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Treasury Secretary Timothy Geithner March 15, 2010

Posted by tkcollier in Economy & Business.
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At first, some people on Wall Street feared that the Obama Administration was simply seeking a pretext for taking over embattled firms like Citigroup and Bank of America, as liberal Democrats had urged. But Geithner was resolutely opposed to such an option, at least at that stage. He and Ben Bernanke, the Fed chairman, intended to use the stress tests to bolster banks’ finances rather than nationalizing them. “That would have been a deeply transforming policy mistake,” he said to me. “The country would have suffered for decades. We’d have spent hundreds of billions of dollars more that we didn’t need to spend, and would have been stuck in those institutions for years.”

In fact, some commentators agreed that the Treasury and the Fed were being too tough on banks.  One of these skeptics was Richard Bove, an analyst at Rochdale Securities, who has been following the financial industry since 1965. He has since changed his mind. “Geithner recognized that the system needed overkill on security and soundness to rebuild the confidence that was lacking,” he said. According to Bove’s calculations, U.S. banks now have more capital as a percentage of assets than in any year since 1935. “He built in that safety and soundness throughout the industry. As time goes on, I’m getting more and more respect for him.”

Between March 9th and May 7th, when the results of the stress tests were announced, the Dow rose by almost two thousand points, and the spread between AAA and BAA bonds—a reliable indicator of financial distress—fell sharply

Read more: via Treasury Secretary Timothy Geithner : The New Yorker.

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