Thursday, February 12, 2009

One Person's View on The Congressional Hearings

Probably the best perspective on yesterday's congressional theater, from Mike O'Rourke at BTIG. Recommended reading
It was already a full time job for investors to keep track of the government’s many new programs and their acronyms. Now, there are not enough hours in the day to monitor the Congressional hearings. The more time spent by the Treasury Secretary sitting in front of lawmakers, the longer it will take to formulate the details that the market is desperately craving. Considering the acrimonious environment in Congress these days, Geithner’s lack of details in advance of two days of testimony probably worked to his advantage. Had he shown more of his cards, there would have been greater complaints. Transparency is a good thing but as Washington runs these hearings, the overlap and redundancy is the epitome of waste. How many times must the same questions be answered? One can understand that the same questions may be asked at different hearings (although a little research would prevent that from happening). Hearing the same questions asked repeatedly in the same hearing is more painful than watching this market during one of its characteristic meltdowns. In today’s banking hearing, many legislators were knowledgeable but the number of others who were ill-prepared or lacked basic knowledge was alarming. Some just chose to do their grandstanding so they could pass the disingenuous message back to their constituents that they were tough on the bankers. As much as those individuals talk tough, they are not the free marketers truly willing to deal with the ramifications of a world without TARP. The fact that so few still fail to grasp the programs’ goals is frustrating. How many times must it be explained that the banks are only responsible for 30%-40% of the lending and the shadow banking system is responsible for the balance? On a side note, that is why the Fed is opening the TALF to hedge funds. This economy is in no position to discriminate against available risk capital.

There was a ray of hope when Representative Patrick McHenry posed the question “…is your first obligation to your depositors, to your board, to your investors? Is your first obligation the safety and soundness of your institution?” The resounding response across the board from the bankers was “safety and soundness.” McHenry concluded, “I think we have completely resolved whether or not the TARP funds were for you to simply lend or for the safety and soundness of our financial system.“ It is little consolation, but at least one of the 535 members of Congress understands the purpose of the TARP. Hopefully, he will pass it on to his colleagues.
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