The Obam... sorry, the GEITHNER plan isn't a total disaster

[Kurt_and_Hunter]

The problems:

1) It is a give-away. (Anyone who says it isn't can be ignored. They are misinformed or lying.)

2) If it doesn't work it's an opportunity-cost disaster and there's no obvious reason to think it will work.

3) One reason these assets have not been selling is that the banks have been assuming the government would eventually intervene to trade tax-money backing for above-market prices. And they were right! So it has that "negotiating with terrorists" flavor.

BUT...

As potentially ineffective give-aways go it is clever and somewhat elegant. It is a variant of the Paulson plan, but at least a better designed version.

It might work in a limited sense, meaning providing a method for getting some things off the books for less public outlay than simply paying whatever the banks ask. (Which sounds crazy but is always a possibility in these things.)

Unfortunately the plan is predicated on the belief these things are "worth" more than they are worth. They may be. But if we are going to go all-in on the proposition these things can only go up then why don't we put up all the money ourselves and get all those awesome profits, rather than bribing people who are less optimistic than we are to grudgingly accept the huge profits we just KNOW are there?

But, hey, if these things go up at least we aren't OUT money. It's not 100% lose-lose so we have a puncher's chance. (If they go down we carry most of the risk so that would be really bad.)

And this is the best they could be expected to come up with within the administration's prevailing limitations, both extrinsic and self-imposed. (Limited to money on hand. Temporary nationalization not an option. Etc..)

And it's not like there is any chance this thing will be dropped any time soon. This IS the toxic-asset plan.

It is spilt milk, it could be worse and it is probably better than nothing, so it has that going for it. (And that counts... some things are worse than nothing.)

So I hope it does something good.

And if nothing else, the stock market created more money today then Ben Bernanke, which is really saying something.

If it makes people think things are better for a while then fails later that still has some value because reducing the slope of a consumer-psychology slide helps.

______________

PS: The headline is a joke, but that's what cabinet secretaries are for. You gotta name the unpopular stuff after someone. "Seward's folly" for instance.

[w4rma]

1. It won't do anything good. It will give a few wealthy people lots of money they shouldn't get. (nt)

[AllentownJake]

2. Sadly I agree with you

[Thrill]

3. You really don't know what's going to work and what won't work

But I'm getting a kick out of seeing people act like they know what the hell they're talking about.

[sharp_stick]

6. No question

the number of economic experts around here these days is astounding.

[backscatter712]

4. I'd say this is the step Obama and Geithner are taking before they go for nationalization.

Nationalization definitely may be necessary. But I think Obama and Geithner wanted to try the less radical approach first - try to make repairs while the banks are sailing under their own power. If this plan fails, then they will switch to nationalization. They don't want to nationalize if they don't have to.

[stillcool]

5. Seems like a crap-shoot to me..

but then it all is, isn't it? If you don't know what somethings worth, why would anyone take the risk? And if you guarantee the level of risk..ah..what do I know. Sounds just like the stock-market.

[FrenchieCat]

7. The arrogance of liberalism is quite breathtaking!

and exhausting.

[Occam Bandage]

8. Geithner is something of a lightning rod, yes.

The admin would rather fob off the unpopular stuff on him rather than waste Mr. Obama's political capital on it (since the toxic plan does not need to be popular), and the admin's detractors on the left and right find it easier to smack the hell out of the relatively unknown Mr. Geithner than on the popular and well-liked Mr. Obama.

[Kurt_and_Hunter]

11. At least he answers the question: "What if Robert Stack was an elf?"

[BeFree]

9. Thanks

It's a mess. And like others have said this is playing the game with the bankers in mind and if it doesn't work, then they can say we tried it that way, now here's what we have to do.....

The house of cards we've been living in is crumbling and if we want to prop it up, these seems a good way to get it done.

Keeping my fingers crossed that the house comes down easy.

[Kurt_and_Hunter]

10. I think demand is more important than the banks right now anyway

It's not just that banks are not lending. Consumers aren't even asking... consumer demand for credit is way down. (Along with consumer demand for everything except condoms... and I don't think that's because people are feeling sexy. I think it's because a lot of married couples are terrified of getting pregnant right now.)

You cannot have a sustainable recovery without a sound banking system but even an unsustainable recovery is better than some alternatives.

So if this makes people feel good, go for it.

I don't like the plan but I have made a truce with it.

[BeFree]

13. Yeah

I don't personally even do banking but realize that the rest of the world does depend on banks. Heck, I do depend somewhat on the banks in the sense that all of my friends, customers and products that I buy depend on the banks.

So, getting back to a sound banking system is crucial. Later we can go about building a new foundation, but right now we have to fix what we've got.

Thanks for your elucidation on how Obama is going about the fix.

[truebluedemz]

12. Geithner

Look folks, President Obama has only been in the WH for a couple months. It took YEARS for the Bush administration to turn our country into a cesspool. We should give Obama AT LEAST until the end of the first year to see if we have a chance to head in the correct direction.

The GOP will do everything they can to thwart him. They HATE this country. They have already admitted that they want to see this President fail. Remember how they called the Democrats traitors and Anti-American because we didn't support Bush, but DID support the troops?

Well...THEY want to see the whole country fail. They would rather the USA be taken over by China and the New World Order in Europe than support our Commander in Chief.

[Telly Savalas]

14. To answer your question as to why doesn't the govt. put up all the money itself

I believe the rationale is that it streamlines the administrative process. Rather than hiring a bunch of staff to decide what to purchase at what price, the Treasury Dept. piggybacks on the decisions of hedge fund managers who supposedly have a nose for the market. ("Supposedly" being the key word here.) I think the incentives created by having private investors put skin in the game increases the chances that taxpayers aren't going to take a bath.

This isn't to say that I endorse the plan. It's just why I think it's better than a plan for the government to buy all the toxic waste itself.

[Kurt_and_Hunter]

16. I agree that it's difficult for the government to pick prices

I agree that it's difficult for the government to pick prices, but the market savvy we rely on to make shrewd asset purchases will be working just as hard to game the system.

The private investor controls the whole investment deciding when to sell. There will probably be some transactions where Treasury and the investment partner make money while the FDIC losses much more money.

It will be interesting to see how it works out.

[Median Democrat]

15. Unemployment Insurance is also a give away...

The question is why are we giving money away. Pretty much any government program can be, and has, been called a give away of some sort.