Treasury Secretary Tim Geithner laid out the administration’s plan to bring the financial sector back to health in a speech this morning. I do not believe he took any questions and the markets’ immediate response was to sell-off. The obvious problem with the plan is that it carries tremendous political risk, as was acknowledged in internal administration debates.
Officials said the plan was fashioned after a spirited internal debate that pitted Mr. Geithner against some of the president’s top political hands.
Some of President Obama’s advisers had advocated tighter restrictions on aid recipients, arguing that rising joblessness, populist outrage over Wall Street bonuses and expensive perks, and the poor management of last year’s bailouts could feed a potent political reaction if the administration did not demand enough sacrifices from the companies that receive federal money.
They also worry that any reaction could make it difficult to win Congressional approval for more bank rescue money, which the administration could need in coming months.
Geithner fought back and prevailed over Obama’s experienced political hands that wanted a more populist response. Matt Yglesias correctly points out that the right way to set policy is to listen to your experts and not be driven by your political hands. Yet, this is one situation in which the political folks might a have a better grasp of what is feasible in the populist political climate that currently prevails in the country.
As a strategy to heal the financial sector, the Geithner plan may be workable, at least in theory, but it’s not a plan that this Congress is likely to endorse with their votes. The administration doesn’t need Congress’s votes on this plan at the moment, but they’ll probably need them sometime in the near future.
I am going to let others analyze the complex plans to set up a bad bank for toxic assets. I note that the Treasury Department will be doing a ‘stress-test’ to assess the vulnerability of financial institutions, and that those that are sufficiently weak will be nationalized or partially-nationalized. I think this plan will ‘work’ at least in one sense. It will eventually scoop out the toxic assets from the balance books of our lending organizations and allow them to start fresh. The big questions are: at what cost to the taxpayer, and at what cost to the Democratic Party?
There are two reasons for the sell-off:
So yeah, 300 point selloff today.
People are starting to pick up on that. Everybody denounced it before it was even put online to read, and now some folks — Paul Krugman, for example — are backing off that initial reaction and saying, “Well, hang on….”
I’m wondering if this plan is a back-door nationalization policy. It seems to depend on interpretation, meaning, “We’ll see.”
slightly ot, but relevant; the senate passed the stimulus bill…looks like the cloture vote, redux 61 – 37…corny must have voted today.
I think Obama is making the Republicans look hopelessly out of touch with his presser last night and his townhall meetings the last two days.
Even Joe Scarborough was raving about Obama’s performance at the press conference, and contrasting it with Bush’s inadequate performances.
here’s the roll call. party line, w/ sanders, and snowe, and specter crossing over.
the Rats just keep digging…it’s all they know how how to do. they’re really starting to resemble the whigs, here’s hoping they follow in their footsteps.
is that what it’s called?
I’m no economist, but perhaps “proposal” would be a better word for geithner’s suggestion.
I think his speech sucked. And he should have taken questions. But they do have a fact sheet (.pdf) for those that want to see more of a plan than a proposal.
Only $50 billion for direct homeowner relief..
That’s at least one item that should increased 10 fold at the expense of any non-stimulative spending, depending on how they execute.
Policies like a $15,000 tax credit will create a bubble that will burst when the spending ends. If there was a shortage of interested borrowers, this would be a better policy.
Paying that $15,000 to principal will lower month expenses for millions, stem foreclosures, set reasonable values for mortgages (we need a bottom!), pay itself off over time with reduced mortgage interest write offs and increase the amount of money in the consumer’s pocket starting the day it’s enacted.
I’d like to see the above not because I blindly like the little guy, but because asset values will be more knowable which would translate directly to more lending of the non-stupid, bubble variety that most of the other stimulus efforts here seem to encourage (unsustainable subsidies = bubble).
The point should not be to buy a year or two and hope everything sorts itself out despite the certainty that the mini-bubbles you’ve created will eventually burst.
But, unfortunately, that’s what you get with this imaginary “bipartisanship” which everyone seems to want to embrace. A temporary, feel-good bill that is likely to be ineffective in its limited scope and vision. Let’s hope that some of this stuff finds a way to get corrected in the House. Though I really doubt that anything the House tries to re-inject in the bill will stand a chance in hell of staying.
Booman, I really can’t understand why you are so sanguine about what we know right now about the bank bailout. Every indicator points to some version of a “bad bank” by which taxpayers underwrite losses and bank shareholders reap profits, or a superficially less atrocious alternative that in practical terms will amount to the same thing (i.e., the $250-500 billion plan to “encourage” private investors to buy chunks of the shitpile, which simply cannot work absent gurantees of a floor or some form of insurance against loss at the taxpayers’ expense). If that is what this ends up being– and every indication thus far is that it will– it will be awful policy and worse politics.
Unbelievable that someone like Geithner is put in his position… HE NEEDS TO BE REPLACED. Either he’s a crook or an idiot we don’t need either running the Treasury. Obama needs to admit his mistake and replace him.