Ultimately, attendees for the day were seeking insight on where everyone, both inside and out of the business sector, might be headed. The five panels at the all-day event, sponsored by Incisive Media's American Lawyer and Corporate Counsel magazines, hone in on the bailout plan's provisions.
The panel, "Understanding the Bailout Programs," was a discussion between Linda Soldo and John C. Murphy, both partners at Cleary Gottlieb Steen & Hamilton LLP's Washington, DC office, as well as third panel member Laurence E. Cranch, Manhattan-based EVP and general counsel at AllianceBernstein LP. With that discussion, the audience heard a now familiar, grim forecast: it will get much worse before it gets better.
Blaming the current storm on individuals like Paulson and Bernanke was unfair, they said, adding that 2008's Emergency Economic Stabilization Act was very broad in its definition and scope. They said the prevention of a collapse had been successful, but the economy keeps getting worse, daily, and that the banks need capital, and they need it soon. The panelists worried that even run of the mill companies are going bankrupt and that the Treasury's sources would soon prove limited.
But the panel said provisions that require lending are nothing more than smokescreens. In fact, panel members argued, big banks are lending as much as prudently possible. They told the audience there had simply been a marked tilt toward over-conservatism.
There was also the discussion of possible solutions, such as creating a fund, getting institutional investors to invest in that fund, then asking the government to borrow a few billion dollars more, which could then be used to acquire asset-backed securities. However, there were also rumblings of worry over certain provisions in Treasury secretary Timothy Geithner's rescue--such as potential bank stress tests--which one panelist called a political issue as much as it was economic. The stress tests are often seen as barriers to rapidity or a quick infusion, the panel pointed out, which some call a necessary ingredient in any blast of capital into the banking markets.
The Treasury has called for comprehensive bank stress testing that it says will help differentiate healthy banks from those needing government assistance. Nuts-and-bolts details of exactly how these examinations might be conducted have been few and far between, but there is certainty the tests themselves would take large amounts of time.
Reportedly, regulators who are currently the daily monitors of individual bank health, would be given the added responsibility of figuring out which banks might be able to survive with or without government help. On Feb. 12, the New York Times reported that the stress exams would be applied to the 18 largest banks in the nation. But in a nutshell, the panel said that it was essential to increase credit flow and soothe the fears of the nation's consumers.
Panel member Murphy tells GlobeSt.com, "Anything that enhances the flow of credit, and overall consumer confidence, should be a plus for real estate markets." Murphy, who is a former general counsel at the FDIC adds that this "therefore includes the New York City markets."
Later the panel's discussion turned to private investments, but panel members cautioned that more sophisticated houses of investment are leery in this economy, so there would have to be a very high rate of return. Cranch's firm, in a Feb. 13 update, said swift action taken on the fiscal stimulus will remove some uncertainty that may have deterred consumers and businesses from risk taking decisions. "Speed, therefore, is a key to recovery," according to the AllianceBernstein report.
Incisive Media is the parent company of GlobeSt.com.
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