The reviews are in on Treasury Secretary Tim Geithner's plan to rescue the ailing banking system, and so far he's getting a lot of thumbs down, particularly from the Dow Jones, which headed south immediately after Geithner's speech, finishing the day down 382 points.
The plan is based on spending nearly $2 trillion, from the Treasury, the Federal Reserve, and from private investors. MSNBC broke it down as:
- BAD BANK ASSETS - $500 billion
- BANK CAPITALIZATION - $100 Billion
- FORECLOSURES - $50 Billion
- LENDING - up to $1 Trillion
But the overall reaction has been, where are the specifics? A few examples:
- "Investors are disappointed by the lack of details and are skeptical about the effectiveness of getting the private sector involved," said Kathy Lien at Global Forex Trading.
- David Kotok at Cumberland Advisors said Geithner "gave only sketchy details that would help clarify the program." "Markets and the country want clarity, transparency and reliability. Instead, they got promises it would be forthcoming but they did not get facts and details that would substantiate it," Kotok said.
- Robert Brusca at FAO Economics said this proposal was far too sketchy. "I do not begin to understand how this private-public plan will work," he said.
- "I wish the government would stop speaking," said Mark A. Coffelt, president and chief investment officer of Empiric Funds in Austin. "Why did you even call a press conference? Geithner said . . . nothing other than 'It's going to be transparent, good.' That's not exactly what we are looking for, it is frustrating."
- "There was nothing to really grab on and say 'this is a revolutionary approach that has a really high chance of working,'" Denis J. Amato, chief equity strategist with Ancora Advisors in Cleveland, said of Geithner's speech.
According to the Wall Street Journal:
The absence of detail speaks to the thorny issues that lie at the heart of the financial crisis: how to value the toxic assets causing banks to report losses and how to shuffle aid to homeowners and stem the rise of foreclosures. Many of the potential solutions come with a host of fresh problems, which Obama officials have grappled with much as their predecessors did.
Paul Krugman, on the other hand, seems to think that it might be "not too bad," but he's not really sure:
It’s really not clear what the plan means; there’s an interpretation that makes it not too bad, but it’s not clear if that’s the right interpretation.
The plan deserves praise for what isn’t in it, at least as far as I can tell. There doesn’t seem to be provision for mass purchases of toxic waste at premium prices; there also doesn’t seem to be a massive “ring-fencing” guarantee against private losses on bad assets. In that sense the plan is better than what the last few weeks of of leaks led us to expect. [...]
So what is the plan? I really don’t know, at least based on what we’ve seen today. But maybe, maybe, it’s a Trojan horse that smuggles the right policy into place.
There is one group that was happy:
The American Bankers Association meanwhile lauded the plan. ABA president Edward Yingling called it "a comprehensive, yet flexible plan that can restore confidence in the markets. We are pleased they took the time to address the stress in the financial markets in a coordinated way."