On Uncertainty in Times of Great Challenges (with Testimony by U.S. Secretary of the Treasury Timothy Geithner)
Below are quoted excerpts from a meeting of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, on February 10, 2009. Much of the meeting was a hearing on “Oversight of the Financial Rescue Program: A New Plan for the TARP”. The quoted excerpts included here are from the “Question and Answer” period following formal testimony by U.S. Secretary of the Treasury Timothy Geithner. The excerpts are an exchange between Senator Mike Johanss [(R) Nebraska] and Secretary Geithner, with additional comments at the end by Chairman Christopher J. Dodd [(D) Connecticut]. The complete meeting is accessible on video at the website of the U.S. Senate Committee on Banking, Housing, and Urban Affairs (see http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.LiveStrea... ; with this section coming from “counter number” 168.27 through 172.29)
As a brief introduction to the excerpts from the above mentioned hearing, I would like to suggest the following: it may be that many people, in communities around the world, understand that there are many very difficult challenges ahead. However, the serious nature of these challenges has not—yet—created priorities capable of uniting us in a way that includes realizing how much we need to be learning so that we can be part of the solutions… and how much we really need to be on the same side, helping each other.
The quoted passages below may help readers appreciate the need for us—for as many of us as possible, in communities around the world—to be working together… and the need for appropriate education so that we can help each other, and so our efforts can be as coordinated as possible.
On the subject of appropriate education, I would like to recommend two essays I wrote (since September 15, 2008) which advocate for Community Visioning Initiatives, “Community Teaching and Learning Centers”, and “sister community” relationships as a way of generating an exponential increase in our capacity to overcome the challenges of our times. The two essays are “A Greater Force than the Challenges that are Now Facing Us” [this essay, in particular, includes a quote from then Director of the Congressional Budget Office Peter R. Orszag, and my own commentary on the subject of increasing “confidence” (see http://ipcri.net/images/A-Greater-Force-than-the-Challenges-We-Are-Now-F... ] and “Transitioning from Less Solution-Oriented Employment to More Solution-Oriented Employment” (see http://ipcri.net/images/Transitioning-from-Less-Solution-Oriented-Employ... ) Note: In 1984, the non-profit organization Chattanooga Venture [Chattanooga, Tennessee (USA)] organized a Community Visioning Initiative that attracted more than 1,700 participants, and produced 40 community goals—which resulted in the implementation of 223 projects and programs, the creation of 1,300 permanent jobs, and a total financial investment of 793 million dollars. [Source references for this information are on p. 9 of the “1000Communities2” proposal (also by this writer), a 161 page document which is discussed in both of the above mentioned essays)].
I do hope that more and more people are coming to the realization that the difficult challenges ahead are not something that the experts will resolve while the rest of us are doing something else—everyone is involved when it comes to determining the markets that supply the “ways of earning a living”; and given the unprecedented nature of the challenges ahead, all of us have important responsibilities. There is much which leaders could be asking from the people who respect their leadership, both as a matter of civic duty, and as a matter of necessity; and there are many people who will be very appreciative when they find that they have an important role to play in the work ahead. Leaders should guide citizens so that they can discover how they can do their part to contribute to the greater good of the whole.
Here are the excerpts referred to above:
“One last question: it comes out of the document you gave us…. (….)… You say a key component of a capital assistance program is a forward looking comprehensive stress test that requires an assessment of whether a major financial institution has the capital necessary to continue lending and to absorb the potential losses that would result from a more severe decline in the economy. And you’re going to do this for everybody (every financial institution) over $100 billion dollars. They’ll be required to do it. How many institutions would be over $100 billion dollars?”
“I’m not going to get this perfect, but it’s roughly in the scale of 25.”
“And again, this is a critical part of what banks and supervisors have to do. It’s an ongoing normal process… we’re just going to try to bring a little more consistency and realism to how its done.”
“Okay…. My last thought on this, and it’s more of a thought than a question… this stress test… when you publicize to the world that they have—they lack the capital necessary to continue lending, in an economy that is, maybe beyond what they projected…. I would think that will cause a very, very serious problem for those 25 institutions… if not literally a run of the institutions. How do you prevent that?”
“It’s a very difficult, complicated process. I think it’s important to recognize that the world today looks at these institutions with great uncertainty about the scale of their losses ahead. They know a lot about what their exposures are, and they know they face some risks ahead; and our hope is by bringing more clarity to that process, with some support for capital, you’re going to get the markets in a better position where that uncertainty is dispelled, and they’ve got a (____?) foundation to do it.
“Now, again, the markets may be overestimating those risks—they may be underestimating—but right now, the level of uncertainty that exists—itself—is very damaging. And it’s not something you can solve by – and you’re not suggesting this, and I don’t mean to imply this—by trying to obscure that basic problem. Because right now that problem itself is putting a huge amount of pressure on these institutions, and making it much harder for them to do what’s necessary to grow and expand. They’re being forced—many of them, some of them—are being forced to contract because of that.
“So arresting that process is important; but you’re absolutely right, it’s a very delicate, careful balance, and you need to look at these things together: with some care and rigor and consistency and realism on the supervisory process, combined with access to capital, combined with these other measures we’re going to produce to help provide—help provide some broader financing for these markets. It’s going to be a difficult balance; but again, the markets today are living with this acute cloud of uncertainty about what those basic risks are. And that itself is contributing to this dangerous dynamic where there is more deleveraging, shrinking in balance sheets, than may need to happen.”
“I could see the frown grow on your face as I asked this question, and I understand; but if we don’t figure this out, you’re going to need a gigantic amount of capital to protect these 25 institutions. So I just think it’s something we have to pay a lot of attention to, because it puts a mark on them.”
“And can I just, before we leave this… I wanted to say that these institutions are all in different circumstances, and the scale of needs vary substantially across institutions. And it’s not fair to tar them with the same brush…. They’re in different circumstances; we’re going to treat them carefully, and differently, recognizing their relative strengths and weaknesses—again, with the basic objective of putting (them) in a position where they’re going to have a stronger foundation to get through this thing. And I don’t believe there’s any realistic way to get through this excerpt by trying to do that.
“Mr. Chairman, thanks for your patience; again I went over—“
“No, no, I’d like to commend my colleague from Nebraska. We have new members in this committee who are just tremendously valuable, and I include my colleague from Nebraska. It’s very, very good—excellent questions…. (….)…. And let me just say too, before we turn to Senator Merkley, on this very last point—I think it’s a very important exchange that just occurred between you Mr. Secretary and Senator Johanns….”
Additional Note: There are many ways to position the above exchange in the larger context of current events, and having some understanding of the larger context (the “big picture”) will help in arriving at a realistic appreciation of the difficulties ahead. However, some of the very uncertainty discussed above is in fact caused by the many different “narratives” that are being offered to explain current events to the larger public. Some of these “narratives” (frameworks for understanding the “big picture”) are useful and constructive, and some are counter-productive.
The IPCR Initiative website provides a “Ten Point Assessment of the Most Difficult Challenges of Our Times” which includes the following challenge: “10) Sorting out what are real challenges and what are sound and practical solutions is becoming more and more difficult, as there is now, in many parts of the world, a multitude of ideas of all kinds coming to the fore in personal, family, community, and cultural life—all at the same time.” This difficulty, combined with all the other difficult challenges ahead, is what has led to this writer advocating for a combination of Community Visioning Initiatives, “Community Teaching and Learning Centers”, and “sister community” relationships as a way of generating an exponential increase in our collective capacity to overcome the challenges of our times (as mentioned above). Having said that, one way of positioning the above exchange in the larger context of the “Troubled Assets Relief Program” (TARP) would be to refer to the overview of TARP provided by Wikipedia, which is provides sufficient information to be useful as a starting point. As an immediate reference point, here are some excerpts from that overview (at http://en.wikipedia.org/wiki/Troubled_Assets_Relief_Program )
“The authority of the United States Department of the Treasury to establish and manage TARP under a newly created Office of Financial Stability became law October 3, 2008, the result of an initial proposal that ultimately was passed by Congress as H.R. 1424, enacting the Emergency Economic Stabilization Act of 2008 and several other acts.” (from last paragraph in the “Purpose” section)
“TARP allows the United States Department of the Treasury to purchase or insure up to $700 billion of ‘troubled’ assets.” (from 1st paragraph in the “Purpose” section)
“Another important goal of TARP is to encourage banks to resume lending again at levels seen before the crisis, both to each other and to consumers and businesses. If TARP can stabilize bank capital ratios, it should theoretically allow them to increase lending instead of hoarding cash to cushion against future, unforeseen losses from troubled assets. Increased lending equates to 'loosening' of credit, which the government hopes will restore order to the financial markets and improve investor confidence in financial institutions and the markets. As banks gain increased lending confidence, the interbank lending interest rates (the rates at which the banks lend to each other on a short term basis) should decrease, further facilitating lending.” (from 5th paragraph in the “Purpose” section)
“On October 14, 2008, Secretary of the Treasury Paulson and President Bush separately announced revisions in the TARP program. The Treasury announced their intention to buy senior preferred stock and warrants in the nine largest American banks.” (from 1st paragraph of the “Timeline of Changes to the Initial Program” section)
“In the original plan presented by Secretary Paulson, the government would buy troubled (toxic) assets in insolvent banks and then sell them at auction to private investor and/or companies. This plan was scratched when Paulson met with England's Prime Minister Gordon Brown who came to the White House for an international summit on the global credit crisis. [needs reference] Prime Minister Brown, in an attempt to mitigate the credit squeeze in England, merely infused capital into banks via preferred stock in order to clean up their balance sheets and, in some economists' view, effectively nationalizing many banks.” (from 3rd paragraph in the “Timeline of Changes to the Initial Program” section)
“One of the most difficult issues facing the Treasury in managing TARP is the pricing of the troubled assets. The Treasury must find a way to price extremely complex and sometimes unwieldy instruments for which a market does not exist. In addition, the pricing must strike a balance between efficiently using public funds provided by the taxpayer and providing adequate assistance to the financial institutions that need it.” (from 3rd paragraph in the “Eligible Assets and Asset Valuation” section)
As of February 9, 2009, $388 billion had been allotted, and $296 billion spent, according to the Committee for a Responsible Federal Budget.” (Note: The total amount allocated (from the 1st paragraph in the “Expenditures and Commitments” section)
[Above quotes from “Troubled Assets Relief Program” section of Wikipedia at http://en.wikipedia.org/wiki/Troubled_Assets_Relief_Program ]
Post submitted by Stefan Pasti, Founder and Outreach Coordinator of The Interfaith Peacebuilding and Community Revitalization (IPCR) Initiative (on the Internet at www.ipcri.net ).