AALS Section on Financial Institutions and Consumer Financial Services

The section program at the Annual Meeting of the Association of American Law Schools in San Francisco on January 7 this year focused on the "post-crisis" landscape. The Call for Papers panel featured papers by William Birdthistle, Jim Hawkins, Adam Levitin, Alan White and Sarah Woo.

One of my favorites on this panel was James Hawkins' (University of Houston) paper on Regulating the Fringe: Reexamining the Link Between Fringe Banking and Financial Distress forthcoming in the Indiana Law Review. Basically Jim argues that products like payday loans, pawn loans, and rent-to-own leases— might not cause as much financial distress to consumers because of the finality involved in these transactions and the amount. As such, perhaps we might reconsider whether regulators should lump these types of transactions with others. At the heart of this is what constitutes financial distress. While I am not a fan of the fringe banking products, Jim's argument that they might require differing treatment in terms of regulation is worth serious consideration. For my part, I part with him in some of the ideas regarding monetary valuation. I remain unconvinced that one person's financial distress is the same as another's due to relative economic means as a whole. For instance, a person of very limited means may experience serious financial distress when their $750 auto is repossessed and they cannot get to work, then loose their employment, etc. While the event of losing the car may have a finality in and of itself that does not continue to plague the consumer, even smaller dollar transactions can have great impact on the lives of many consumers. That aside, the finality of the transaction is worth further thought when considering regulation of fringe banking products, as is the differing impact of the size of these transactions.

- JSM

What are they teaching kids about finance and budgeting?

My eighth grade daughter just participated in a program on finances and budgeting sponsored by Junior Achievement. A Junior Achievement teen personal finance survey reports that more than half of teens are not confident that they will make sound choices in terms of credit. Moreover, nearly all teens think they should have a credit card by age 21. The survey observes:

“Teens are admitting that they don’t have knowledge of some of the basic money management skills around investing, budgeting and using credit. Despite the alarming numbers, teens overwhelmingly have high hopes for future financial stability. The poll shows we need to do a better job of ensuring our youth are financially literate. JA offers a broad range of age-appropriate financial literacy curricula, from kindergarten through grade 12.”

So, all of this sounds a little dire. Making the work of Junior Achievement even more important, of course. And perhaps a few basic tips from Suzi Orman are in order? Not surprisingly, we talk to our daughter about making wise choices and living within her means. This would include everything from buying items on sale to purchasing used items on sites like Craigslist. We also talk to her about being a good citizen in terms of the environment as well, including walking and biking when possible. That is, not everyone (particularly college students) needs a car.

I was ready to embrace the Junior Achievement concern to educate teenagers, until my daughter started asking me questions about the workbooks her teacher assigned. She understood her profile to be a college student who has a job earning about $30,000 per year. A little unrealistic for a college student, but all right. The program has the student fill out budgets. This is where my daughter had many questions and I simply could not support the choices the program expected. For instance:

1. The workbook not only mandated that she purchase a car (whether she could afford it or not), but also required her to take out a five year loan on the car. In the summer Oprah magazine, Suzi Orman yet again blasted this practice advising against car loans more than 36 months or less (7 Deals You Should Never Make). Basically, perhaps one needs to shop for a less expensive car.


2. The workbook also mandated that she replace $650 of household furnishings and that she must put it on a credit card and pay for it that way. Apparently, no option to save up and buy in cash or to purchase something used.


3. The workbook required an apartment. While the student could get roommates, there was no easy way for the student to select a less costly alternative of living in a college dormitory where utilities, rent and food are typically included.

In the end, I advised her on how to best fill out her worksheets making the least devastating decisions. She did budget for buying household furnishings with cash and saving most of the money as a down-payment for the car. While I might have been fine with this if it was designed to teach teens the devastating impact of debt, there were no comparisons to other models or advise on better decisions. I also wrote a note in the workbook for the teacher asking him not to teach our children that it is fine to enter into these types of credit and financial situations.

The result of all this? The teacher was angry with her when he saw the worksheets and gave her a D for not following the program requirements. She had waited until the last minute to finish this, so her work was not as neat as it should have been, but really? Maybe the teacher will reconsider. In the end, I'd rather her get a D on the junior achievement and an remain solvent for a lifetime. Isn't all this debt part of what lead to the financial crisis?

- JSM

Nice Teaching Case: Home Sold Twice

Ben Davis sent this link out to the contracts professors list serve. http://www.msnbc.msn.com/id/39381416/. The case involves a home sold twice . . . apparently by mistake: once as a short sale and then at foreclosure days later. The new owners, thankfully, recorded their deed and bought title insurance, but it has been quite a headache for them. The lender, not surprisingly, is claiming no wrong-doing in the matter.

I am getting ready to start methods of avoidance in the next couple of weeks and will be sure to mention this one to the class.

- JSM

Opportunity for Self Regulation?

The Financial Crisis Inquiry Commission is examining the causes underlying our current financial crisis. The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling is charged with examining the causes and circumstances surrounding the BP oil spill in the Gulf this year. The Consumer Financial Protection Agency's job might be so large that we can only guess what it might tackle first, including credit scoring, student loans, overdrafts and payday loans (See, Six Problems the Consumer Financial Protection Agency Should Tackle First). Business interests oppose government involvement and oversight pretty broadly across the board (see, Fight Over Consumer Agency Looms, Business Groups, Obama Administration Spar Over Corporate Governance, The Case Against Corporate Social Responsibility, Businesses Buy Ads vs. Health Overhaul, US Must Control Deficit).

Yet, isn't there an opportunity here for businesses to engage in increased self oversight and regulation? One of those the best offense is a defense line of thinking. The Financial Services Forum states relative to financial oversight "[t]he Forum will continue to work constructively with the regulators charged with implementation of the legislation to create a financial supervisory framework that ensures institutional safety and soundness and systemic stability, while also meeting the financial needs of American businesses, workers, consumers, and investors." The Business Roundtable's list of Initiatives stresses outright that corporate leadership is the best way to foster trust in corporations. The Business Roundtable's list includes health care and retirement, education, fiscal policy, globalization and environmental concerns.

An aggressive list of priorities without dispute. But has business come through on these fronts? And, I mean not individual companies, but as a group? Despite the commissions investigating, new agencies and increased regulation, there is always an opportunity for business to head off looming problems, whether it is speculation, an innovation like credit derivative swaps poised to cause the next financial crisis or plain overreaching by businesses with consumers.

Self regulation and coordination is not unknown to business generally or to specific industries. Anil Gupta and Lawrence Lad commented "Researchers generally have viewed non-market regulation of firm behavior as synonymous with direct regulation by the government." Industry Self-Regulation: An Economic, Organizational, and Political Analysis. See also, Toffel, Industry Self-Regulation: What's Working (and What's Not)?. The whole idea, of course, is that self-regulation can either supplement or take the place of government regulation. While industries can engage in self-regulation more or less and in different manners, it has its effectiveness.

When I hear of businesses opposed to government regulation of a perceived problem, a common complaint is that government regulation hampers business growth generally, costs a lot and stifles innovation. While I understand that businesses want to make money off of the newest innovation, self regulation would seem to allow the financial community for instance to head off some of the systemic risks of the "innovation," such as the credit derivative swaps. Just because there is money to be made does not mean that it should be made if the "innovation" will lead to over-speculation causing a financial crisis. Yet, government regulation would not seem to always be the most efficient in these cases due to the time involved in establishing oversight of newer financial products.

Michael Toffel argues there are four main facets to self-regulation: "how the rules are designed, who adopts them, whether and how compliance is monitored, and whether these rules actually achieve what they purport to achieve." I agree that these considerations dictate whether the laudatory goals of the Business Roundtable and Financial Services Forum will have any effect on market participant behavior. Self regulation must be meaningful. While the door is open for financial services companies to show leadership on many open regulatory issues, movement is slow. With so much attention being given to opposing Elizabeth Warren as the new head of the Consumer Financial Protection Agency, perhaps business might be better served by turning to the issues (See, Warren's New Job).

- JSM

Obama Weekly Address on Financial Regulation

In case you missed Obama's address this past weekend on financial regulation, here it is:

No more taxpayer bailouts because a financial company is too big to fail was one of the key messages. Can this really happen? I am skeptical, but I guess we'll have to wait and see what the politicians agree to. Obama is correct in his assertion that something has to change in order to prevent the same crisis from reoccurring. Apparently, there will be much more coming on this issue in the near term.

- JSM

Bankers Without a Clue?

Paul Krugman wrote a nice op ed piece in today's New York Times titled Bankers Without a Clue. Krugman observes disappointingly that the bankers just don't get it. In truth, comments like the financial crisis was just a perfect storm (Goldman Sachs’s Lloyd Blankfein) and that no one could have predicted its coming (Jamie Dimon of JPMorgan Chase & Co.) are pretty unbelievable. I hope that the executives of these large financial insitutions aren't and weren't really that clueless. That said, I agree with Krugman that I don't expect the banks to give much concrete advice on financial reform. The distrust the banks have of regulators (and desire to protect their own pocketbooks) has resulted in many of the banks repaying the TARP funds as soon as possible.

Bill Thomas who is Vice Chairman of the Financial Crisis Inquiry Commission has assured us that at least the questions will be asked. Question is, whether any meaningful financial overhaul will come from this?

-jsm

Consumers May Buy Less Halloween Candy

A Time story this week reports that consumers will spend less on Halloween candy this year! Don't worry too much about this being a terribly large crisis driving little children into a frenzied panic comparable only to a bank run . . . the average spending is expected to be $56.31 per person, down from $66.54 last year. And, no worries, apparently the name brand candies will win out over store brand. As for our family, with three kids we've invested in our share to keep the economy going forward. Miniature Play Dough, chocolates and bubble gum eyeballs will be featured at our door on Saturday.

For the safety conscious, Consumer Reports has a nice piece on Halloween safety. Light the front walk, drive carefully, carry flashlights, practice fire safety with those pumpkins, etc.

Happy Halloween and have fun trick-or-treating!

- JSM

Bernanke Speaks on "After the Fall"

This week Ben Bernanke spoke in Chatham, Massachusetts on the role of the Federal Reserve after the crisis (See Bernanke Speech). Bernanke took the opportunity to observe the difference that a year makes in world finances, but urged (again) that with the crisis "abating" Congress must still act to prevent a future crisis of this severity.

We have seen numerous instances when weaknesses and gaps in the regulatory structure itself contributed to the crisis, many of which can only be addressed by statutory change. Notably, to promote financial stability and to address the extremely serious problem posed by firms perceived as "too big to fail," legislative action is needed to create new mechanisms for oversight of the financial system as a whole; to ensure that all systemically important financial firms are subject to effective consolidated supervision; and to establish procedures for winding down a failing, systemically critical institution without seriously damaging the financial system and the economy.

Bernanke went on to comment on a number of actions the Federal Reserve has taken and also to to take up the issue of consumer protection. Bernanke observed that "effective consumer protection promotes healthy competition in the financial marketplace, supports sound lending practices, and increases confidence in the financial system as a whole." Bernanke commented on the Fed's efforts using consumer testing to help determine when consumers understand financial products and communications from financial institutions. The Fed has used consumer testing in the debate involving debit cards, for instance. While no final regulations are yet in place for debit cards, the consumer testing tool may turn out to help the Fed tackle issues surrounding clarity of disclosures.

Bernanke has been hammering on the topic of needed regulatory changes for some time now. Let's hope that Congress is listening.

- JSM

Lenders Modifying Home Mortgages

Today's news included a Treasury report that lenders have modified 500,000 home loans to keep home owners in the homes under a trial loan modification program. I applaud the government for encouraging such modifications which would hopefully increase the value to both the mortgage holders and homeowners alike by protecting the asset and obtaining payment on the loan. Yet, I am reluctant to find joy in the number of loans so modified or the ease for consumers seeking loan modifications.

The Making Home Affordable modification program originally advertised that it would help 4 million homeowners retain their homes. (See, Foreclosures, New York Times). Mortgage foreclosures during the second quarter of 2009 were up 16%, reflecting falling housing values and rising unemployment. New Treasury plans include incentives for "short sales," which allow homes to be sold at less than loan value (i.e. market value) to head off foreclosures that are coming in the future (Short Sales Plan).

Two of the biggest impediments to modifications or short sales seems to be time and difficulty. While keeping homes out of foreclosure appears a good idea, lenders are likely earning default fees on the loan. Lenders may also be reluctant to modify loans too early, hoping owners will bring the loans current. Yet, waiting too long can allow the home to slip into foreclosure. Buyers interested in a short sale may also bolt if the bank takes too long or does not approve the home price, which is likely to be substantially below the loan value on the property. The difficulty of obtaining loan modifications and conflicting information received from lenders discourages eligible modifications under the federal plan.

While our home thankfully is not in foreclosure, I can report on our in process home refinancing that probably represents much of the frustrations that home owners face. For instance, in shopping for rates and costs, we found that some of the lending representatives did not return calls. Others had voice-mail boxes that were full so that messages could not be left. One Citi Mortgage representative gave us refinancing numbers, but then later we were never able to reach her. A second Citi Mortgage representative told us the initial numbers were actually wrong. Hardly inspiring. In the end, Wells Fargo actually negotiated rates that beat the competitors, so we are now working on reviewing paperwork with them. We're not done, but at least the refinance is locked in at a favorable rate. Yet, I can see from our own experience for an uncomplicated refi the frustrations that homeowners are reporting, particularly when the situation is complicated by a delinquency or foreclosure.

So, is the 500,000 milestone a reason to celebrate? Probably. But my enthusiasm is lessened by the amount of transactions that remain.

-JSM

Bernanke Believes Recession "Over"

Happily, Bernanke stated today at the Brookings Institute that he believes that the growth we are seeing in the economy suggests that the recession is technically over. Unfortunately, the unemployment rate, currently around 9.7%, will be slow to come down. This will leave many still struggling with the pace of a slower recovery. This is good news, for sure. Since last fall we were bracing for another "Great Depression," pehaps we can be contented with simply riding out slow economic growth. And, of course, Bernanke emphasized yet again the need for regulatory overhaul of some type. Perhaps the more times we hear this, the more likely it might be that action will follow. Let's hope.

- JSM

Obama on Financial Rescue and Recovery: market regulation and the "false choice"

In case you missed it, President Obama spoke this morning on the financial crisis and recovery efforts (see Obama Remarks on Financial Rescue). In terms of regulatory overhaul, President Obama remarked that it is a "false choice" to believe that entrepreneurism and innovation are sacrificed by regulation. Something President Obama has stressed is "common sense" rules of the road. People's memories seem to falter once a crisis begins to pass. After all, government intervention seems to work, so why burden business with onerous regulations? For my part, I believe the United States has been lucky in its ability to slow the financial crisis and begin rebuilding. Recovery, though, may turn out to be much slower than we might hope (see Recovery Slower). As we've said here before (see War of Wealth), this country has been down the road of bank failures and financial crisis before. President Obama and Chairman Bernanke (see Bernanke Sees Progress) are telling us that something substantial needs to change. With competing issues like health care and impending flu concerns, will we heed the warnings that are Obama, Bernanke and others have delivered? Or, will we continue on with business as usual? Hmm, the markets are up today (see Bloomberg) .

- JSM

Obama Sticks with Bernanke

Not surprising, but President Obama reappointed Federal Reserve Chair Ben Bernanke to another term yesterday (see Obama to Nominate Bernanke). Although Bernanke is a Republican, his style of aggressive action seems to pair well with the White House. Change at this point would have been usual as the economic indicators are showing some positive signs. Even though there will be questions at his confirmation, there is no reason to expect too much trouble.

- JSM

Bernanke Sees Progress on Economic Recovery

Reasons for cheer on the economy? While Chairman Bernanke speaks more often theses days then we might see in growth times, the markets were up on Friday after his speech at the Federal Reserve Bank of Kansas City's Annual Economic Symposium, Jackson Hole, Wyoming (text of speech). Bernanke reported both on the toll of the economic crisis and the gains made since. Bernanke clearly credits government intervention worldwide for easing the panic that hit the markets last October. Bernanke does believe that the world is "beginning to emerge" from the financial crisis, though he does not specify how long recovery might take. Bernanke does believe, however, that positive growth will return in the "near term." Just a bit of positive flavor seems to be enough to help the markets these days.

Is this just Bernanke or is there something more? Unemployment claims are still high with most states seeing their jobless claims rising last month (see Jobless Claims Post Increase). And, the deficit over the next ten years is expected to be 2 trillion more than expected (see Deficit Expected to Widen). While none of this is positive, the numbers for sales of existing homes was up 7.2% from June (see Housing Lifts Recovery Hopes). Despite the mixed news, the housing market has played a big role in the financial crisis, so good news in that sector is important. Just simply that buyers are back purchasing homes.

No matter how mixed or hopeful an assessment of the current economic state we might cast, we might heed Bernanke's warning (one he has given already):

"Looking forward, we must urgently address structural weaknesses in the financial system, in particular in the regulatory framework, to ensure that the enormous costs of the past two years will not be borne again."

The temptation to fight the current economic crisis through government programs like Cash for Clunkers and home buyer tax credits should not give way to a failure to address the problems that led us to the crisis. Not surprisingly, we seem to be spending much time on cure right now. What about prevention of future problems (See Is Financial Regulation Overhaul Stumbling? and Doubts Slow Financial Regulation Overhaul)? The coming months will tell whether the politicians can come to some arrangements for overhauling financial regulation. It is easy to have doubts when we are contemplating curtailing the authority of some governmental agencies (Office of Thrift Supervision)and enhancing others (Federal Reserve). Will a stronger Federal Reserve be the best vehicle to protect consumer rights, for instance? I have my doubts about how this will resolve.

Financial regulation changes may ultimately appear less comprehensive and more piecemeal. There is language floating currently to tackle the derivatives that went unregulated (see New Milestone). The Supreme Court is going to hear a case on executive pay. What's in this for consumers? One of the controversial cornerstones to the overhaul is the creation of a Consumer Financial Protection Agency. President Obama's argument that protections are needed as part of a financial overhaul package are persuasive, as consumers clearly played a role in the crisis.

Over the coming months we will see more pieces to the financial regulation puzzle. I would like to see some changes in consumer rights. The current framework makes it difficult for initiatives to move forward as it may require action of several federal agencies (see How your $4 Cup of Coffee Can Cost You $35 or More). To the extent we want to blame consumers for their role in the real estate and credit crisis in particular, it is easy to argue that transparency in financial services dealings with consumers would be enhanced with a single watchdog agency.

-JSM

Containing the Crisis and Promoting Economic Recovery

Federal Reserve Governor Elizabeth A. Duke spoke on June 15, 2009 at the Women in Housing and Finance Annual Meeting in Washington, D.C. on whether the government's actions so far in the economic crisis have been effective. Although Governor Duke believes that the programs have been "broadly successful in relieving stresses in the key credit markets," the job is not complete. Governor Duke concluded:

In the past, economic downturns were deepened or prolonged by the premature withdrawal of monetary or fiscal stimulus. To the extent that the severity of the current downturn has thus far been mitigated by extraordinary credit support, a significantly weaker path of lending--and thereby economic activity--could very likely occur if policy support for the financial sector is withdrawn too soon. In this case, stigmatization of support tools such as liquidity programs, direct lending programs, or government capital injections that make participants unwilling to use such programs will have the same effect as a direct policy withdrawal of the programs. And while the path of credit in this cycle compared with others is encouraging, the downturn in credit evident in the most recent quarter provides a reminder that conditions are still far from normal.

Others seem to agree with Governor Duke. For instance, the OECD is reporting the economy is "fragile" but recovery is in sight. The IMF's John Lipsky has also given indications that the economic downturn is bottoming out, but is beginning recovery. (See Lipsky remarks "Moving Beyond the Crisis"). All indications are, though, that recovery will take some time. See also, Fed Sees Signs of Hope. Moreover, substantial changes to the business and financial environments will need to change.

- JSM

President Obama Announces Financial Regulation Reform

A couple of days late, but better than never! Obama hits all from consumer and financial institution overreaching to the lack of proper regulatory oversight. Obviously, leading to the current financial crisis. Where to go from this mess? Overhaul the financial regulatory system, of course. The biggest challenge is Obama's concept of encouraging innovation while guarding against risk. Easier said than done. We've found ourselves relatively effective at addressing past and current crises. The greater challenge, though, is foreseeing the next crisis around the corner. Particularly any crisis that threatens the "forest" as Obama refers to the financial system as a whole. The increased authority proposed for the Federal Reserve is sure to meet some industry resistance at a time when banks are attempting to escape government oversight by repaying TARP funds (see repayments by JP Morgan, American Express, Goldman Sachs, State Street). The elimination of the Office of Thrift Supervision in exchange for direct Federal Reserve involvement is sure to raise the ire of banking groups (see Financial Services Forum "Lobbyists Dig In As Obama Pushes Financial Overhaul").

Importantly, Obama plans the creation of a consumer watchdog. Long overdue, but we will need to wait to see the details. The authority granted this agency will be key to its effectiveness in a government system with established players . . . and established lobbyists. As a concept, I am all for it.

-JSM

New Investments to the IMF

The IMF has been busy helping countries respond to the economic crisis through financing. Lending commitments are at a record $157 billion. One of the changes, though, has been an easing of the loan conditions that often went along with IMF aid. The IMF has often encouraged political policy changes in exchange for money. Is this a good thing? The tension here is that the countries need the loan money without delay. The IMF is wise to respond quickly to the crisis. That does not mean that the IMF and the borrowing countries, though, are not missing "opportunties" to promote better business and other practices that enhance competitiveness in the longer term. In the end, the borowing countries may still need changes in local laws and governmental frameworks to be competitive. Perhaps now, though, is not the best time to impose such changes given the instability in the borrowing countries already.

Moreover, the IMF's focus may be changing due to the financial crisis with more efforts toward the donor countries. Not only do the larger countries have to keep markets active with developing countries, but they must support the IMF's loan efforts. There does seem to be some action in that respect. Russia, for instance, just announced a new $10 billion commitment to the IMF. Brazil, China (up to $40 billion) and India are also making new investments in the IMF. The additional investments may lead to these countries having a greater say in the business of the IMF and global monetary policy generally. Of course, new commitments are necessary in order for the IMF to continue the financial arrangements with the borrowing countries. The U.S. Senate recently rejected a proposal to eliminate a $180 billion in loan commitments to the IMF. The funding is still pending, though, but has the backing of the White House.

-JSM

Falling Behind on Your Mortgage?

For those wondering how exactly did all these people fall behind on their mortgages, take a look at a pretty honest personal story in the New York Times. The author, like many, bought a home he couldn't afford, tried to compensate with credit cards and refinancing and had a spouse lose a job. There are tough times for many who bought into the traditional model of rapid real estate value increases and living beyond their means. Reading the piece, it is easy to see how people fall into the trap.

A surprising little aside is that the banks have not had time to foreclose on his home or do a loan modification even though his last payment was eight months ago!
- JSM

Bank Stress Test Skit on SNL

In case you missed it:

- JSM

Chairman Ben S. Bernanke on Financial Innovation and Consumer Protection!

Since I've been busy for a few weeks with exams and all, there is much to catch up on. Chairman Bernanke spoke on April 17, 2009 at the Federal Reserve System's Sixth Biennial Community Affairs Research Conference, Washington, D.C. Bernanke commented "financial innovation, it seems, has fallen on hard times" in that it is often now seen as the problem (for a transcript, see the Federal Reserve website). Bernanke made some important points about the potential link between complexity of financial products and the potential for "unfair and deceptive" practices. That is, even a diligent consumer may not be fully aware of the whole host of potential fees associated with each credit card they have. The complexity of financial products can reduce transparency either because the terms are hard to deduce or perhaps to understand.

When turning to the problems faced by the Federal Reserve in drafting regulations to enhance consumer education, Bernanke placed great emphasis on the benefits of consumer testing. The caution to testing, though, is that disclosure does not always lead to consumer understanding. Therefore, sometimes the Federal Reserve must prohibit certain practices, such as double-cycle billing. I couldn't agree more with some of these observations. Transparency cannot solve all ills in the financial industry. It is not enough to say that consumers should find another provider if all providers use the same practices or consumers do not fully understand the practices. In the end, the Federal Reserve must address both complexity and transparency.

- JSM

Geithner on Face the Nation

Today, Treasury Secretary Timothy Geithner appeared on CBS' Face the Nation in an interview with Bob Schieffer. Schieffer had plenty of questions for Geithner, including whether the government was trying to force General Motors into a managed bankruptcy. Interestingly, Geithner did not deny it, but focused on the place that a strong General Motors will hold when it is stronger. When asked about whether the government was giving the banking executives a pass, while being harder on the auto industry execs (as we've suggested here, see Wagoner Steps Down) Geithner responded that the government has changed leadership in some companies such as AIG. Geithner said that banks needing "exceptional" assistance might also find themselves with changes in leadership as well.

Geithner was pretty coy about what "exceptional" assistance might be, perhaps for good reason. Certainly, removal of GM's Wagoner is unprecedented, but these are unusual times. Yet, removal of company management is a drastic step with ramifications in the markets. Geithner was wise to not suggest that the government will in fact affect management, even if that ultimately happens. It certainly seems advisable to leave the door open on this issue as the stress testing of banks is just beginning. In the event that banks (perhaps CitiGroup and Bank of America) still require exceptional assistance, management changes might follow. Traditional lenders and creditors do affect management and management decisions. The government, in this case, is operating less like the government as regulator and more as the government as lender and stabilizer. Will we see more management changes?

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— JSM