| Geithner's Hazy Plan |
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| Thursday, 12 February 2009 00:06 | |
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This week Treasury Secretary Timothy Geithner held a press conference to announce his big plan to get credit flowing again. As they say, "The devil's in the details," only in this case there are no details and the devil sent the Dow into a nearly 5% nosedive—the worst sell off since President Obama took office. The $1 trillion to $2 trillion plan includes a cobbled together patchwork of spending: a fresh round of capital to be injected into banks, an expansion of a Federal Reserve lending program and an attempt to coax the public-private sector into investing in some of the bank's questionable assets. How will they get investors to buy in? The existing Term Asset-Backed Liquidity Facility (TALF) will be expanded to provide as much as $1 trillion in financing to any investors willing to buy assets backed by student loans, credit cards, auto loans and commercial real estate. No one knows if this will actually work. What we do know is that things are likely to get worse before they get better. Even Geithner admits that it's going to take time, and that they won't always get it right. So far the solutions have been too little too late because policy was always been behind the curve chasing an escalating crisis. As one senior Treasury official observed, the government can't simply put capital into banks, can't simply restart the securitization market and can't simply take assets off the balance sheets and expect the market to recover. What they are hoping for is that a combination of all these actions, and anything else they might come up with, will do the trick. I feel it may be good for the U.S to spend the trillion or more, but what I am most concerned about is that they don't know where to spend it! We keep hearing promises that any and all future financial decisions will be made and carried out with clarity, transparency and accountability. But instead, we get vague details about a vague package and the only guarantee is that no one knows if it will solve the problem. I understand the need for urgency, and I am assuming that the lack of details just underscores the complexity of the problems, but it seems like this is a golden opportunity being missed by the Obama administration. The big risk is a loss of credibility and a backlash that carries labels of incompetence and business as usual in Washington. The big DOW drop would seem to testify to that. Are we back to square one? Since the first stimulus package, which started with details scrawled on a napkin, accomplished nothing but a huge black eye on the former administration's lawmakers, shouldn't we have every reason to expect that the new administration would have learned a lesson? But have they? At least they have ruled out dramatic approaches like nationalizing the banking system or throwing hordes of cash at banks with no conditions whatsoever. But the markets, and most importantly, the American people need a major boost of confidence. We are being told that the reason for the lack of details was because there are still details to be worked out with both Congress and the public before the plans can be fully developed. They say they want to avoid a repeat performance of the Paulson plan. You remember him—the go-it-alone loose cannon who kept changing the rules of his rescue plan without ever consulting Congress. We're all for not repeating that fiasco. But in terms of our financial and economic future, now more than any time in recent history, the populace has to be able to trust the country's leadership. If Tuesday's news conference was supposed to provide a level of reassurance, it failed miserably. Continued missteps by the new administration will likewise fail to build confidence. Expectations and approval ratings are still high during this first 100 days and in view of the challenges they inherited, they deserve all the breaks they can get. But if there are more disappointments like Geithner's press conference, that confidence will start to erode quickly. When that happens, the ripple effects could be disastrous. |
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