Bush tells Wall St to shoulder hits now
George W. Bush on Thursday urged US financial institutions to take any write-downs resulting from the housing crisis "now" and to give investors more information about their financial health.
"Wall Street needs to put it all out there for everybody to see. They need to have?the off-balance sheet [items]put out there for investors to take a look at," the US president said at his year-end press conference. "And if there's some write-downs to be done, they need to do it now."
His comments came as Bear Stearns reported its first quarterly loss and took a write-down of $1.9bn (€1.3bn, ?960m) on its mortgage related positions. Morgan Stanley this week announced a $9.4bn write-down and said it would receive a $5bn capital infusion from China Investment Corporation, China's sovereign wealth fund. Bear has previously announced a $1bn investment from Citic Securities of China. Bear also invested $1bn in Citic.
Mr Bush dismissed concerns over investment funds controlled by foreign governments taking stakes in US financial firms. "I like to get our money back," he said.
"I'm fine with capital coming in from overseas to help bolster financial institutions.
"I think what will be a problem is to say we're not going to accept foreign capital, or we're not going to open up markets, or we've become protectionists."
The administration is battling to fend off Democratic demands for more extensive intervention to ease the problems in the housing market, while defending itself against charges that it is already meddling too much in private markets.
Some experts say the administration-sponsored plans to freeze the interest rate on some subprime loans and create a superfund to provide liquidity for housing-related securities risk extending the crisis by not dealing with the problems up front. They draw parallels with Japan in the 1990s.
However, the administration vigorously contests this comparison, saying there will be huge pressure on banks and investors to use any time bought for them by these initiatives to deal with the underlying problems.
Mr Bush's comments could set the tone for the US regulators with responsibility for financial institutions. If the word from the White House translates into pressure on regulators to force banks to speed up disclosure of losses, that could result in more near-term bad news but a reduced likelihood of a continued drip-drip of bad news.
But banks could have difficulty taking complete write-downs since the extent of their losses will depend on where house prices stabilise, particularly because most subprime-related securities are based on loans with little, if any, homeowner equity.
In a light-hearted moment, Mr Bush responded to a question about Time magazine selecting Vladimir Putin, the Russian president, as its man of the year, saying he was "looking forward to seeing him at the alumni meeting of the man of the year". Mr Bush has been selected twice. ( FT )