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I call this the "Geithner Two-Step."  Unlike the "Geithner Shuffle" (see one of my earlier diaries) this one is my original creation.  Step1: In response to a crisis, develop a plan that is both complex and vague.  Step 2: Just never do anything.  

This has been his approach to the problem that triggered the whole economic crisis: large quantities of suspect Mortgage Backed Securities (MBSes) held by banks.  I knew, months ago when I read his solution, that it would never happen.  Now here is the confirmation.

The guy is a do-nothing.

No, I do not believe the problems are "melting away" without actually being solved.  Nor do I believe we are starting a "recovery."      

Wall Street Journal, MAY 28, 2009

A government program designed to rid banks of bad loans, part of a broader effort once viewed as central to tackling the financial crisis, is stalling and may soon be put on hold, according to people familiar with the matter.

The Legacy Loans Program, being crafted by the Federal Deposit Insurance Corp., is part of the $1 trillion Public Private Investment Program the Obama administration announced in March as a way to encourage banks to sell securities and loans weighing on their balance sheets to willing investors.

But prospective buyers and sellers have expressed reluctance to the FDIC about participating for fear the program's rules will change in a political atmosphere hostile to Wall Street. In addition, some banks that might have sold troubled loans into the program earlier in the year have become less eager as they regained a sense of stability.

The scaling back of the FDIC program is potentially good and bad news for investors, indicating that the health of the financial system -- while improving -- remains fragile. Government officials are still concerned about distressed assets, including residential and commercial real-estate loans, which continue to rot banks' capital. FDIC officials said Wednesday some losses had not yet peaked and government officials believe banks still hadn't fully recognized the value of some distressed assets on their balance sheet.

Originally posted to nodular on Tue Jun 02, 2009 at 07:30 PM PDT.


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Comment Preferences

    •  Geithner has been successful ... (3+ / 0-)
      Recommended by:
      jj32, nodular, Wolf Of Aquarius

      He has weathered the worst of the credit crisis -- it was not the fairest resolution, but it was the quickest and cheapest.

      Many experts laughed at the stress tests and deemed nationalization inevitable. But cries of nationalize are much muted now. If Geithner goes through a year without having to nationalize, then he definitely has won Round 1 against his critics.

      "Self-regulation is to regulation as self-importance is to importance." Willem Buiter

      by Bronxist on Tue Jun 02, 2009 at 07:51:57 PM PDT

      [ Parent ]

      •  Winning against the critics is worthless (1+ / 0-)
        Recommended by:

        if the critics have the better ideas.  Who says it would be the wrong solution to nationalize the big banks?

        Nothing is true; everything is permitted.

        by jumpjet on Tue Jun 02, 2009 at 07:54:01 PM PDT

        [ Parent ]

        •  Nationalization for its own sake? (2+ / 0-)
          Recommended by:
          jj32, Wolf Of Aquarius

          If you believe in bank nationalization for its own sake, then good for you -- it is the right end by definition.

          If you think of it as the inevitable solution for the credit crisis (like Roubini and Krugman did) then your argument has gotten a little bit weaker.

          "Self-regulation is to regulation as self-importance is to importance." Willem Buiter

          by Bronxist on Tue Jun 02, 2009 at 07:59:05 PM PDT

          [ Parent ]

          •  Well, I don't know (2+ / 0-)
            Recommended by:
            Gooserock, Bronxist

            I'm not much of an economist.

            Lately I've been considering the amount of centralized control that bank nationalization would give the government.  That's a great deal of power over the economy.  Perhaps it could be put to good use?

            Nothing is true; everything is permitted.

            by jumpjet on Tue Jun 02, 2009 at 08:00:46 PM PDT

            [ Parent ]

            •  Since You Can't Get Into the Gov Without Sponsor- (0+ / 0-)

              ship of the economy, the concept of government "control" over it is possible to overestimate.

              We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

              by Gooserock on Tue Jun 02, 2009 at 08:34:08 PM PDT

              [ Parent ]

          •  goes through a year without having to nationalize (4+ / 0-)

            That's your definition of success?

            Are you fucking kidding? Who the fuck cares if the banks avoid being nationalized or not? Except the banksters and their associated bloodsucking confederates.

            What about the old 1950s-1970s goal of full employment? What about preventing people from losing their homes, and losing their savings?

            Stirling Newberry argues that the failure to achieve real reform of the financial system means we are in the same place we were just before the 2007-07 crisis: central banks’ "easy money" policies, coupled with a paucity of real investment opportunities, is already resulting in continued stagnation of the real economy and wages, and increasing reliance on offshoring to countries with lower wages, benefits, and safety regimes. In the process, Newberry performs the inestimable public service of slapping down the pretensions of Niall Ferguson.

            Newberry begins by noting where the hot money is going now.

            Everyone knows that money is rushing into oil, ahead of an expected economic rebound later this year. Since no one has good futures, and because last year they were running over 100 dollars a barrel, more buyers are being forced to the spot market.

            This dynamic is unchanged since 2004: no one knows what will lead the recovery, but everyone knows it will involve burning more oil. So buy oil.

            Take the time to go through the last paragraph slowly, so that you fully understand it, recalling what Newberry wrote a few weeks ago:

            the fight, in economic ideology, was over how much of the investment in the future should be handled by a very wealthy elite, and what fraction should be handled by the public through government. The ideology of the time was that the wealthy elite . . . was always right, and the public was always wrong. This theory has been proven false. The economic destruction of the New Depression, and Depression is the correct word, will extend for years, and has wiped out the fictional gains of the last 30 years. We are now exactly where we would have been without this experiment in a dictatorship of the propertariat, and we have nothing to show for it but a surplus of posh apartments and private jets.

            OK, here’s the last paragraph from Newberry’s latest:

            now that money can rush back into oil, and into stocks, the cost of public borrowing long term must rise. It's a matter of supply and demand. Previously the supply of safe places to park money was limited, and now it is not. The very decision to put rebound ahead of restructuring is closing the window of change. We are, in essence, right back to where we were before the credit explosion -- around 2004 or so -- ready to charge up the same hill of loose money from the central banks; going into rent seeking parked money; and choking of expansion, wages, employment, and capital formation beyond offshoring of old capital to lower wage and benefit areas. There is an immediate need for a second round of economic policy, one which actually sits in Congress by another name: the energy bill which is proposing, not "cap and trade" since 85% of all the allowances are to be given away, but "a new NIRA," that is a massive industrial policy based on specific regulation.

            As I wrote near the end of January, Saving the financial system without a national industrial policy is worse than useless.


            A conservative is a scab for the oligarchy.

            by NBBooks on Tue Jun 02, 2009 at 08:06:39 PM PDT

            [ Parent ]

      •  Actually, Paulson weathered the worst of the (0+ / 0-)

        credit crisis.  I remember it well.  Geithner needs to turn the corner.  People think he has, but he hasn't---its a bear market rally, I'm tellin' you.

  •  So can we ditch Geithner yet? Please? (8+ / 0-)

    If the PPIP is dead in the water, what the fuck is he there for?  Surely it's not his charming good looks, or his stunningly persuasive speech.

    Get Timmeh out of there.  Even if Summers replaces him, that means someone has to replace Summers on the CEA, and then we might start getting some sound economic policy.

    Nothing is true; everything is permitted.

    by jumpjet on Tue Jun 02, 2009 at 07:36:27 PM PDT

  •  Geithner has seriously got to go (5+ / 0-)

    He doesnt seem to know what he is doing. As deplorable as summers is, at least he has a lot of experience and is brilliant. This is one area I am disappointed with the administration

  •  Geithner/Gates (6+ / 0-)

    How did we manage to elect "change" and get to keep Geithner and Gates?  Why are the troops still in Iraq? Why is Gitmo still open?  Why were Abu Grhaib photos withheld?  Is it possible that Obama has been co-opted by the military/industrial/financial complex?  Are will still a democracy?

    Obama is not Bush III, but he's not as advertised.

  •  Good (3+ / 0-)
    Recommended by:
    corvo, yoduuuh do or do not, jumpjet

    Let's keep that money in the federal coffers. I can think of a thousand better uses for it.

  •  It was a mistake from the start (2+ / 0-)
    Recommended by:
    mataliandy, yoduuuh do or do not

    The whole loan business was increasingly being driven by companies that literally went out looking for people who would default on these loans and basically gave them loans at vastly inflated interest rates.. They knew perfectly well that the loans would not get repaid..

    Want an eye opener?

    Listen to (or read the transcript of)

    The Giant Pool of Money on This American Life


    The Media Equation
    Daring to Say Loans Made No Sense

    (story about the show, which has been downloaded over a million times- its really a remarkable document)

    The insurance industry WANTS public option (Shhh!) BECAUSE it will fail by costs+sicker risk pool-Single payer WORKS-Public option is NOT 'like single payer'

    by Andiamo on Tue Jun 02, 2009 at 07:57:20 PM PDT

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