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Tilting at Windmills

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February 17, 2009

WHY GEITHNER'S PLAN LACKED DETAILS.... Last week, Treasury Secretary Tim Geithner delivered a speech on the next steps in bringing stability to the financial and banking sectors. Listeners soon noticed that Geithner's plan lacked details, and made pronouncements about elements of the plan that we'd learn about eventually. Investors were not impressed, and the major indexes fell quickly.

As it turns out, there's an explanation for all of this. Apparently, Geithner decided, fairly late in the process, that the plan he'd been working on wasn't going to work. So, he scrapped it.

Just days before Treasury Secretary Timothy F. Geithner was scheduled to lay out his much-anticipated plan to deal with the toxic assets imperiling the financial system, he and his team made a sudden about-face.

According to several sources involved in the deliberations, Geithner had come to the conclusion that the strategies he and his team had spent weeks working on were too expensive, too complex and too risky for taxpayers.

They needed an alternative and found it in a previously considered initiative to pair private investments and public loans to try to buy the risky assets and take them off the books of banks. There was one problem: They didn't have enough time to work out many details or consult with others before the plan was supposed to be unveiled.

Once the Treasury secretary and his team realized they'd need a different approach, they had to decide how to present a plan that was still coming together. As they saw it, the Bush administration had a habit of presenting plans with details they had no intention of sticking to, which didn't exactly inspire confidence. Geithner preferred to "disappoint the markets with vagueness than lay out a lot of details they might have to change later."

There were other problems, too.

Meanwhile, the sources said, Obama's senior economic advisers were hobbled in crafting the plan by a shortage of personnel. To date, the president has not nominated any assistant secretaries or undersecretaries at the Treasury, and the handful of mid-level staffers who have started work were still finding their offices and getting their building passes and BlackBerrys.

Moreover, the department made a strategic decision to limit input from the financial industry and other outsiders, aiming to prevent leaks and avoid a perception they were designing the plan for the benefit of big banks. But that also meant they were unable to vet their plan with the companies involved or set realistic expectations of what would be announced.

This does help explain a few things.

Steve Benen 10:45 AM Permalink | Trackbacks | Comments (29)

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Nationalize the banks already. It will eventually have to be done, but probably only after many more billions are wasted. The only answer to years of capitalism on steroids is a radical counter-action. Nationalize them on a temporary basis, get the problems fixed over the next few years, and turn them back to the private sector gradually.

Posted by: winddancer on February 17, 2009 at 10:47 AM | PERMALINK

Whatever you think of Geithner, it's really unprecedented for a new administration to come into office facing a catastrophic situation on this scale. I always knew Bush would leave behind a mess, but the enormity of it is just breathtaking.

Of course it would help a bit if the political culture in general (and the White House economic team in particular) didn't labor under a religious opposition to the obvious next step - nationalization of the country's biggest banks.

Posted by: jimBOB on February 17, 2009 at 10:47 AM | PERMALINK

Geithner and crew better solidify what they want done and how, the markets are very jittery today ...

Posted by: Neil B ◙ on February 17, 2009 at 10:48 AM | PERMALINK

it doesn't explain why geitner went ahead with the news conference when he didn't have details to present. on monday the administration had already announced that geitner's presentation would be delayed, why did he hold it on tuesday rather than waiting a few more days to get his details straight?

Posted by: upyernoz on February 17, 2009 at 10:49 AM | PERMALINK

Much as I distrust Geithner, I'd like to say again what a relief it is to have an administration that actually thinks about which policies might work and not just which ones will look really great on paper even if they're unworkable in reality.

Posted by: Mnemosyne on February 17, 2009 at 10:50 AM | PERMALINK

One has to wonder why one would have a news conference on a closely watched issue when there really isn't anything to say yet. Postponing with the reasonable excuse of not being ready is an honest approach. Having to constantly say, "I don't know," or "We haven't worked that out yet." in front of a national audience doesn't exactly inspire confidence.

Who is handling the PR?

Posted by: rich on February 17, 2009 at 10:58 AM | PERMALINK

Yea that does explain a lot. Leaks from the previous week were all indicating a focus on a "bad bank" approach, then literally days later leaks promised an insurance-style program, and then again days later the actual program bore no real resemblance to either.

Posted by: Todd on February 17, 2009 at 11:02 AM | PERMALINK

Sounds to me like Geithner was in a sort of no-win situation with that news conference. Can you imagine the reaction of the stock-market, not to mention the professional snark-class, er, I mean, punditry, if he had canceled it at the last minute? I give the man credit for recognizing an unworkable plan when he sees it and having the guts to scrap it and start over, something the Previous Occupant never did ("Okay so we've got the blueprint upside down, but we've sunk costs into it and we're committed to building, so we'll go ahead with the project.")

Posted by: T-Rex on February 17, 2009 at 11:03 AM | PERMALINK

"According to several sources involved in the deliberations, Geithner had come to the conclusion that the strategies he and his team had spent weeks working on were too expensive, too complex and too risky for taxpayers."

Mr. Indispensable, at your service.

The major banks are unlikely to pass any reasonable stress test. The big four (Citi, Wells Fargo, B of A, and JP Morgan), among others, are swimming in a deeper pile than their books would have us believe.

My savings and loan went into receivership in the early 80's, I was never without access to my money for a moment, and the assets were eventually purchased by another private bank. There's no reason the government shouldn't do the same thing here.

Posted by: CJ on February 17, 2009 at 11:14 AM | PERMALINK

But why doesn't he have a team in place yet? I realize he was only recently confirmed, but I have to believe he's had a lot of resumes for a long time. Why am I guessing the Bush Treasury department used the same (nonexistent) filing system as the DOJ?

Posted by: Danp on February 17, 2009 at 11:15 AM | PERMALINK

I would have preferred the truth at the presser, rather than a vague, hastily prepared plan B.

I think it would have been more productive to hear, "We're still at the drawing board on this. We've scrapped some ideas we've determined would not work and we're still outlining and pursuing others. We want to do this quickly, but not carelessly."

As it stands now, it's "We thought about our first idea, and since that wouldn't work, here's a half-assed idea we haven't really thought about."

Can we please focus on what will fix the country, not what will cause the markets to immediately rise for a day or two?

Posted by: doubtful on February 17, 2009 at 11:17 AM | PERMALINK
Whatever you think of Geithner, it's really unprecedented for a new administration to come into office facing a catastrophic situation on this scale.

No, its not "really unprecedented". Roosevelt came into office facing a much worse catastrophic situation of the same general type. So there is quite clear precedent.

I always knew Bush would leave behind a mess, but the enormity of it is just breathtaking.

Its not really surprising to anyone whose been paying attention to anything beneath the headline indicators; the signs that were pointing to collapse were pretty clear, and some people have been calling out where things were heading from about the middle of Bush's first term, and by about 2006 there were a fair number of people sounding the alarm.

Posted by: cmdicely on February 17, 2009 at 11:38 AM | PERMALINK

...Meanwhile, the sources said, Obama's senior economic advisers were hobbled in crafting the plan by a shortage of personnel...

So what the hell is he doing at the head of the car bailout also?

Posted by: Neal on February 17, 2009 at 11:55 AM | PERMALINK

Danp,

The article failed to point out that most administrations do not have a full staff in place until the beginning of summer. Geithner has been relying on staff at the NY Fed Reserve and FDIC. He's been basically doing everything by himself.

Posted by: Micheline on February 17, 2009 at 11:59 AM | PERMALINK

So Geithner realized that a total bailout of Wall Street was politically untenable, and allowed a Wall Street slide by deciding in favor of Main Street.

So far, that is good news.

Posted by: Ohioan on February 17, 2009 at 12:42 PM | PERMALINK

Roosevelt came into office facing a much worse catastrophic situation of the same general type.

Yeah, you are probably right, though I'd point out one difference, which was that due to timing, Hoover's mess was much less fresh than Bush's at the time they were both leaving it to successors. Hoover had been batting ineffectually at the Depression for a while, and the country had been living with the results for a couple of years. By contrast, with Bush the really big crash happened only during the late stages of the 2008 campaign, and we are only now starting to see the scale of horrific fallout on Main street.

some people have been calling out where things were heading from about the middle of Bush's first term

I don't recall anyone saying we'd be heading into another Great Depression back during Bush's first term, just that they were screwing everything up and a reckoning would eventually have to come.

Posted by: jimBOB on February 17, 2009 at 1:12 PM | PERMALINK

Oh, I am sure we have been through this many times, and every time it gets worse.

LBJ's War on Poverty was passed to gain victory over poverty. Poverty is still with us, and the only material results were that over $6 trillion was added to the national debt, and millions of poor, mostly Black, voters became psychological and social dependents of the Democratic Party. The cost of the other Great Society programs, same thing. The Democrats' Mortgage Follies were also supposed to help poor would-be home-owners, and ruined the economy instead. The Dems are now proposing additional trillions of their debt to overcome our indebtedness.

The Democrats are now in a position to make everyone poor and dependent (except for the Nomenclatura), not unlike the inhabitants of the old Soviet Union.

The Democrats' agenda was going exactly according to plan up to the Paulson $700 billion bailout. $700 billion was sufficiently scary and correctly timed to assure Obama's electoral victory.

But the Marxists did not plan on the investors, who declined to participate in the Marxists' agenda. Rather than leave their assets exposed to Marxist inefficiency and corruption, investors bailed, $30+ trillion and counting worldwide.

So, what is a poor Marxist to do in the present circumstance? They cannot call a time-out and reassess, so they have to continue to bluff their way through this.

Enjoy.

Posted by: Draconis on February 17, 2009 at 1:21 PM | PERMALINK

They said that Geithner is a genius. He had to be confirmed despite the fact he cheats on his taxes. He's the only one who understands the economy even though he doesn't understand his own finances. So he gives a brilliant speech in which he says nothing. It takes Benen to come up with excuses for him.

Posted by: Jack on February 17, 2009 at 1:23 PM | PERMALINK

What a bunch of apologist crap.

"As they saw it, the Bush administration had a habit of presenting plans with details they had no intention of sticking to, which didn't exactly inspire confidence. Geithner preferred to "disappoint the markets with vagueness than lay out a lot of details they might have to change later."

I suppose none of you high-minded folks have ever done a plan before. Once execution starts the first thing that changes is THE PLAN, and it usually keeps changing until the work is Done...sounds more like they still didn't know the answer and still don't.

This mess has roots that go back twenty years across multiple administrations(dem and pub). You myopic partisans just can't bring yourselves to recognize that. Tough decisions that need to be made haven't been touched yet. I wish the President and the American people luck.

Posted by: mongo on February 17, 2009 at 1:27 PM | PERMALINK
I don't recall anyone saying we'd be heading into another Great Depression back during Bush's first term.

I don't know if Krugman actually made a direct comparison to the Great Depression in The Great Unraveling, or any of his columns in the first term -- though I think he did -- but he certainly and repeatedly predicted that, unless reversed, the policies being pursued at that time would lead to a major economic crisis.

Posted by: cmdicely on February 17, 2009 at 1:48 PM | PERMALINK

Geithner would not have looked so bad if obama had not set him up the night before saying that Geithner would provide complete details the next day. Obama just can't admit he is over his head and doesn't have a clue what to do now.

Posted by: usr105 on February 17, 2009 at 2:18 PM | PERMALINK

I would just like to point you to Mike Whitneys blog which appears (fairly) regularly on the "smirking chimp.com" Thanks to reading him I saw about four years ago what was happenning to this country and took the appropriate steps to protect myself.

Posted by: josephus on February 17, 2009 at 2:20 PM | PERMALINK

USR -- Obama did not set up Geithner -- he confirmed an announcement that was changed last minute. As for over his head -- no. He has gotten a tremendous amount accomplished given the shitpile he was left by Dumb Dubya..WORST.President.Ever...

Posted by: Elie on February 17, 2009 at 2:38 PM | PERMALINK

"LBJ's War on Poverty was passed to gain victory over poverty. Poverty is still with us, and the only material results were that over $6 trillion was added to the national debt, and millions of poor, mostly Black, voters became psychological and social dependents of the Democratic Party. The cost of the other Great Society programs, same thing. The Democrats' Mortgage Follies were also supposed to help poor would-be home-owners, and ruined the economy instead. The Dems are now proposing additional trillions of their debt to overcome our indebtedness."

Wow, that's a lot of BS to fit into one paragraph.

The total national debt when Reagan took office was about $900 billion, 1/10 of what it is today. He cut the HUD budget by 75% in his first term in office, coinciding incidentally with the dramatic rise in homelessness in our major cities. As for the Community Reinvestment Act of 1977, which supposedly (according to right wingers) laid in the weeds for 30+ years then suddenly caused the mortgage market to fail, I can only offer the testimony of Bush's Secretary of the Treasury, Bush's Fed Chair, and Bush's FDIC Chair, given to the House Banking committee two months ago: it had nothing to do with, and did not cause, the mortgage crisis.

Posted by: pfgr on February 17, 2009 at 2:44 PM | PERMALINK

This is a most enormous mess that the Obama admin has inherited. Summers and Geithner are like men standing in the middle of a minefield. If they put a foot wrong the whole thing could blow up. Frankly I find all the armchair experts most of whom couldn't define a CDS or a CDO giving their verdict on this to be laughable. 99.9999999% of people don't have the remotest idea of what's involved in untangling the mess. Geithner and Summers do. This is brain surgery. Joe the Plumber is not qualified to perform .

Posted by: Ottovbvs on February 17, 2009 at 3:12 PM | PERMALINK

pfgr (2:44 PM)-

In the paragraph you quoted, I count eight assertions that I made, each of them verifiable.

The first of these assertions was that, "LBJ's War on Poverty was passed to gain victory over poverty." Is that not true?

The last of these assertions was that,"The Dems are now proposing additional trillions of their debt to overcome our indebtedness." Is that not true?

So, perhaps you could explain to us which of my statements is not true? Unless you are too busy talking nonsense, of course.

Posted by: Draconis on February 17, 2009 at 3:30 PM | PERMALINK

This article from the Washington Post is bs. This is just the WP writers sucking up to Geithner by putting out a cover story to distract attention from what is happening behind the scenes. What I guess -- no inside information -- is that there is a battle royal going on re the nature of the program. Geithner is the administrations good cop. The bad cops are nameless so far. Obama has not weighed in. At his press conference, Geithner was forced to say some things he did not like (unless he is a great actor) and that is why he looked so bad and sounded worse. Stay tuned. Eventually we will know what is happening.

Posted by: stev on February 17, 2009 at 3:43 PM | PERMALINK

[...] Geithner had come to the conclusion that the strategies he and his team had spent weeks working on were too expensive, too complex and too risky for taxpayers. -- Wash Post

Old habits die hard. In his previous persona, Geithner wasn't used to thinking about the good of the ordinary taxpayer. You set a fox to guard the chicken coop, you shouldn't expect him to become a vegan overnight (if ever).

Posted by: exlibra on February 17, 2009 at 6:53 PM | PERMALINK

@Draconis

"In the paragraph you quoted, I count eight assertions that I made, each of them verifiable."

Really?

"LBJ's War on Poverty was passed to gain victory over poverty. Poverty is still with us, and the only material results were that over $6 trillion was added to the national debt"

On 12/31/63 (about a month after LBJ took office) the national debt was, roughly, $309.35 BILLION. On 12/31/68 (about a month before he left office) the national debt was roughly $358.03 BILLION.

Verified, with the pdf file here: http://www.nofreelunch.us/NationalDebt.pdf

or the HTML version here: http://74.125.113.132/search?q=cache:ABgYEAAqrlwJ:www.nofreelunch.us/NationalDebt.pdf+LBJ+national+debt&hl=en&ct=clnk&cd=4&gl=us&client=firefox-a

"...I count eight assertions that I made, each of them verifiable."

So let's make that seven...For now.

BTW, the first time the Treasury Department reported the debt inflating to over $6 trillion was in 2002.

Go ahead, click the links. Verify. I double-dog dare you.

Posted by: Andy K on February 18, 2009 at 12:08 AM | PERMALINK




 

 

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