The Wall Street Journal is reporting Paulson to Meet With U.S. Bank Chiefs.

Treasury Secretary Henry Paulson has called the top U.S. banking heads to a meeting today in Washington, people familiar with the matter said.

The 3 p.m. ET meeting at Treasury is being called while most of the banking chiefs are in Washington for meetings of the World Bank and the International Monetary Fund. Expected to attend were banking executives including Ken Lewis, CEO of Bank of America, Jamie Dimon, CEO of J.P. Morgan Chase, Lloyd Blankfein, CEO of Goldman Sachs Group; John Mack, CEO of Morgan Stanley; Vikram Pandit, CEO of Citigroup; and Robert P. Kelly, CEO of Bank of New York Mellon.

Earlier Monday, Interim Assistant Secretary for Financial Stability Neel Kashkari said the Treasury tapped law firm Simpson Thacher & Bartlett LLP to provide advice on taking equity stakes in banks.

Speaking to an international banking group, Mr. Kashkari detailed several steps the Treasury had taken to ramp up the so-called Troubled Asset Relief Program in the last 10 days, conveying that it is working with utmost speed on the rescue effort.

“A program as large and complex as this would normally take months — or even years — to establish. We don’t have months or years,” Mr. Kashkari said. “Hence, we are moving to implement the TARP as quickly as possible while working to ensure high quality execution.”

The speech were Mr. Kashkari’s first remarks since he was tapped by Mr. Paulson to head the $700 program. A 35-year-old former Goldman Sachs investment banker, he was chosen only last week to head the new so-called Office of Financial Stability. Mr. Kashkari indicated that there was ample private-sector interest in assisting with the program. More than 200 firms have applied to manage securities or whole loans under the program, he said. The winning vendors will be chosen in the next few days.

Meanwhile, Treasury has narrowed its choice of firms to serve as custodian from 70 to 10 and will make a decision within the next 24 hours.

Mr. Kashkari said that Treasury has created seven policy teams to oversee different aspects of the $700 billion rescue. They include teams to implement purchasing programs for mortgage-backed securities and whole loans as well as a program to insure financial firms’ toxic assets. Three other teams will oversee efforts to help homeowners stay in their homes, design executive pay requirements for firms that participate in the program and run compliance.

Mr. Kashkari said Treasury last Friday began to solicit public comments on how to structure the insurance program. Ideas will need to be submitted within 14 days, he said.

Kashkari Gives ‘Comprehensive Update’ on Rescue Plan

Click here to see the full text of Kashkari speech on the bailout plan. A few snips follow.

I am here today to provide a comprehensive update on the Treasury Department’s progress in implementing the Troubled Asset Relief Program (TARP).

As you know, our credit markets are frozen and lending has become extremely impaired. In recent months our government has taken strong and decisive actions, but a more systemic approach was needed. Secretary Paulson and Chairman Bernanke asked Congress for extraordinary authorities to address the extraordinary challenges in our financial markets. Every American depends on the flow of money through our financial system. They depend on it for car loans, home loans, student loans and their individual family needs. Congress recognized the threat frozen credit markets posed to Americans and to our economy as a whole. On Friday October 3, Congress passed and President Bush signed into law the bipartisan Emergency Economic Stabilization Act of 2008. …

Strategy, Implementation, Recruitment, Procurement

The speech continues on to talk about Strategy, Implementation, Recruitment, Procurement, operations, and compliance. But let’s step back and ask ourselves why it is we need an office of Secretary for Financial Stability in the first place.

The answer is we have an unsound banking system based on fractional reserve lending, compounded by micromanagement of interest rates by the Fed, and runaway spending in Congress.

To date, I have not heard one single sentence from anyone important enough to matter, about what really went wrong and why. Instead we have yet another governmental body attempting to add “financial stability” while doing nothing to address the root cause of this mess.

The worst part is the Fed and the Treasury have decided the problem is that banks are not lending enough. The reality is that banks have lent too much.

Essence Of The Rescue Plan

To stimulate lending, the bailout plan will attempt to recapitalize banks. The method of recapitalization is best described as robbing Taxpayer Pete to pay Wall Street Paul. In essence, money is taken from the poor (via taxes, printing, and weakening of the dollar) and given to the wealthy so the wealthy supposedly will have enough money to lend back (at interest) to those who have just been robbed.

All this talk about Strategy, Implementation, Recruitment, Procurement, operations, compliance, and other details masks the essence of the plan. And even though “A program as large and complex as this would normally take months — or even years — to establish“, the Secretary for Financial Stability is going to ramrod something through as quickly as possible.

Unfortunately, no matter what seat of the pants strategies they come up with, I can guarantee in advance that the unforeseen consequences of whatever decisions they make, simply will not be any good. Besides, it is axiomatic that plans to rob Peter to pay Paul, can never really work in the first place, regardless of how much time is spent crafting them.

Mike “Mish” Shedlock
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