Geithner Denies Fed Bailing Out Europe, ALG Letter: Prove It

It is Treasury Sec. Geithner's "duty to categorically state that U.S. taxpayers

will not back up or cover any European bailout through the IMF, whether through

an increase of its quotas or by borrowing the funds through a house of cards scheme."

—ALG President Bill Wilson

Dec. 8, 2011, Fairfax, VA—Americans for Limited Government President Bill Wilson today urged Treasury Secretary Timothy Geithner to clarify to taxpayers that the U.S. will have no role in bailing out Europe. 

Wilson's letter came in response to Geithner's denial that the Federal Reserve is bailing out Europe.  At a recent press conference with German Finance Minister Wolfgang Schaeuble, Geithner told reporters that "I would say the reports I've read in the press about what the Fed can do are not accurate."

Wilson is not convinced, writing in his letter, "Recall that it took Freedom of Information Act requests being enforced by federal courts and an audit ordered by Congress to reveal trillions of dollars of emergency loans given to foreign banks by the Federal Reserve during the financial crisis, and also $442.7 billion given directly to purchase agency-issued mortgage-backed securities."

Wilson asked Geithner for verification, "How are taxpayers to know if you are telling the truth? How can they even verify what role the Fed may be currently playing in Europe?"

The recipients of emergency loans are not typically published by the central bank without an audit or some other form of outside intervention.

The letter also inquired if there were any plans at the IMF to boost its lending capacity by borrowing the money elsewhere, if not from the Federal Reserve.  Wilson cited Article VII of the IMF's Articles of Agreement that stipulates the Fund can only borrow money "to replenish its holdings on any member's currency."

Wilson wrote, "[The IMF] cannot borrow money in order to boost its own lending capacity. The only way to do that would be to expand the IMF's quotas, which requires congressional consent in the U.S."

The U.S. funds 17.72 percent of the IMF, and Wilson warned that should the IMF borrow money to boost its lending capacity, and the European debts were to default anyway, then U.S. taxpayers would still be on the hook for the losses.

Legislation by Rep. Cathy McMorris Rodgers, HR 2313, would rescind whatever remains of the nation's $100 billion line of credit to the IMF.  It already has 58 cosponsors, whom Wilson praised as "heroes" on behalf of taxpayers.

Wilson concluded by imploring Geithner to reject any American involvement with a bailout of European banks that bet poorly on sovereign debt, writing, "It is your duty to categorically state that U.S. taxpayers will not back up or cover any European bailout through the IMF, whether through an increase of its quotas or by borrowing the funds through a house of cards scheme."  

Attachments:

ALG President Bill Wilson's Letter to U.S. Treasury Timothy Geithner, Dec. 8, 2011 at www.getliberty.org/files/LetterIMFTreasuryFed 12-8-11.pdf.

Article VII of IMF Articles of Agreement at http://www.imf.org/external/pubs/ft/aa/index.htm#art7.

Interview Availability: Please contact Rebekah Rast at (703) 383-0880 or at rrast@getliberty.org to arrange an interview with ALG President Bill Wilson.

Statement by Gov. Rick Perry on Secret Federal Bank Loans

AUSTIN - Gov. Rick Perry today issued the following statement on today's news regarding the Federal Reserve's undisclosed bank loans:

"These outrageous secret federal loans to bailout big banks are why Americans are disgusted with business-as-usual Washington, the Federal Reserve and taxpayer-funded bailouts. The actions of Chairman Bernanke and Secretary Geithner have again proven that Washington insiders cannot be trusted to stop bailouts, protect taxpayers, or create jobs.  

"My economic reform plans seriously overhaul Washington, end federal bailouts and cut government spending, regulations and taxes to put American job creation and our economy on the right track."

CEI Daily - Mortgage Foreclosures, Stimulus Mistakes, and Geithner

Mortgage Foreclosures

Some argue that delaying mortgage foreclosures will stabilize housing prices.

Research Associate Alex Schibuola says that the foreclosures, even if delayed, will dramatically lower housing prices.

"We know that [the foreclosures] are coming eventually. Therefore in, say a year, we expect prices will decrease once the foreclosure process is re-initiated because those houses then show up on the market. [...] If sellers expect that prices will fall in the future, they will want to sell at today’s relatively higher prices. As a result more people start selling now which increases today’s supply and this brings down today’s prices. This will continue until future prices are equated with today’s prices. Why? Because if expected future prices are low relative to today’s prices more people would like to sell to capture the relatively higher selling prices of today.

Stimulus Mistakes Stimulus money went to prisoners and dead people. Senior Counsel Hans Bader says that even when stimulus money went to law-abiding living citizens, it wasted taxpayer dollars. "The stimulus also contained giveaways to wealthy trial lawyers, who are some of the biggest donors to liberal politicians.  It expanded welfare and largely repealed welfare reform.  It has paid for abandoned bridges to nowhere and unnecessary government buildings in cities with rapidly shrinking populations."

Geithner

The Washington Times argues that if Timothy Geithner were in the private sector, he'd be fired already.

Warren Brookes Fellow Kathryn Ciano explains why Tim Geithner is an expert in expanding government but a failure at expanding business.

"For a business to hire a new employee, that company’s bottom line must benefit from the hire. If it costs $20,000 to hire a new employee, the business will only hire if it anticipates earning $20,001. If the bottom line cannot support the cost of a new worker, she simply will not be hired. Funds alone cannot generate jobs. As with any financial interaction, money is only as good as the probability of your being able to use it. When dollar hopefuls are very uncertain about their ability to use money in the future, they save it. Businesses are not like government; they are risk averse."



ALG Blasts Geithner and Lockhart for Giving Contradictory Testimony on Government Guarantees of Fannie, Freddie

"Geithner's and Lockhart's statements to Congress are in direct conflict with each other.  One of them has lied to Congress.  It is vital that the American people find out which one."—ALG President Bill Wilson.

April 7^th, 2010, Fairfax, VA—Americans for Limited Government President Bill Wilson today condemned Treasury Secretary Timothy Geithner for excluding Fannie Mae and Freddie Mac's $6.3 trillion balance sheet, including $1.6 trillion in debt, from the current $12.6 trillion national debt despite 2008 testimony from a federal agency that the government was providing "an explicit guarantee" to the mortgage giants.

"Somebody has lied," Wilson said, adding that "they must be held accountable for misleading the American people."

In a letter to Congressman Scott Garrett, Geithner wrote that the "corporate debt of the GSEs is not the same as U.S. Treasuries, nor should it be considered sovereign debt."

The letter continued, "By statute, all obligations and securities issued by the GSEs must include a statement that makes clear that such obligations and securities are not guaranteed by the United States and do not constitute a debt or obligation of the United States."

In the same letter, Geithner wrote, the "Treasury is committed to supporting the GSEs while in conservatorship and to ensuring that the GSEs have sufficient capital to meet their debt obligations and honor their guarantees."

Fannie Mae and Freddie Mac were placed under conservatorship by Congress in 2008 under the administration of the newly-created Federal Housing Finance Agency (FHFA).  According to the agency's website, "As of June 2008, the combined debt and obligations of these GSEs totaled $6.6 trillion."

But that was not added to the national debt, despite the FHFA director James Lockhart's Congressional testimony that "the conservatorship and the access to credit from the U.S. Treasury provide an explicit guarantee to existing and future debt holders of Fannie Mae and Freddie Mac," as reported by Bloomberg News.

At the time, the agency distinguished between "an explicit guarantee" and the "full faith and credit of the United States", and Lockhart clarified that he meant "an effective guarantee because there's $100 billion backing their equity provided by the U.S. Treasury…That does give them effectively a guarantee of the U.S. government." 

"Geithner's and Lockhart's statements to Congress are in direct conflict with each other.  One of them has lied to Congress.  It is vital that the American people find out which one," Wilson delared.

Wilson said the Treasury "is trying to have it both ways; they want to tell markets that they are guaranteeing Fannie and Freddie and tell taxpayers that they are not."

Wilson also blasted what he termed "financial system takeover" legislation for not addressing the problems surrounding the GSE's.  "Fannie and Freddie underwrote almost every new mortgage in the country and sold their worthless securities all over the world, but neither Chris Dodd's legislation in the Senate nor Barney Frank's companion House legislation would do a thing about it," Wilson said.

Wilson said "The Obama Administration wants to assume the power of controlling the mortgage market without assuming the risk of putting the $6.3 trillion mortgage giants on-budget."

"The Treasury cannot have it both ways, and it only has two options at this stage: either the underlying assets of Fannie and Freddie are sold to privately-held institutions, or they are in effect guaranteed by taxpayers, as Lockhart stated," Wilson added.

Those assets included, according to Bloomberg News, $4.7 trillion in mortgage-backed securities (MBS).  Of that, $1.5 trillion had been sold to foreign investors, as reported by the New York Times. 

Since that time, the Federal Reserve has purchased $1.25 trillion of the MBS, although they have not disclosed which securities it has purchased.  According to the Federal Reserve, the securities are purchased at "Current face value of the securities, which is the remaining principal balance of the underlying mortgages."

Wilson wants to know if foreign nations got bailed out, saying the exclusivity of the program was "cause for concern."  According to the NY Fed, "Initially, the investment managers will trade only with primary dealers who are eligible to transact directly with the Federal Reserve Bank of New York. Primary dealers are encouraged to submit offers for themselves and for their customers."

Wilson noted that several of the primary dealers are foreign institutions.  The so-called Troubled Asset Relief Program explicitly prohibited that foreign central banks or institutions owned by foreign governments from participating in the Treasury-administered program to purchase MBS, but Wilson said there was no such restriction on the Fed-administered MBS purchase program.

"It's a legitimate question: Did the Fed buy back the mortgage-backed securities from the foreign investors, including China, Japan, and other sovereign entities?" Wilson asked.

According to the NY Fed's website, the Federal Reserve is not guaranteeing the securities nor Fannie Mae and Freddie Mac by extension either: "Assets purchased under this program are fully guaranteed as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae, so the Federal Reserve's exposure to the credit risk of the underlying mortgages is minimal."

Wilson said since Fannie and Freddie depends on the Treasury to keep up with its obligations, and the Federal Reserve will not guarantee it, "that can only mean taxpayers are the guarantors of Fannie Mae and Freddie Mac."

"Essentially, the Federal Reserve printed $1.25 trillion to buy back the mortgage-backed securities from investors.  So, if the Federal Reserve is not backing up Fannie and Freddie's worthless securities, then it bought those securities back with the implicit if not the explicit backing of U.S. taxpayers, just as they were sold," Wilson concluded.

NetRight Daily: Climate-Gate, SEIU, Geithner and Honduras

Climate-Gate Emails Release by Whistleblower:  After reams of information were posted on a Russian server detailing the inner workings at the highest -- and highest-compensated -- levels of what's called "climate science," many of us in the "skeptic" community were reminded of one phrase: "Told you so." (H/T Washington Examiner)

Geithner Must Go!:  Last week, two members of Congress finally stood up for Main Street over the K Street/Big Government lobbyist cabal. Congressman Kevin Brady (R-TX) and Congressman Michael Burgess (R-TX), in a congressional hearing, called for the resignation of former New York Fed Chair, and now Treasury Secretary, Timothy Geithner.

Honduras for Hondurans:  From Rodrigo Cantero of Honduras: Yesterday we had our most important date with destiny. And Honduras won!

Czar of Lies:  As the Climategate scandal unfolds and the manipulation and suppression of data disproving "man-made" global warming becomes more widely known, the fallout also continues to unfold as the Copenhagen Climate Summit prepares to promulgate another global treaty curbing carbon, energy-based emissions in the industrialized world.

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