Recent Developments in the Economic Crisis

In addition to Obama's Mesa, Arizona speech unveiling his plan to mediate housing foreclosures, Fed Chairman Bernanke today addressed the National Press Club (a rare event for a Fed Chairman) and took questions from reporters following his speech (an apparently even more rare event for a Fed Chairman).

I noted one disturbing, in-passing answer to a question relating to Geithner's "stress tests" for the major banks. While he largely dodged the question, by correctly pointing out that Geithner should answer the question, he did give his own interpretation. He said he thought it was part of an effort to understand all of the assets and liabilities of the banks and then "test" their financial positions against a variety of worst case scenarios.

Uh...was that an indirect admission by the Chairman of the Federal Reserve that we have given these same institutions some $310B in emergency taxpayer funding WITHOUT understanding their exact financial situation? If so, this seems to support my idea that the reason Paulsen turned away from the original intention of using the TARP funding to acquire bank bad assets and sell them (much like the Resolution Trust Company, established for bankrupt Savings and Loans) is due to one of three things or a combination of the three: 1) in a generally declining economy and falling house prices, banks don't know how to value either assets or liabilities, 2) they know, but don't want to tell the government, or - worst case - 3) they aren't sure what they have.

Other item on the front page of tomorrow's NYT regarding UBS's decision to cooperate with the U.S. and turn over the names of U.S. citizen's who were evading U.S. taxes in UBS accounts. UBS stands for United Bank of Switzerland. UBS has already admitted to the accounts and their intent, but have to date refused to release the names, which presumably include numerous U.S. VIP's. This has the potential to become a huge scandel. UBS has said they made $200M/yr just on the fees charged to manage the accounts, which may run into billions. The IRS is said to be looking at 19,000 names.

Look for Phil Gramm's name. He's the former Chairman of he Senate Banking Committee and largely responsible for eliminating most of the safeguard's put into the regulatory system over banks following the Great Depression. [Most recently notable as John McCain's senior economic advisor until his famous "Americans are a nation of whinners" remark.

Following his Senate success at deregulating the banks, Gramm joined the board of UBS and became a VP within its U.S. operations, at roughly the same time the bank now admits it's special U.S. accounts were started. His first assignment with UBS was to oversee their acquisition of Paine Webber, for which he received an estimated $750,000.

Gramm's wife, Wendy, was head of the Commodity and Futures Trading Commission. One of her last acts there (they both left Washington about the same time) was to "deregulate" commodity futures trading, for among other things, natural gas. Within a year of her departure, she was named to the board of a Houston, Texas company that was at the time the largest distributor of natural gas in the country - ENRON.

Ah well..we're all innocent until proven guilty, but it would not surprise me if both of them found themselves in a federal prison by 2010.