Obama Sees Signs of 'Normalcy' One Year After Lehman Collapse
Marking the one-year anniversary of securities firm Lehman Brothers’ fall and the start of the financial crisis, President Barack Obama said that results from government interventions show signs of a “return to normalcy,” in a speech delivered Monday at the Federal Hall in Manhattan. After the stumble of the some of the country’s largest financial institutions -- including Merrill Lynch, American International Group, Washington Mutual and Wachovia -- taxpayers will not escape the crisis unscathed, Obama said. But, he said, banks have repaid more than $70bn, and taxpayers earned a 17% return on investments made in cases where the government’s stake sold completely. “Just months ago, many experts from across the ideological spectrum feared that ensuring financial stability would require even more tax dollars,” Obama said. “Instead, we’ve been able to eliminate a $250bn reserve included in our budget because that fear has not been realized.” The speech echoes the victory calls of US Treasury Department officials as the one-year anniversary of the Troubled Asset Relief Program (TARP) nears. “Today I believe, because of comprehensive policy actions put in place since then, we are back from the edge of the abyss,” said Treasury secretary Timothy Geithner at a hearing by the TARP Congressional Oversight Panel last week. Moving forward, the Treasury outlined the next phase in the recovery plan in a report released just before the speech. The Treasury plans to exit from those emergency programs where the need has receded, such as the $250bn “placeholder” put into the President’s budget to support the $750bn spent to stabilize financial markets. The Money Market Mutual Fund Guarantee Program, which provides protection for $2.5trn in investments in hopes of preventing a run on money market mutual funds after the fall of Lehman Brothers, will expire on Sept. 18. Since its inception, the program suffered no losses and earned the US government $1.2bn in fees, according to the report. Also, the Federal Deposit Insurance Corporation (FDIC) will not extend the deadline for its Temporary Liquidity Guarantee Program (TLGP) past Oct. 31. The program provides a guarantee on transaction accounts and senior debt issued by banks. The report also noted a decreasing reliance on federal support. For example, the monthly issuance of TLGP guaranteed debt fell from $113bn in December 2008 to $5bn in August. The third part of the next phase includes an expected $50bn in capital repayments over the next 12 to 18 months from banks. However, some programs will remain in an ongoing role. For example, the Adminstration’s Home Affordable Modification Program (HAMP), which provides cap incentives to servicers for loan modifications, is “just ramping up,” according to the report. According to the latest TARP report, the total number of participating servicers grew to 53 last week. Despite the initial sounds of victory, and the reports of progress under HAMP, many borrowers continue to default and enter foreclosure. RealtyTrac.com sees foreclosure filings arcing toward record highs, and Moody’s forecasted that collateral performance within the US Securization market will suffer deep into 2011 before recovery. Write to Jon Prior.