Fiscal Policy Multipliers at the End of the Great Depression
links for 2010-09-24

Citigroup's View of the Obama Administration in February 2009...

On 25 February 2009, Ryan O'Connell and Jerry Dorost of Citigroup's research arm wrote an "Industry Flash" about Obama Administration banking policy:

New Treasury Stress Test Guidelines Do Not Appear Onerous

  • Treasury's plan appears relatively bank-friendly and investor-friendly — The Treasury has released guidelines for new stress tests for the largest US banks and the terms for the banks to issue convertible preferred securities to the government to address any capital shortfalls. The Treasury’s announcement indicates, in our opinion, that the US government is following a relatively bank- friendly, investor-friendly approach.

  • Treasury’s goal is to increase banks’ capital — We think that several banks may need to increase their capital because of the new stress test. However, the Treasury’s goal, in our view, is to increase banks’ capital while minimizing the amount and duration of any government’s direct ownership of common stock.

  • Stress scenarios do not seem onerous or draconian to us — The guidelines require the banks to estimate their potential losses under a baseline scenario and a “more adverse” scenario for a two-year period. These scenarios do not seem onerous or draconian to us; indeed, they appear fairly close to the scenarios that JP Morgan discussed this week when it announced its dividend cut. We think that most banks may be using similar assumptions in running their own stress tests.

  • Emphasis on common equity — The Treasury did not set a target equity ratio and said that it was not imposing a new capital standard, while pointing out that common equity should be the “dominant” component of Tier 1 capital. We interpret this statement to mean that common equity should be at least half of Tier 1, which would indicate a ratio of tangible common equity to risk weighed assets of 3%, although it could be somewhat higher (i.e., 4%). Although the banks and regulators will discuss the stress tests, the Treasury made it clear that bank regulators would determine the amount of equity capital that banks need.

Today--nineteen months after this document was written--it is of historical interest only: none of Citigroup's paying clients would pay a cent for the information contained in it, for nobody could in any way profitably trade today on Citigroup's February 2009 analysis of the policies of the Geithner Treasury.

Nevertheless, Citigroup has sent Doug Henwood a DMCA takedown notice, demanding that he remove this now nineteen-month old document from his website.

Whatever you think about the DMCA, it should not be used to prune the historical record of primary sources about how various economic policies were perceived at the time.

So here it is: