Tuesday, February 10, 2009

Geithner's proposal

Today's negative reaction to Treasury Secretary Geithner's introduction of the financial rescue plan was overwhelming, or one could say overblown. Geithner was certainly set up for this, as President Obama at his press conference last night deferred on questions three times by giving half answers and then saying that he didn't want to say more and upstage his Treasury Secretary's coming remarks.

The "plan" was a big picture overview with good intentions but little detail, and the "we haven't figured out how we'll do this yet" approach was too laid back for almost everyone. THIS IS IT! Expectations were for more. It may be a smart move as this stuff is not simple, but it did not work today.

The broad and general program has three main thrusts: 1. buying up distressed securities to unclog the markets; 2. facilitating a program of relief and access for consumer and business borrowers; and 3. shoring up capital positions at distressed but viable banks. These appear to be the most important things to do, so getting this right is a good start, and gives a clearer goal than we have had recently. That's good, but how does it get done.

Details on #1 suggest only that the goal will be to have a combination of public and private funds. The challenge will be to make sure that there is risk sharing between the public and private funds and it's not just a big freebie for private equity and hedge funds who for the most part have escaped the public's wrath for the mess we are in but are as complicit as the banks. Get this risk balance right and the idea is sound. #2 has no detail behind it so there is nothing at all to comment on yet. #3 has more detail than the first two because a process for vetting the banks was discussed as well as all of the conditions to be placed on firms that receive a preferred stock capital infusion. The glaring inconsistency here is the stress on seeking private funds in goal #1 while at the same time making any new private money for banks run for the hills in goal #3. Why would any private investor of any type invest in a bank now with the promised handcuffs, or worse, to be put on firms that need help or are forced to take it. That's a problem.

One backdrop on all this that is troubling is the use of phrases that are incendiary. Obama's "facing catastrophe" and Geithner's "dangerous dynamic" are, I know, meant to be a call to action that helps get things done. Anyone, however, who should know this already does and those who are focusing on day to day living with their jobs and families could likely benefit from some reassurance that we'll get through this. Maybe that's patronizing, but from here it seems that leaders should point out some possible hope on the horizon rather than taking a share my pain approach.


Post a Comment

<< Home