March 23, 2009

Geithner speaks with a forked tongue

Remember the commercial that had the catch phrase When E.F. Hutton talks, people listen."? People were listening for good advice according to the commercial. But when Turbo Tax Tim Geithner talks, people are waiting for the other shoe to drop.

The Treasury Department is still 17 of 18 names short of it's slate of appointments from the administration. But don't worry, we've got Geithner, and when he talks...eventually he'll actually say something won't he? He's got his plan posted in an Op Ed at the Wall Street Journal. So he HAS said something, but what does it amount to besides rhetoric?

In the introduction to his plan, Geithner states that too much credit has been used. a nation we borrowed too much and let our financial system take on irresponsible levels of risk.

Taking exception to the term 'let', how about 'required'? That aside, thank you for the news flash Mr. Geithner - so what's your plan to fix it? Besides re-capping what has already been announced or done?

Many banks, still burdened by bad lending decisions, are holding back on providing credit. Market prices for many assets held by financial institutions -- so-called legacy assets -- are either uncertain or depressed. With these pressures at work on bank balance sheets, credit remains a scarce commodity, and credit that is available carries a high cost for borrowers.

And without re-capping the current problem?

Today, we are announcing another critical piece of our plan to increase the flow of credit and expand liquidity. Our new Public-Private Investment Program will set up funds to provide a market for the legacy loans and securities that currently burden the financial system.

The Public-Private Investment Program will purchase real-estate related loans from banks and securities from the broader markets. Banks will have the ability to sell pools of loans to dedicated funds, and investors will compete to have the ability to participate in those funds and take advantage of the financing provided by the government.

Your objective to solve the problem of over-use of credit is to get the credit flowing again. At previously flowing rates no doubt. Nice. Punt. You want to push the problem further down the road by getting things back to 'normal'. A normal that your boss and you both say was the root of the problem. Granted you are trying to solve a difficult problem with few options available to you, but by not addressing the root of the problem, this is a politics and business as usual solution. It's not "change we can believe in", because it's not change. Where's the bold effort to transition the economy back to more manufacturing? Where's the jobs? Where's the turn away from the credit economy to a real, more solid economy?

Not your job? Above your pay grade? Well alright. Let's just focus on the specifics of your plan, which you treated like a homework assignment and turned in a month late.

The new Public-Private Investment Program will initially provide financing for $500 billion with the potential to expand up to $1 trillion over time, which is a substantial share of real-estate related assets originated before the recession that are now clogging our financial system. Over time, by providing a market for these assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets. The ability to sell assets to this fund will make it easier for banks to raise private capital, which will accelerate their ability to replace the capital investments provided by the Treasury.

So you're going to be dishing out another $500 billion to $1 trillion dollars. No problem. We know how concerned you were about the $165 (now apparently $220) million dollars. So we know that you'll be careful with the 1,000,000 million dollars (yes, a million million) you expect need for this, on top of all the money your boss just spent. Yeah, we trust you.

Especially since what were previously considered toxic assets are going to be prettied up, put in lovely packaging to be sold off as investment tools for those foolish enough to fall for such a ploy. Rubes I believe they're called.

And all this in an effort to re-inflate the bubble. Banks played under what the game was, they will play under what the game is. The more you try to do, the more evidence compiles for the argument to let the recession play itself out without your help. It appears, no surprise, the toxicity is inherent in the government's touch.

As for your essay, filled with flowery rhetoric but nothing you couldn't have handed in a month ago with an equal lack of actual content, I'm inclined to give you an F.

1 comment:

  1. :-) Keep in mind that private mortgage debt in the U.S. is roughly $11 trillion. Given the expenditures undertaken by the Treasury and the Fed, to date, the entirety of outstanding mortgage debt could have been directly paid off. Granted, the same long term debt would have still been saddled onto the tax payer, but it would have immediately wiped out all "toxic" """assets""" (that's triple finger-quotes) and directly benefited the people. Now, I don't advocate this any more than ANYTHING that's been done to date (besides letting Lehman fail) - but, think for one second WHY this wasn't and isn't even considered. It removes the people from serfdom (to an extent) and would force the recipients of the pay-out/off to take current marked value with no potential for future cash-flow and/or upside. But, wouldn't it resolve EXACTLY what we're being told/fed/lied to about as to the current "problem?" I mean, really, consider it for a second and have a revelation on me ;-)


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