Word: geithner
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When treasury secretary Tim Geithner rolled out his long-awaited plan for buying up toxic mortgage loans and securities on March 23, reaction was split. Financial markets cheered, with the Dow Jones industrial average rocketing 497 points, or 6.8%, on the day. The chattering classes mostly grumbled, with Princeton economist and New York Times columnist Paul Krugman gloomily leading the way: "It fills me with a sense of despair," he wrote of the plan before it was released but after many details had leaked...
...simple explanation for this divide is that the Geithner plan - which calls for Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation to finance the bulk of up to $1 trillion in toxic-asset purchases by private investors - is a great deal for the investors and a big risk for the taxpayers. The math calls for the government to take on most of the downside risk while evenly sharing the rewards with hedge funds, money managers and other buyers. In the loan-buying program, private investors would put up 7% of the capital for a shot at close...
This is - there's really no denying it, although Geithner has tried - yet another giveaway to the rich and well connected. Then again, it's supposed to be. Luring smart, informed investors, who've been on the sidelines, into currently dysfunctional markets for mortgages and mortgage securities is the whole point. Some amount of wheel-greasing subsidy is needed - and the question of whether the plan offers too much is pretty much unanswerable. It will be easy to tell if it offers too little: no one will participate...
Along with the "stress tests" big banks are conducting under regulators' supervision, the asset sales could move the government farther down the road toward closing or taking over the most troubled banks. The operative word here is could - Geithner and top White House economic adviser Larry Summers have been awfully cagey about what comes next. The more plainspoken Bair allowed that the asset-purchase plan "will be a significant benefit to many banks, but some will be beyond help." Soon we may find out which hopeless banks she's talking about...
When he sings, "Why aren't you in the administration?/ Is there some kind of politicking that I don't understand?/I mean, Timothy Geithner is like some little weasel," his voice practically drips with despair - not unlike the despair Krugman recently felt about Tim Geithner's financial plan, come to think...