Learning from the Geithner Financial Rescue Announcement: Is the Best Yet to Come?

So much has been written about the bank rescue announcement by Treasury Secretary Tim Geithner, and a clear verdict in the court of conventional wisdom has set in - the details were missing and the plan was far too scant to soothe the markets.

The strength or weakness of the Obama plan shouldn't be measured in terms of the day-to-day nerves of investors. I think there are three measures that make more sense: (1) in the short term, does the public at large think that this administration has learned from the mistakes of the Bush administration; (2) also in the short term, does the public at large think that this administration knows what it is doing and has a specific way forward that will work; and (3) in the long term, did the plan work?

On the first point, like so many actions of the Bush administration, the lust for secrecy outweighed good policy and common sense. In the TARP program, the Bush administration was, in large part, granted unilateral authority to spend taxpayer dollars in secret. This predictably led to lurching and erratic decision-making by administration officials, of which we were only afforded glimpses through enterprising journalists, and reckless and unaccountable spending by financial institutions on corporate boondoggles and executive payoffs.

I think Tim Geithner gets that. To me, he conveyed a sense that he knows the public will no longer stand for its money being spent this way, and that elected representatives in Congress will not tolerate being left in the dark with so much at stake.

On the second point, unfortunately Mr. Geithner undermined the good job he did in advocating transparency by failing to provide enough himself. From what I can tell, that has led to an unfortunate consequence: a growing belief that either the administration, like the last one, thinks the public cannot be trusted to know the details or that the administration simply does not know the details itself.

Unfortunately, reporting indicates that it is the latter. We read today about infighting in the administration over the details of the plan. Reportedly, this infighting has not been resolved. Consequently, there are no details provided to us because they have yet to be determined.

As for the third, and most critical point - did the plan work - we don't yet have enough information to make a judgment. I do have a concern that this plan may end up being overly cautious and continue us down the path of bailing out the wealthiest among us, without demanding full accountability of the Wall Street tycoons. I hope that the new administration insists on real and meaningful pay caps and transparency while insuring that taxpayers are protected and credit flows to deserving borrowers.

Getting out of the hole that the Bush administration has put us into will require the reality of an improvement in economic conditions - in unemployment, in the availability of credit, in improved wages, and the halting of foreclosures and plummenting property values. But we also will need the American people to perceive that the economy has improved. This crisis of confidence that has set in will not be fixed by vague messages from the administration.

There is so much anxiety out there based on the reality of the most dismal economic conditions since the Great Depression. The public needs to know that the administration is confident enough in the way forward to expose its plans to scrutiny. Only then, can we start to feel hopeful again.

Comments

[mountainweb]

The bottom line is that the markets were smarter than the congressmen and senators that voted for a bill without reading it and realizing that it had enough pork in it to float a battleship.

[research]

You are confusing the bank bailout, this articles,

with the invests in Americans act.

No matter what you spend it on, someone will consider it pork.

Fortunately, it almost doesn't matter.

Wasting money on wars stimulates the economy,

So it's pretty obvious that spending on American will do even better.

borrowing money to give directly to Americans won't work, because of the fear of spending it.

Massive public works programs will work.

Green wind and solar can save us trillions per year over the long haul.

[Mnemanth]

Conyers: When I read these statements, there's a lot of emphasis on "credit". I think for the common good, these "credit" companies can go belly up. All they do is generate debt, inflated percentage rates, and in essence make indentured slaves of those who fall prey to their pretty marketing schemes.
You want to stimulate the economy? How about throwing out this overly complex, convoluted, and unintelligable "stimulus package" idea...and put the money in the hands of those who're going to spend it:
The American People.

That being said, how about less blogging, and put some action on your repeated subpoenas of Karl Rove. Until you do something about that guy, all you look like is a stuffed shirt. Get with the program and do what you were elected to do.

[Leatherhelmet]

LOL. I don't think lecturing from this congress about transperancy is going to work.

Where is the stimulus plan? Where is the promise to put it on the web 48 hours before a vote?

[000Jade000]

Mr. Conyers,

PLEASE read Nouriel Roubini's bank nationalization plan.

http://www.washingtonpost.com/wp-dyn/content/story/2009/02/12/ST2009021203365.html

And please have your colleagues look into what Nassim Taleb, Robert Reich, Paul Krugman, Joseph Stiglitz and others are saying about the banking crisis.

Geithner must not proceed as Bernacke and Paulson have. It is a hostile act towards American citizens to shift all of the risk of Wall Street criminals onto us in such a way. Trillions have already been spent via various Federal Reserve programs, and trillions more have been pledged. To whom? We don't know. We do have every reason to believe that the money is being used to scrub toxic derivatives off of balance sheets.

[PhilipTaylor]

The IDEA of a Executive INCOME CAP is GREAT! And the idea of using the US President's Income is good!

But the number is too low at $500,000!

The package the US President receives which is a $400,000 base plus the White House and Camp David and other fringes results in a package worth about $2 Million!

$2 Million would be a LOGICAL CAP on CEO PAY that could be pushed through and lower level people would receive less in proportion to there past incomes versus the CEOs.

Total income includes all forms of income including stock, options, bonuses, fringe benefits, corporate expenditures that directly benefit the CEO, etc.

[rybalaw]

To Devil with the tarp. Nationalize B of A, JP Morgan Chase, Citi. If necessary do it in the manner of Carl Ichan. After Govt control is obtained clean em up and sell em either to other banks or to the public via an IPO. ( which is exactly what was done to the Penn Central Railroad in the 1980s). Use the tarp money for this project. i know what the close of the share price of these entities on the market for today. I dont know the value if any of the toxic assets

[PhilipTaylor]

Much Better idea than simply handing over $Billions and trusting these Executives!

Why only three banks? Several others are also Deeply Bankrupt!

Gentle Bankruptcy is also part of the answer!

To open up lending Fund a Government High Tech "Virtual" Bank, the Internet Central Bank (ICB) which uses the Internet for loan application and ATMs and Debit/Credit cards (no branch banking) to provide low interest rates and fees with simple contracts (NO TRICK&TRAP LOANS)!

[flyfishinak]

I suppose for lobbyists, special interest groups and other various leechers of society,
Yes,
The best is yet to come

[JohnLloydScharf]

One of the things that I would like to see is that everyone who voted for this has to forfeit their salary for the remainder of their term if the unemployment increases, the inflation increases, and the DOW decreases.

[idest]

Are you in favor of those who got us into this mess forfeiting their salary until we get out of it? I doubt it.

[exmate]

Asking economists about how to fix the economy is like a person with a bad kidney going to a cardiologist so that he can have blood flowing optimally to his kidneys instead of going to people who know about kidneys like nephologists and urologists.

[ConfuciusSay-]

So Economists don't know about Economies? They specialize in something else?
Who should we ask?

(At which point the Republicans put their hands up and all shouted "Plumbers!")

[exmate]

Money is not flowing well because we need more people to have jobs that produce goods and services that Americans and others will pay money for. Most economists have not studied much about production and marketing and have no experience therein. If and when we start producing and successfully marketing goods and services, money will flow and the economy will get better. WE SHOULD NOT BE ASKING ECONOMISTS HOW TO FIX THE ECONOMY. THEY MEAN WELL BUT THEY JUST DO NOT KNOW.

[Carolab]

Exactly, John, there is no trust.

[PoliticalAnimal]

Congressman Conyers, you are one of the few with the authenticity and integrity and reputation for honesty that are able to play the honest observer in these proceedings for the rest of us.

We want an end to bonuses/bribes designed to encourage corporate lawlessness and irresponsibility. (stocks held for ten years or longer would be far preferable­.)

We want an end to salaries more than ten times the average worker of that company.

And we want an end to this cocking a snoot at the entire country - this was an international criminal conspiracy to defraud the nation (perhaps the world) of its wealth.

WHERE ARE THE PERP WALKS?????­??????!!!!­!!!!!!

EVERY TEENAGER WHO HAS STOLEN A CHOCOLATE BAR IS SENTENCED TO HARD LABOUR ...

WHERE ARE THE PERP WALKS?????­??????????­????

[hl7]

According to news accounts, at least two, and possibly as many as eight, people have been arrested in the "investigation" of the party at which Michael Phelps was photographed smoking a bong. Meanwhile, Bernie Madoff sits in his Lexington Ave. penthouse out on $10 million bail (just .02 percent of the amount he admits to having stolen) when it's now known that his wife withdrew $15 million in the three weeks before his arrest. What's wrong with this picture?

[brassminnie]

Rep. Conyers, why would the 'details' come before the audit, the 'stress test?' Secretary Geithner doesn't yet know which financial institutions need propping where and which are crumbling so badly 'propping' is pointless? He doesn't know if some are lying or cheating, either. I don't want more of my tax money spent before I know if it'll do some good. If it is proven it will, then 'private investor partners' aren't going to be difficult to get. My father was twice given the Herbert Gallatin Award and I'm sure he'd be grinning widely. I wasn't sure about Geithner before, but now I have complete confidence. That's a good accountant. He's going to keep track of every penny of my money and tell me exactly where it went.

[brassminnie]

P.S. The ARRP expenditure is based on solid historical financial data. The range of ROI for that expenditure is not in question. The three percent return on the short-term, tax cut, investment is probably break-even or less than the interest on the loan securitized by future tax collections, but the long-term increase in the tax base and reduction of health care costs and oil purchase trade deficit should offset it, comfortably, and a lot of people do need just a bit more to make their mortgage payments.

[AchievePeace]

Senator Conyers,
Could it be your post is not titled correctly - perhaps it should read "The Worst Is Yet To Come". I think Tim Giethner is stonewalling - he has a fundamental plan but he cannot reveal it because he is going to have to do something drastic here to salvage our financial system - were he to provide details right now it could have a signifcant impact on our confidence in our financial institutions - for instance, could cause a run on certain banks.
Yesterday, he defined the problem and presented some concepts - did just enough to let us know he has a good grasp on the situation and to warn us about how serious things are. Lets cut this fellow some slack - he may not be sharing information with the public because he's fully aware of what the impact would be if he did that.

[HappyDae]

If Obama succeeds at his promises, the U.S. will descend the ladder to third world status in less than a decade. The poor chap doesn’t have a clue how the U.S. economy works, any more so than he knows how national security, or virtually the entire gamut of U.S. government functions, work. Government is not the solution Mr. “O,” it is the problem. Government bureaucrats are empire builders. Creation of four hundred thousand new bureaucratic jobs does not boost the economy, it burdens it. Government does not create economies -- it may regulate them, it may harm them, but central planning czars are reminiscent of Soviet central economic planning. Message to Obama, “it didn’t work.”

Happy Dae.
http://ShoeStringGenealogy.com

[ditsylilg]

Apparently you've never heard of the New Deal.

[brassminnie]

I suggest you read Toffler's Power Shift. The 'equalizing pressure' of globalization has been apparent in the falling value of stagnant wages for over a decade. Ignoring the meaning of US rankings in health care, especially life expectancy and infant mortality, and education is head-in-the-sand mentality and the possibility of 'third-wor­ld-country­' is exacerbated by the concentration of wealth, and increase in public debt, which resulted from deregulation. The 'escape route' is through science and engineering labs. I don't doubt we'll succeed in pulling ourselves out of the downward spiral, but it's not going to be easy or fast.

[exmate]

It is not that Obama has no clue about the economy. Obama and others are looking to economists like Geithner and others who are economics PhDs. to tell how to fix the economy. Most economists have not studied production and marketing and have experience therein. When the only tool, you have is a hammer, every thing looks like a nail.
Tim Geithner is a smart guy. He has a good grasp of economics. He knows about money and banking. Money and banking are important components of business enterprise which facilitate the production and marketing of goods and services. What this economy needs is for more people to have jobs which produce goods and services that Americans and others will pay money for which, in turn, will allow those business enterprises to pay their employees so that they will be able to buy the goods and services of other business enterprises. Let us assume that Geithner has an efficient tool for correcting what is wrong in the banking/financial sector. He has little or no insight into production, marketing or social and personal behavior at the consumer level.

[escorpion]

If there were any truth in your arrogant assertions, the economic policies of the last 8 years would have produced a virtual paradise where everyone would be flourishing in limitless abundance. Sadly, such is not the case, as you will perceive if you take a mere glance at the headlines. But even that would probably not convince you, because you are blinded by ideological adherence to the policies that have landed us in this mess. Thank god someone is now in charge who will free us from the slavish obsession that tax cuts for the wealthy are the ultimate panacea for all our problems.

[bighat]

George left us what? a 10 trillion debt? Now the first thing Obama does is implement another trillion to add to the debt.. Oh we say we are going to limit the pay of the CEOs but in the end we won't. The rich wil still get richer.

We would be better off paying off everyone's credit card and let the price of housing fall to what it is worth.

More likely people will begin to spend money this way. Hearing wall streeters buy multi-million commodes is worse than the 400 hammers NASA and the armed forces used to buy.