At the Securities Industry and Financial Markets Association's Summit on the Troubled Asset Relief Program Monday afternoon, L. William Seidman, former chairman of the FDIC and the Resolution Trust Corp., talked about creating a market for assets that no one wants to buy. "Creating a market is painful," Seidman said, referring to the RTC program he ran that was created to deal with the S&L crisis.
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"When there's a financial meltdown, there's three parties that can take
the loss. The owners, the creditors or the government. The first two
agree it should be the third, so the government's going to be taking some of the losses in this one," Seidman said.
Speaking specifically about the underlying problem of subprime
mortgages, Seidman said: "I call it Karl Marx's revenge. This time the
little guy isn't taking a loss, but it's all the big guys absorbing the
losses. A lot of these subprime buyers don't have a financial interest
in the property, only a social interest in staying in their house."
He also commented on whether purchasing assets in the manner described when the program was first proposed will ever start to happen.
"Asset purchases will become a part of the program," Seidman said.
"Whether it happens [before Obama takes office] I don't know. They
made it pretty clear what they were going to do, and now it's pretty
clear they don't know what they want to do. It should be left up to the
new administration, since it's a very difficult thing.
"Originally, they expected to have 50 employees to run the $700 billion program, then it went to 500; it's probably at 5,000 now," he joked.
Seidman also warned against falling into the same situation as Japan,
which created its own TARP program years ago to help pull it out of its
decade-long slump.
"[Japan's] program was ineffective because the banks were unwilling to
sell assets to the prices that the TARP could buy at," Seidman
commented. "Japan was saved because they had a high rate of savings.
For the U.S., time is of the essence, since we have a consumer that
can't withstand any kind of financial reverse. If the unemployment
rate goes way up, we're in trouble." - George White
See more posts from the SIFMA Tarp Summit
