Tonight, one of the evening news anchors said that the sharp plunges in the stock market reflected what investors thought about Obama's recovery and bail out plans. Entirely wrong!
The plunges largely indicate that investors are worried that the current bail-out will not work. Some are concerned that some stockholder equity will be wiped out. Others are hung up on ideology--"socialism" and "nationalization."
The fact is that the administration has steered clear of nationalization and has worked to retain stockholder equity.
Up to 1909, situations like this were called "panics." That is what we have now in psychological terms.
Obama cannot be blamed for the insolvency of the banks. That was a result of Republican economics. Yes, some Democrats bought into the new ideas, but it was largely Reaganism and Phil Gramm economics. Now John McCain, a big Gramm backer, wants to investigate what happened! What a joke.
The Geithner plan is very vague because there simply is not enough money to bail out all the bad banks. The plan takes too long to implement because he needs time to assess the extent of the damage.
Two days in a row, the New York Times, an Obama supporter, ran editorials asking for more clarity. Maybe this plan is the best one we will get.
The problem is it may run the Dow down to somewhere in the 3000s. After all, it will take a long time to implement.
I am more worried about the political implications. With the Dow that low, it will take forever to revive the economy. Voters and investors are not always rational, and they could blame the Obama Administration for the very slow recovery.
It is clear now, that the administration wants another TARP of $700 billion or more. It is very hard to see how he can get the votes for this, even as he will spend what is remaining of his political capital on it. Clearly, the GOP will not vote for it. The public is infuriated with the banks and will punish Representative and Senators who vote to bail them out once again.
Democrats would be foolish to provide votes to bail out a Republican constituency.
It could be that the Geithner plan makes sense, but it is a political time-bomb. We need a second best plan that passes the political tests. If the GOP were not bent on destruction and obstruction, we could gamble three months on the Geithner plan. But that clearly is not the case.
Besides, my guess is that the GOP strategists know how a developing depression works to their advantage.
Maybe they need a back-up plan that lets many banks crash at the same time. Then provide reorganization, and start building from the bottom up.
Keep the top tier banks we have rescued. Then pump credit into the banks below them that can start borrowing. Make provision that federal funds do not go up to the bank holding companies.
The GOP recovery plan is based on obstructionism, carping about the stimulus plan, and using efforts to bail-out banks to their advantage.
If things get a lot worse, the average voter will not blame the GOP for obstruction and will punish anyone who seemed too compassionate to the bankers.