Geithner Lays an Egg

February 11th, 2009

Timothy F. Geithner, Secretary of the Treasury, announced yesterday details of the new Financial Stability Plan (TARP II).  According to Geithner, “Our plan will help restart the flow of credit, clean up and strengthen our banks, and provide critical aid for homeowners and for small businesses.”  He stated that the causes of the crisis were: 

Governments and central banks around the world pursued policies that, with the benefit of hindsight, caused a huge global boom in credit, pushing up housing prices and financial markets to levels that defied gravity.

Investors and banks took risks they did not understand. Individuals, businesses, and governments borrowed beyond their means. The rewards that went to financial executives departed from any realistic appreciation of risk.

There were systematic failures in the checks and balances in the system, by Boards of Directors, by credit rating agencies, and by government regulators. Our financial system operated with large gaps in meaningful oversight, and without sufficient constraints to limit risk. Even institutions that were overseen by our complicated, overlapping system of multiple regulators put themselves in a position of extreme vulnerability.

That sounds reasonable.  And if you think about it, just about everyone involved in government, financial policy making, and business shares part of the blame.  Once everyone tires of the finger-pointing, we can begin fixing real problems.

Problem is, Geithner laid an egg today.  As reported in The New York Times,

Stock prices fell sharply on Tuesday after Treasury Secretary Timothy F. Geithner unveiled the government’s latest efforts address the troubled banking system, a plan whose price tag could reach $2 trillion in money from the Treasury, Federal Reserve and private sector. Primary among the government’s efforts was an expanded effort to ease consumer and commercial credit and a new program to buy up hard-to-sell assets that have bogged down banks. …

Despite the size and scope of the Obama administration’s plans, investors said Mr. Geithner’s proposal raised more questions than it answered. The way out of the financial crisis, analysts said, looked as murky as ever.

“We’re not impressed, and I don’t think the market’s impressed either,” said Ryan Larson, head equity trader at Voyageur Asset Management. “It’s clear the administration is still trying to work on something concrete. I think the market sensed that, too.”

The New York Times also reported that Geithner won some internal arguments with other administration heavy-weights on key issues:

Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides…. 

He resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives and wipe out shareholders at institutions receiving aid.

Because of the internal debate, some of the most contentious issues remain unresolved.

What I’ve read about Geithner so far indicates that he’s the right man for the job, despite those trivial tax issues that caused such an unwarranted hullabaloo.

May the force be with you, Tim.  Try not to lay any more eggs, and remember to pay your taxes.

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3 Responses to “Geithner Lays an Egg”

  1. Kevin |

    I was thinking about this the other night.

    The problem I have is that the same markets which are seemingly indicating that they’re not impressed are the very same markets which glibly enshrined “leverage” (i.e., borrowing money you can’t afford to repay) as a legit mechanism and which also didn’t show the slightest discomfort with the exotic, unregulated security bundles at the very center of the economic implosion.

    I fail to see why anyone should give credence to the economic judgements of markets which have so very recently proven themselves uncomprehending of sound economic judgement.

    That’s not a defense of Geithner at all. I simply don’t see any reason to trust the economic wisdom of any of the major stock markets.

    Now, if this Ryan Larson person can show that as head equity trader at Voyageur Asset Management he steered his clients clear of the mortgage crisis then I think we can lend legit credence to his views. But if he can’t demonstrate that then I fail to see why his pontifications should be worth any more than my cat’s.

  2. Tom |

    I agree about this Larson guy. I don’t see where he and his running buddies have done much recently to inspire confidence, either.

    And as far as cats are concerned–Cat (that’s his name, among others, depending on the situation) has been very worried lately about the economic crisis. I’ve tried to assure him that the money for his cat food is kept under the mattress, where Wall Street can’t steal it. Somehow, though, he’s lost confidence.

  3. doris |

    I actually think your cat or mine could do a better job fixing this mess we’re all in than the brilliant minds working on it now. This money will turn invisible as soon as it is doled out, like the last did. My cats are rounding up all the mice in the area, to present to us for a future guarantee of catfood, why not just eat the mice, you ask? They are spoiled like most Americans, if it’s not processed and full of corn syrup, it’s not worth eating. Kind of like the economic problem, we are spoiled and over extended, so I guess our rich uncles should give us a ton of money, so we will do better this time. Not talking about myself, you understand, I don’t believe in credit cards or spending what you don’t have, a strange concept, I know.

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