during tougher economic times. CAP requires that banks maintain a capital buffer as an insurance policy against worse-than-expected economic conditions. The country's largest banks are undergoing a forward looking "stress test" designed to determine how large a capital buffer is necessary to ensure that those banks would be well capitalized in even a severe economic scenario. The results of this exercise are expected to be released during the first week of May. Many banks will not need additional capital, but in cases where an additional buffer is needed, Treasury is making government capital available as a bridge to private capital through CAP. In order to ensure transparency, over the last several months bank supervisors have been conducting forward looking assessments of the balance sheets of the 19 largest banks to determine the strength of their capital and capital needs.


March 3, 2009: Treasury Introduced the Consumer and Business Lending Initiative


Treasury announced the Consumer and Business Lending Initiative (CBLI) including a significant expansion of the Term Asset Backed Securities Loan Facility (TALF) - a program developed to help improve credit market conditions by addressing the securitization markets. TALF was expanded in collaboration with the Federal Reserve to ease the pressure on credit markets. New asset classes expanded from credit cards, auto loans, student loans, and SBA loans to rental, commercial and governmental vehicle fleet leases, small ticket equipment and heavy equipment leases, agricultural equipment loans and leases and commercial mortgage backed and older securities.


March 16, 2009: Treasury Introduced the SBA Loan Purchase Program


Treasury announced a program to unlock credit for small businesses as part of the Consumer and Business Lending Initiative. As part of the program, Treasury will make up to $15 billion in TARP funds available to make direct purchases to unlock the secondary market for the government-guaranteed portion of SBA 7(a) loans as well as first-lien mortgages made through the 504 program. These purchases, combined with higher loan guarantees and reduced fees implemented under the American Recovery and Reinvestment Act of 2009, will help provide lenders with the confidence that they need to extend credit, knowing that if they make an SBA loan, they will be able to sell it and access the liquidity necessary to do further lending.


March 23, 2009: Treasury Introduced the Public-Private Investment Program (PPIP)


Treasury introduced PPIP in order to address the vicious market cycle and troubled assets clogging the balance sheets of financial institutions. By using government financing in partnership with the FDIC and the Federal Reserve and co-investment with private sector investors, PPIP will create substantial purchasing power to create a new market for legacy assets and make the most of taxpayer resources. PPIP ensures that private sector participants invest alongside the taxpayer, with the private sector investors standing to lose their entire investment in a downside scenario and the taxpayer sharing in profitable returns. To reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program.


In order to accommodate increased participation in the Legacy Securities Program, the deadline for asset manager applications was extended to Friday April 24th, 2009.


March 31, 2009: Treasury Extended the Federal Guarantee of Money Fund Assets


Treasury extended the money market fund guarantee in order to support ongoing stability in financial markets. As a result of this extension, the temporary guarantee program will continue to provide coverage to shareholders up to the amount held in participating money market funds as of the close of business on September 19, 2008. All money market funds that currently participate in the Program and meet the extension requirements under the Guarantee Agreements are eligible to continue to participate in the program.

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Guest Dougf

I really, REALLY, REALLY , don’t see how an economy that was fueled almost exclusively for decades by financial slight of hand and problematic (read CRIMINALLY STUPID)investment vehicles , can be said to ‘have turned the corner’ and is now on the path to recovery.


Recovery to What? Are we supposed to be satisfied with a mere re-inflating of the non-sustainable bubbles ? Is that the game plan here ? Just keep kicking the bomb down the road in the hope that when it finally goes off, AGAIN, someone else(anyone else to be candid) will be there to ‘take one for the team’?


Printing money as if it were just paper and bailing out incompetent corporations because they are ‘too big to fail’, and the ‘recovery’ we will likely get is more of the same financial cluster*****, until the other shoe finally drops sometime down the road.


What a joke. Anyone still laughing ?

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A little old new, but good insight nonetheless


Statement Of

Timothy W. Long

Senior Deputy Comptroller

Bank Supervision Policy and Chief National Bank Examiner

Office of the Comptroller of the Currency

Before the

Committee on Financial Services

Of the

U.S. House of Representatives

March 25, 2009


Chairman Frank, Ranking Member Bachus, and members of the Committee, my name is Tim Long. I am the Senior Deputy Comptroller for Bank Supervision Policy at the OCC. I appreciate this opportunity to discuss the OCC’s role in ensuring banks remain safe and sound, while at the same time meet the credit needs of their communities and customers.


The last few months have underscored the importance of credit availability and prudent lending to our nation’s economy. Recent actions to provide facilities and programs to help banks strengthen their balance sheets and restore liquidity to various credit segments are important steps in restoring our banking system and we support these initiatives.


Nonetheless, the current economic environment poses significant challenges to banks and their loan customers that we and bankers must address.


As a bank examiner for nearly thirty years, I have experienced first hand the importance of the dynamics between bankers and examiners during periods of market and credit stress. One of the most important lessons I’ve learned is the need to effectively communicate with bankersabout the problems facing their institutions and how we expect them to confront those problems without exacerbating the situation. Delay or denial about conditions – by bankers or regulators – is not an effective strategy and only makes things worse.


Against that backdrop, here are some facts that bankers and regulators are facing today. First, asset quality in many bank loan portfolios is deteriorating. Non-performing loan levels are increasing. Borrowers who could afford a loan when the economy was expanding are now having problems repaying their loans. Increased levels of non-performing loans will likely persist for some time before they work through the banking system. Second, bankers have, appropriately, become more selective in their underwriting criteria for some types of loans. Where markets are over lent or borrowers over leveraged, this is both prudent and appropriate. Third, loan demand and loan growth have slowed. This is normal in a recession: consumers cut back on spending, businesses cut back on capital expenditures. What is profoundly different in this cycle has been the complete shut down of the securitization markets. Restoring these markets is a critical part of stabilizing and revitalizing our financial system.


Despite these obstacles, banks are making loans to credit worthy borrowers. The bankers I talk with are committed to meeting the credit needs of their communities and they recognize the critical role they play in the well-being of our economy. Simply put, banks have to lend money to make money.


The OCC’s mission is to ensure that national banks meet these needs in a safe and sound manner. This requires a balance: supervise too lightly, and some banks will make unsafe loans that can ultimately cause them to fail; supervise too strictly, and some banks will become too conservative and not make loans to creditworthy borrowers. We strive to get this balance right through strong and consistent supervision. In the 80’s we waited too long to warn the industryabout excesses building up in the system, which resulted in bankers and regulators slamming on the brakes once the economy turned down. Because of this lesson, we’ve taken a series of actions, starting as early as 2003, to alert bankers to the risks we were seeing and to direct them, when needed, to take corrective actions.


Today, our message to bankers is straightforward: make loans that you believe will be repaid; don’t make loans that are unlikely to be repaid; and work constructively with borrowers who may be facing difficulties with their obligations, but recognize repayment problems in loans when you see them. Contrary to some press reports, our examiners are not telling bankers which loans to approve and which to deny. Rather, our message to examiners is this: take a balanced approach in your supervision; communicate concerns and expectations clearly and consistently; provide bankers reasonable time to document and correct credit risk management weaknesses, but don’t hesitate to require corrective action when needed.


It is important to keep in mind that it is normal for our banks to experience an increase in problem loan levels during economic downturns. This should not preclude bankers from working with borrowers to restructure or modify loans so that foreclosure is avoided wherever possible. When a workout is not feasible and the bank is unlikely to be repaid, examiners will direct bankers to have adequate reserves and capital to absorb their loan losses. Finally, the reality is that some community banks are so overextended in relation to capital and reserves that management needs to reduce the bank’s exposures and concentrations to ensure the long-term viability of the bank. In all of these cases, our goal is to work constructively with bankers so that they can have the financial strength to meet the credit needs of their communities and borrowers.

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Guest Fed






The Treasury Capital Assistance Program and the Supervisory Capital Assessment Program


During this period of extraordinary economic uncertainty, the U.S. federal banking supervisors believe it to be important for the largest U.S. bank holding companies (BHCs) to have a capital buffer sufficient to withstand losses and sustain lending even in a significantly more adverse economic environment than is currently anticipated. In keeping with this aim, the Federal Reserve and other federal bank supervisors have been engaged in a comprehensive capital assessment exercise--known as the Supervisory Capital Assessment Program (SCAP)--with each of the 19 largest U.S. BHCs.


The SCAP will be completed this week and the results released publicly by the Federal Reserve Board on Thursday May 7th, 2009 at 5pm EDT. In this release, supervisors will report--under the SCAP "more adverse" scenario, for each of the 19 institutions individually and in the aggregate--their estimates of: losses and loss rates across select categories of loans; resources available to absorb those losses; and the resulting necessary additions to capital buffers. The estimates reported by the Federal Reserve represent values for a hypothetical 'what-if' scenario and are not forecasts of expected losses or revenues for the firms. Any BHC needing to augment its capital buffer at the conclusion of the SCAP will have until June 8th, 2009 to develop a detailed capital plan, and until November 9th, 2009 to implement that capital plan.


The SCAP is a complement to the Treasury's Capital Assistance Program (CAP), which makes capital available to financial institutions as a bridge to private capital in the future. A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery. The U.S. government reaffirms its commitment to stand firmly behind the banking system during this period of financial strain to ensure it can perform its key function of providing credit to households and businesses.


Understanding the Results of Supervisory Capital Assessment Program


The SCAP Focus on the Quantity and Quality of Capital

Minimum capital standards for a BHC serve only as a starting point for supervisors in determining the adequacy of the BHC's capital relative to its risk profile. In practice, supervisors expect all BHCs to have a level and composition of Tier 1 capital well in excess of the 4% regulatory minimum, and also to have common equity as the dominant element of that Tier 1 capital.


Under the SCAP, supervisors evaluated the extent to which each of the 19 BHCs would need to alter either the amount or the composition (or both) of its Tier 1 capital today to be able to comfortably exceed minimum regulatory requirements at year-end 2010, even under an more adverse economic scenario.


The SCAP capital buffer for each BHC is sized to achieve a Tier 1 risk-based ratio of at least 6% and a Tier 1 Common risk-based ratio of at least 4% at the end of 2010, under a more adverse macroeconomic scenario than is currently anticipated.


The SCAP focuses on Tier 1 Common capital--measured by applying the same adjustments to "voting common stockholders' equity" used to calculate Tier 1 capital--as well as overall Tier 1 capital, because both the amount and the composition of a BHC's capital contribute to its strength. The SCAP's emphasis on Tier 1 Common capital reflects the fact that common equity is the first element of the capital structure to absorb loss and offers protection to more senior parts of the capital structure. All else equal, more Tier 1 Common capital gives a BHC greater permanent loss absorption capacity and a greater ability to conserve resources under stress by changing the amount and timing of dividends and other distributions.


The Role of the SCAP Buffer

By its design, the SCAP is more stringent than a solvency test. First, each BHC's capital was rigorously evaluated against a two-year-ahead adverse scenario that is not a prediction or an expected outcome for the economy, but is instead a “what if” scenario. In addition, the buffer was sized so that each BHC will have a cushion above regulatory minimums even in the stress scenario. Thus, any need for additional capital and/or a change in composition of capital to meet the SCAP buffer is not indicative of inadequate current capitalization. Instead, the SCAP buffer builds in extra capital against the unlikely prospect that the adverse scenario materializes.


The presence of this one-time buffer will give market participants, as well as the firms themselves, confidence in the capacity of the major BHCs to perform their critical role in lending, even if the economy proves weaker than expected. Once this upfront buffer is established, the normal supervisory process will continue to be used to determine whether a firm's current capital ratios are consistent with regulatory guidance.


The SCAP and the Capital Planning Process

Over the next 30 days, any BHC needing to augment its capital buffer will develop a detailed capital plan to be approved by its primary supervisor, in consultation with the FDIC, and will have six months to implement that plan. In light of the potential for new commitments under the Capital Assistance Program or exchanges of existing CPP preferred stock, supervisors will consult with Treasury on the development and evaluation of the plans. The capital plan will consist of three main elements:


•A detailed description of the specific actions to be taken to increase the level of capital and/or to enhance the quality of capital consistent with establishing the SCAP buffer. BHCs are encouraged to design capital plans that, wherever possible, actively seek to raise new capital from private sources. These plans should include actions such as:

◦Issuance of new private capital instruments;

◦Restructuring current capital instruments;

◦Sales of business lines, legal entities, assets or minority interests through private transactions and through sales to the PPIP;

◦Use of joint ventures, spin-offs, or other capital enhancing transactions; and

◦Conservation of internal capital generation, including continued restrictions on dividends and stock repurchases and dividend deferrals, waivers and suspensions on preferred securities including trust preferred securities, with the expectation that plans should not rely on near-term potential increases in revenues to meet the capital buffer it is expected to have.

•A list of steps to address weaknesses, where appropriate, in the BHC's internal processes for assessing capital needs and engaging in effective capital planning.

•An outline of the steps the firm will take over time to repay government provided capital taken under the Capital Purchase Program (CPP), Targeted Investment Program (TIP), or the CAP, and reduce reliance on guaranteed debt issued under the TLGP.

In addition, as part of the 30-day planning process, firms will need to review their existing management and Board in order to assure that the leadership of the firm has sufficient expertise and ability to manage the risks presented by the current economic environment and maintain balance sheet capacity sufficient to continue prudent lending to meet the credit needs of the economy.

Supervisors expect that the board of directors and the senior management of each BHC will give the design and implementation of the capital plan their full and immediate attention and strong support. Capital plans will be submitted and approved by supervisors by June 8th, 2009. Upon approval, these capital plans will be the basis for the BHC's establishment of the SCAP capital buffer by November 9th, 2009.


Mandatory Convertible Preferred under the CAP

To ensure that the banking system has the capital it needs to provide the credit necessary to support economic growth, the Treasury is making capital available under its Capital Assistance Program as a bridge to private capital in the future. A BHC may apply for Mandatory Convertible Preferred (MCP) in an amount up to 2% of risk-weighted assets (or higher upon request). MCP can serve as a source of contingent common capital for the firm, convertible into common equity when and if needed to meet supervisory expectations regarding the amount and composition of capital. Treasury will consider requests to exchange outstanding preferred shares sold under the CPP or the Targeted Investment Program (TIP) for new mandatory convertible preferred issued under the CAP. In order to protect the taxpayer interest, the Treasury expects that any exchange of Treasury-issued preferred stock for MCP will be accompanied or preceded by new capital raises or exchanges of private capital securities into common equity.


The MCP instrument is designed to give banks the incentive to redeem or replace the government-provided capital with private capital when feasible. The term sheet for MCP is available at www.financialstability.gov.


The SCAP focused on the largest financial firms to ensure that they maintain adequate capital buffers to withstand losses in an adverse economic environment. Smaller financial institutions generally maintain capital levels, especially common equity, well above regulatory capital standards. There is no intention to expand the SCAP beyond the 19 BHCs that have recently completed this exercise.


The Treasury reiterates that the CAP application process remains open to these institutions under the same terms and conditions applicable to the 19 SCAP BHCs. The Treasury stands ready to review and process any applications received in an expedient manner. For those firms wishing to apply to CAP, supervisors will review those firms' risk profiles and capital positions. In addition, supervisors will evaluate the firms' internal capital assessment processes, including capital planning efforts that incorporate the potential impact of stressful market conditions and adverse economic outcomes.


Redeeming Preferred Securities Issued under the CPP

Supervisors will carefully weigh an institution's desire to redeem outstanding CPP preferred stock against the contribution of Treasury capital to the institutions overall soundness, capital adequacy, and ability to lend, including confirming that BHCs have a comprehensive internal capital assessment process.


All BHCs seeking to repay CPP will be subject to the existing supervisory procedures for approving redemption requests for capital instruments.


The 19 BHCs that were subject to the SCAP process must have a post-repayment capital base at least consistent with the SCAP buffer, and must be able to demonstrate its financial strength by issuing senior unsecured debt for a term greater than five years not backed by FDIC guarantees, in amounts sufficient to demonstrate a capacity to meet funding needs independent of government guarantees.

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