Missed the announcement, but if these posts from Atrios are accurate, it appears that I am not the only one who has no idea what is going on. This was pretty awesome:
Administration officials were greeted with sarcasm and laughter Monday night when they briefed lawmakers and congressional staff on Treasury Secretary Tim Geithner’s new financial-sector bailout project, according to people who were in the room.
The laughter was at its height when Obama officials explained that the White House planned to guarantee a wide swath of toxic assets — which they referred to as “legacy assets” — but wouldn’t be asking Congress for money. Rep. Brad Sherman (D-CA), a bailout opponent in the fall, asked the officials to give Congress the total dollar figure for which they were on the hook. The officials said that they couldn’t provide a number, a response met by chuckling that was bipartisan, but tilted toward the GOP side. By guaranteeing the assets, Geithner hopes he can persuade the private sector to purchase a portion of them.
So why exactly did team Obama rush out to make this announcement when it is pretty clear they are just making shit up as they go along? And is it possible that Tim Geithner could be the man that sinks the Obama presidency?
I have no idea what to do or how this situation can be fixed, but it is pretty clear that neither do the masters of the universe. At what point did our banking and financial system change from middle-aged white guys in blue suits who said “no” to everything into folks like this:
I give up. If you can tell me how this plan is different or better than the status quo, I am all ears.
Punchy
Wow. From the man who just two threads down excoriated his commetariat for jumping to conclusions, not giving Obama any credit, not giving his Admin time to show their stuff…….THIS?
I have to assume this is snark, otherwise…..the disconnect, hyperbole, pearl-clutching….it’s stunning.
John Cole
@Punchy: From a political perspective, if you can not tell the difference between how the public will react to some obscure legal decision in a court room regarding national defense and state secrets that only the ACLU, the dirty fucking hippies, and civil libertarians care about to throwing trillions of taxpayer money into a pile and lighting it on fire, then you are the one with the disconnect, not me.
Do a little experiment. Watch the news tonight. Get back to me which one of those stories generates populist furor.
Joshua
Well, from this, it certainly sounds like he might be the man to sink the country. At this point, I find myself wishing those damned tax problems had sunk him the way Daschle’s did. What a joke.
Punchy
@John Cole: The disconnect stems from your contention that the initial move by Holden’s DOJ means nothing, that they demand more time to review the case, that maybe they have some other unannounced goal in mind.
Then you post that the initial move by his Treasury means everything, will completely "sink" his entire Presidency, and is more or less The Mother of All Bad.
This seems to me to be a disconnect, or at least a 180. Or not.
JL
John Cole says
John Cole says
The beginning of September we were on the verge of a total
meltdown. Status quo won’t save us.
Tonal Crow
Time to nationalize the too-large (and probably insolvent) C and BAC. Pay shareholders yesterday’s closing price (~$57B), replace the top management, and get to work making loans. Anything else just bleeds us to prop up the "don’t interfere with bidness" GOP ideology.
John Cole
@Punchy: Holder moved because he had to. It was in court.
Geithner announced this… why?
TheHatOnMyCat
You are right John. We should have elected McCain.
Zifnab
We are entering week four of the Failed Obama Presidency.
Zifnab
@TheHatOnMyCat: And just because McCain’s selection would have done a worse job doesn’t preclude Geithner from doing a crappy job.
Balconesfault
Instead of pumping money into the banking system – why not set up a network of regional review boards, get homeowners to bring in their mortgages that are on the edge of default, have the Federal Government buy down the value of the loan to reflect the current house value … and then maintain a contractual lien on that difference in value to be paid out of any increase in the value of the home at the time of a future sale (or sales, if it takes multiple sales to recoup that value).
The government may have to wait a long long time to get the money back. But the major reason I hear for not buying down loan values is ‘people who couldn’t pay their mortgages shouldn’t get something over on people who did’. This would eliminate that rhetoric, by having Government get compensated at some point in the future when the markets turn around.
zzyzx
The really scary thing is that Geithner was approved despite his tax problems because everyone in both parties felt like he was the only person who had a chance of fixing things…
John Cole
You know, you can mock me all you want, but I am not saying that he has failed or that the administration is doomed. I am saying that if they throw trillions of dollars at the big money boys on Wall Street, essentially “burning a pile of cash before nationalizing” as Atrios puts it, you will not see a Democrat elected President again until the year 3000.
JL
I remember reading a story about Clinton and when he first was able to examine the previous Bush’s reports. They had manipulated all the charts to paint a rosier picture. What do you think that Obama found. Like father, like son!
Geithner’s "no plan" was awful and you are right they should have delayed making an announcement. IMO, they might be dealing with a situation where the rules and plans change as they go. Credit derivatives alone are in the ten of trillions of dollars. If they thought by saying something, they could calm the markets; well that was wrong.
Dave
I’m guessing he is going to use a majority of what is left in TARP for this. Which would mean Congress doesn’t need to get involved.
After that, though, who knows? I guess the Fed can always print a trillion more dollars.
JasonF
@Tonal Crow:
This.
BFR
I’m not sure Geithner knows what he’s doing but I am 100% positive that the assorted congressfolk in the room don’t even begin to understand what’s going on.
The fact that they laughed at him doesn’t tell you anything.
David
Talking Points Memo characterizes the plan as a punt.
Michael D.
@BFR:
That was my first thought, too. I don’t know how much Geithner knows or how smart he is, but I’m going to guess he’s one fuck of a lot smarter than anyone who was in that room.
Jay Severin Has A Small Pens
Well…if they do nothing…they will be doing what 50% of the country wants them to do.
zzyzx
@John Cole: depends on how the Republicans oppose it though. Imagine if Palin gets elected in 2012; you think she’ll be able to sell tough decisions better?
Dave
And I would point out they are allotting considerable resources to mortgage reduction and mitigation, something the Bushies utterly ignored.
And who cares if some GOP staffer laughed. They don’t understand why the stimulus is important. They had Joe the plumber giving them financial advice. So if they’re laughing at this, maybe Geithner is on to something.
Reverend Dennis
It’s so simple: Geithner’s plan will detoxify the toxicity and we’ll then be able to turn the corner and see the light at the end of the tunnel.
Lola
If Geithner had a horrid plan I would be more worried, but it does sound like they don’t really have a plan which is troublesome but not Armageddon. If the media reports are true, there is a lot of debate still happening inside the administration. Hopefully Geithner’s corporatist instincts will be tempered by Obama staff and given more time, the plan will improve with critical feedback from people in the know. Certainly not from me.
John Cole
The point is not that they were laughing, but what they were laughing at- the fact that he has no clue how much this is going to cost.
Which is precisely my point. They have no clue what they are doing, there was ZERO reason to have an announcement today, the market is reacting negatively because they have no clue what they are doing and this has sparked a sell off, TPM is, as noted above, calling it a punt, and the politics of this is terrible all the way around.
When John Boehner and Eric Cantor get on Hardball tonight and say “We’re not really sure what Geithner and Obama want to do other than throw good money at the situation and we are not really sure they have a plan,” THEY ARE RIGHT.
Now can you figure out why this is problematic?
Punchy
With this, we are in total agreement. There was no reason to announce this now if the plan is pretty much ab initio as they go along.
Joshua Norton
Man, he’s GOT to stop using Turbo Tax to figure this stuff out. Of course the stock market is plummeting after hearing help may be on the way.
Maybe the America government should let Bernie Madoff invest their money. He made a profit every year.
/snark
mark
not mocking, but really, at this point I have absolute confidence if things don’t work out, the Republicans will find a way to do something even more self destructively stupid. Remember, Obama thinks long term, and like the Cylons, he has a plan. (though really, it was just making it up as it went along for the Cylons so maybe that’s not the best example)
In all Seriousness, I suspect they’re trying to do something without doing *too* much. Reacting without over reacting, give yourself more options should the first ones fail.
I am hoping Obama gets this right, because really, there’s not a damn thing I can do to fix it myself. and as a final point, given the options, would you rather have McCain trying to fix this mess or Obama? (or Barr, or Nader?)
Zandar
Fixed for accuracy.
PeakVT
it is pretty clear that neither do the masters of the universe.
Nearly every big-name economist (Krugman, Stiglitz, Roubini, Martin Wolf, Willem Buiter, Chris Whalen – but not the hacktacular Mank*w) along with hordes of bloggers big (Ritholtz, Smith, Waldman) and small (me) have been screaming NATIONALIZE for a while now, so they *can’t* not know.
If the Obama administration would at least point to some obscure and dubious legal impediment to doing the right thing, I would be charitable about their actions. But none has been forthcoming, so their actions look like a full-on defense the status quo. Which is, you know, indefensible.
Was this Martin Wolf interview linked to yet? Good stuff.
BFR
So what if they’re right or not? They are going to say this regardless of what’s in the plan and the gasbags are going to give them free reign to say it unchallenged – even if the plan had an iron-clad number in it.
If the administration wants, they can rebut the Cantors & Boehner’s of the world by saying that we’ll spend whatever it takes to end this crisis and stave off another Great Depression.
I’d prefer an honest ‘I don’t know how much it’s going to cost’ over ‘the Iraq war will pay for itself’ any day of the week.
Perry Como
It isn’t. The free marketeers are holding on for dear life, trying to pretend that our financial system is still solvent. This has never been a liquidity crisis, it’s a solvency crisis. A bunch of bankers are running off with their ill gotten gains and everyone in DC seems happy to let them do so.
So how do we fix the problem? Nationalize the banks; fire the management; open up the books; value the assets; recapitalize the banks.
At some point in the future we can make the banks private again, but right now we are just throwing good money after bad.
Karmakin
You know I’m really sorry for sounding like a broken record. I really don’t want to sound like one of those obsessed crazy nuts going off about making nuclear powered rail lines or something like that. Really.
But I just can’t help myself.
Don’t hate the player, hate the game. For as scummy as Geithner is, his hands are tied. Obama’s hands are tied. God himself? His hands are tied.
There are no options here. If the money folks decide to take their money and go home, as it seems like they almost did in both the US and the UK last year, that’s the game. We’re talking the second Great Depression. And frankly? I don’t think anybody wants that to happen outside the fringes of the GOP. If we push them too far, they will do this.
So all the talk about bank nationalization and punitive measures, as good ideas as they are, are like going after a mad bomber with a deadman’s switch.
So until their grip on the economy is loosened, and it’ll be a matter of raising the temperature slowly so the frog doesn’t jump out of the pot, there’s not much we can do.
Adrienne
That’s because economics is not an exact science. We don’t know how much it will cost. But we know that the cost of doing nothing will exceed whatever cost we pay to avert it.
No, they would be wrong. They have a plan. They announced the outlines of the plan. Now, are they sure that it will work? No, but the other side cannot be sure that it won’t. The bottom line is that doing nothing is not an option even if the options on the table aren’t pretty, perfect, or politically brilliant. There is a difference between the politics and the policy here.
Brian J
I sent an e-mail to Kevin Drum asking him this question, in longer form, and will ask the same question(s) here, because maybe someone knows something I missed.
Anyway, one of the many prominent academics to join the Obama administration in recent weeks is Harvard’s Jeremy Stein, a well respected expert on financial markets. He widely criticized the previous bail out moves, primarily because the banks continued to pay dividends, which was a transfer of wealth from the taxpayer to anyone who had bank stock. He also advocated an "aggressive" audit of the banks and then said we should shut down the ones that aren’t solvent while keeping open the ones that aren’t. Details matter, especially with a case that is so complex such as this, but that seems to be a pretty straight forward plan. Some details can be found here.
At the very least, it seems to stop dancing around the point that we need to figure out which banks are good and which banks are bad, shut down the bad ones, and do what we can to help the financial system get back on its feet. Or that’s how I see the problem. Right now, however, it seems like we are refusing to acknowledge this.
So, I wonder, why isn’t this guy part of the planning? Is it simply that his expertise isn’t need at this stage? He’s also not working for the Treasury Department, but still, wouldn’t there have been some consultation between the CEA, the NEC, and the Treasury Department, among other groups, about these plans? It just seems odd, because why bring on a guy who has gone on record advocating something (to me, at least) pretty blunt but apparently rather simple? Am I missing something?
I don’t mean to pile on the Obama administration. I’m willing to give him and his staff a lot of leeway, particularly because it doesn’t seem like there’s a lot of precedent for something like this and because that anyone who is in a position to have some background to deal with the problems was probably already involved in them before he took office, so we’re likely to get people whose records aren’t perfect. But I am honestly not sure what to think.
Dave
@John Cole:
John, with all due respect, how can you expect him to say how much it will cost when no one knows?
We don’t know the actual value of these crap assets that Citi and BoA are holding. Until that is determined (likely through the "stress test" Geithner mentioned) we don’t know how much federal money will be used.
We don’t know how much private money will come in for the "public-private" partnership Geithner mentioned. Until we do, we don’t know how much federal money will be used.
They know what they are doing, they just don’t know the cost. Hell, they scrapped the "bad bank" idea. Right there that makes this a better plan.
And, FWIW, Krugman is cautiously on-board with it.
krugman.blogs.nytimes.com/2009/02/10/the-rorschach-plan-wonkish-or-at-least-hard-to-read/
Dork
If not, the plan will be a slap in the face, something we’ll have to throw under the bus.
Adrienne
It seems that he was. Part of the plan announced today was an audit of the banks who receive any money. That’s a start.
Terry Colberg
The merit to the current plan over what was in place over the last three months is that the new plan acts upon several of the systemic issues in the economy (points 1-6 in the FSP) rather than just tackling one issue, undercapitalization of financial institutions. By acting broadly, the Financial Stability Plan aims to even out the elements in the market that are causing the most turbulence. To paraphrase Jed Bartlett, they’re pulling on all the levers.
The market is tanking because of the remaining uncertainty. Wall Street was looking for a panacea today and they got an outline. The different elements of the plan are going to be coming out in the next few weeks, but the market’s reaction seems to mostly be due to fear and impatience.
Reverend Dennis
Let’s not leap to conclusions here. Geithner’s plan seems to guarantee that the same people who got us into this mess will in no way be inconvenienced by their cupidity and lack of judgment. They will, in fact, now be given a titanic dollop of our money with which to exercise their demonstrated acumen.
What could go wrong?
Dork
@Karmakin: All-time record for cliches, bar none. Well done.
Napoeleon
The problem is very simple, and I don’t think it is because Geithner doesn’t know what he is doing. The simple solution is that they have to nationalize the banks that are insolvent, clean them out of the bad assets, then reprivatize them (either now or when at the very least things stabalize). But either Geithner knows that is the only viable thing to do but he does not want to be the one that does it (or alternatively we are seeing a case of cognitive dissonance with him) or Obama has simply told him that is not politically viable and that he has to come up with another solution, but the problem is there is no other viable solution.
Regardless, what we are seeing is that the administration, for whatever reason, wants to pretend that is not what they have to do.
By the way, this was an interesting take on the general subject matter at TPM:
talkingpointsmemo.com/archives/2009/02/breaking_the_back_of_the_elites.php
Brian J
Oh, absolutely, but while I’m not sure of what a "good job" is here, at least in the short term, I’d have exactly no confidence in a McCain presidency. After all, his people were declaring as recently as this past summer and early into the fall that the economy was okay and that those were worried could basically go sit on it.
Eh, I don’t think so. As others have said, it might not be a great plan, but it’s something. I haven’t heard one single suggestion from the other side that doesn’t involve some combination of guns and ammo, bottled water, and a significant level of pain. Once Cantor and the other House goons can offer something that rises above the level of what niece could offer, they can talk. Until then, they should be looking for bottles on the side of the road to cash in, and then donate the money to charity.
Karmakin
@Dork: I deserved that :)
Brian J
Can I also put in a request for everyone, everywhere, to stop looking at the day to day results of the stock market? About 600,000 job losses were announced last Friday, but the market went up a few hundred points. It’s an indicator, but hardly the only one, even over the course of a week, let alone a single day.
Dave
@Brian J:
I can already tell you Cantor’s and Boehner’s response. It starts this way:
"We feel that a series of tax cuts…"
Sloegin
We’re all stuck in a room right now with unmarked doors leading out. One door leads to us losing a favorite limb. The other door leads to us getting shot in the head. Geithner may or may not pick the better of the two doors for us.
There is no third door.
Brick Oven Bill
Re: Buying ‘Legacy Assets’
Let us not forget that Geithner received between ‘$50,000 and $100,000’ for ‘unused vacation and comp time’ in addition to his salary ($411,000?), plus his $435,668 ‘severance’ which was not a ‘bonus’ on his way out of the Federal Reserve.
The Federal Reserve, of course, is funded by Wall Street, those guys who Geithner regulated so well when he was seated in New York.
zzyzx
So after reading this thread I feel even less sure about how to feel about this plan.
…I AM getting tempted to go out and buy 10-15 pounds of beans and pasta on my way home though…
Brian J
Maybe he was, but wasn’t out in front of the cameras. It just seems strange, because even if his advice was taken in part, as you suggested, he seems to advocate a much more direct way of dealing with the problems but the announced plan doesn’t seem to follow his advice directly.
Joshua Norton
To paraphrase Jed Clampett, Waaaaaay Doggies!
TheHatOnMyCat
Okay, I guess my analogy yesterday was too subtle:
First thing the firemen do when they get to a big fire is start calculating exactly how many gallons of water they will need to put out the fire. Only when they have done that, will they get out of the truck and hook up the hoses.
Alright, too action-adventure for this crowd. How does this work? A giant crater has been made in your town square. The citizens stand around and argue about exactly what rock, dirt and gravel mix should be used at each level of the fill. Since agreement on the exact mix cannot be reached, nobody does anything.
Now, imagine that the fire, or the crater, are your economy. We know that something like $2.5t in lost demand is in store for the GDP in the next year or two if nothing is done, and we know that the financial house of cards is about ready to fall down and take away any hope of propping up that demand even if there is willingness for it …. and we are sitting in the fire truck with a $6 calculator trying to figure out how many gallons of water we need, and where each gallon should go.
Meanwhile down at the town square the folks are peering into the crater and going "I can’t understand that guy with the bulldozer, I guess I should have studied more about landscape engineering. I’m just skeptical!"
Welcome to Sims – The Depression.
Brian J
@Dave:
Probably. I wish we were joking, but apparently, a series of tax cuts worth three to four times what the stimulus is worth, which will blow a massive hole in the deficit like the stimulus never could, is a responsible, credible alternative. Any tax cuts that may actually work, such as direct or indirect payroll tax cuts, aren’t front and center.
And they wonder why people feel the need to drink.
Montysano (All Hail Marx & Lennon)
Has any incoming administration in the last 50 years inherited such a steaming pile of shit?
Has any incoming administration, at any time, ever inherited a crisis in which the smartest guys all admit that there is no clear, surefire solution?
George W and the Boyz have run us aground in completely uncharted waters, climbed into the lifeboats, and disappeared. Jail time is too good for that smirking fucker.
wengler
Nationalize the banks.
Fire the boards.
Prosecute the bastards.
Open up the process to find their replacement beyond the ivy league good ol’ boy system.
Deleverage the debt.
Reimpose old banking regulations and make new ownership rules.
Break them apart.
Sell them off.
Rick Taylor
I’ve been wringing my hands and worrying myself these past weeks so I can’t help you. The one thing I heard that gave me hope was there was disagreement among Obama’s inner circle about what to do, which at least indicates they’re not in an echo chamber, and other ideas are being and will be pushed. At least that’s my hope.
gopher2b
In defense of the plan:
This looks a lot like what Buffet said would work back in the fall. I recall when everything was really going to shit, there was an interview with him and CNBC (I think). The interviewer asked him what it would take for him to start buying up the "toxic" assets. He said he would use his own money if it was matched with government, non-recourse loans. He said that whoever buys these in the end would make a lot of money. I think he is right.
There’s two insurance policies in this package. One is the implicit and explicit guarantee that the government is going to stop foreclosures which (hopefully) stops the spiral in housing prices (this explicit is 50 billion, the implicit is "whatever it takes).
The second guarantee is that the government will go in with you by guaranteeing a loss limit.
I think this bring private money into the market which is better at setting the price of products that are otherwise unmarketable.
This will also force the banks to open their books ("stress test"). Many people think the banks are lying about what they have on their books. The banks are saying…we’ve told you everything. This will end that nonsense once and for all.
Short of scrapping the entire banking system and starting over again (which I think would be terrible), this does not look like a bad plan to me. The fact that members of Congress laughed at it only reinforces my belief. Perhaps they should hold some more hearings on steroids given yesterdays development.
Elie
Mark @ #28 — Right on.
Dave
@gopher2b:
There’s a voice I tend to listen to. Buffet has been right a hell of a lot more than he has been wrong.
TenguPhule
It will not be implemented by the Bush admin.
This fact alone raises the likelyhood of success into the range of "possible".
Polish the Guillotines
I saw Geithner’s conference today. This was not i-dotting-t-crossing time. That’ll come later. What he did that was worthwhile, in my opinion, was to come clean and make it clear that no one really knows the total price tag, nor can we ever be sure we’ll know. People need to understand that. They need to be weened away from the black & white thinking that there’s some absolute, God-ordained number, and if we only knew what it was we’d be out of the woods.
I heard Robert Reich on the radio after and he pretty much said as much. This is the first of many, many conferences that’ll no doubt get into more detail as this wears on, but doing nothing — or worse yet, doing it the Republican way — might damn well bring on Kanjorski’s Apocalypse.
Now I’m watching the SPAN, and the fucking GOP is bitching and whining about their usual "earmark" pet peeves, and to hear Jerry "I dodged a major corruption investigation when Rove had the US Attorneys fired" Lewis bitching about ANY amount of money just makes me want to punch a baby.
Geithner is absolutely the least of problems right now.
anonevent
Napoeleon
I wonder how much the political side is true? It’s one thing to borrow money to pay for roads, schools, bridges, and to "lend" to banks; it’s an entirely different matter to nationalize banks. Most people understand "creating jobs will get us back to work." Most don’t understand "we need to take over this bank in order to make it loan again." And this is America, where universal healthcare is still loathed. Trying to nationalize something at this stage could cause problems.
The one question I would have, though: Is there enough time/money to experiment with helping and then nationalize if this fails?
Brian J
I can’t remember exactly who said it, or on what show it was said, but on one of the last two seasons of "Real Time with Bill Maher," either Bill Maher or one of his guests, a congressman or senator, finally let out a little steam and basically said exactly what you said. This person stated that before Obama could focus on his objectives, he’d have to clean up the "gigantic pile of shit" that the Bush administration left him. If nothing else, it’s nice to see that our side recognizes reality, because it’s a legitimate starting point.
southpaw
Not only does the Geithner plan suck. Your Fear and Loathing Clip sucks. This would have been somewhat better. And this one would’ve been ever better than that.
Instead, everything sucks.
Church Lady
If the stock market reaction to the Treasury plan is any indication, the financial powers that be are NOT HAPPY. Whatever it was that they wanted to hear in the plan, it was not there.
In the past few days, we have received year end statments on our retirement account and our son’s college fund. Lost about 40% in each. If things don’t turn around fairly soon, I’ll be living in a cardboard box and eating Alpo in my old age, and my son will be lucky to go to some two bit trade school.
gopher2b
I will say that I was disappointed there were not more details (and that is what the market is reacting to). Not a good roll out and Geitner is unwhelming but this is far better than the 350 billion give away from last fall.
TheFountainHead
QFT.
TenguPhule
Fortunately Obama has access to the CIA, which can act as sharks with fricking laser beams on their heads on the lifeboats.
TenguPhule
A plus for Obama then.
Punchy
Who said wingnut groups aren’t completely unhinged?
gopher2b
@Dave:
And what he thinks is important because (a) he’s a genius and serious person, (b) it has to be him and people like him who buy up this crap and are willing to hold it for 10-15 years.
Fencedude
@mark:
Lelouch Lamperouge.
Wisdom
That Citi boy sure knows who his master is. All those Serious Democrats mindlessly rally for their ‘stimulus’ fix with no checks or review (just pass it, danged-it, NOW!), and now they wet their pants on the bank bailout number 3 or 4.
How do you liberals function all day with all this flip-flop nuance? It’s no wonder you have mortgages you can’t pay for.
SGEW
I must ignore this terrible drug.
Svensker
Way to panic, JC.
I’m with Punchy on this one. Such pearl clutching!
Take a deep breath. Try to get control of your bowels. Let’s wait and see how this unfolds. I’m not wild about Geithner (does anyone else think he looks just like the bad guy in Ghost?), but jeez.
No one has any the fuck idea what’s going to happen. Lots of people have theories, but no one really knows. We’re in uncharted territory here. Cut the guy a little slack.
But then I’m just a DFH who’s a one issue voter. Or something.
Brian J
If it ends up coming to that, and something tells me it might, then Obama simply has to approach this by informing the public in plain language about what is happening. As far as I know, nationalizing the banks would wipe out shareholders and the management, but wouldn’t affect the ability of people to have access to their money. If that’s the case, then Obama needs to explain that, and then emphasize this as many times as humanly possible. If he and his people are as skilled as I think they are, perhaps some populist language about it being a step to help the public while punishing those who caused this mess might help get people on his side, but regardless, I’m pretty sure that if he convinces people that their money isn’t going to be lost if it’s in a checking or savings account or whatever else, a large part of the public will go along with him.
gopher2b
@anonevent:
"make it loan again" is exactly the problem.
Why would we want to take over a bank that does not want to loan money to a company teetering on bankruptcy so that we can load money directly to a company teetering on bankruptcy.
How ever bad the banks have been….and they’ve been run terribly…what they are doing now (hoarding cash) is completely rational. Taking them over so that the U.S. government can hand out irrational loans does not fix the problem.
TenguPhule
Except for the checks and reviews that are already there.
Oops, did your head explode?
And spending is stimulus, Zombie Hoover.
Dave
Wisdom…no user name has ever been less reflective of its owner than yours.
Adrienne
I’m highjacking the thread for a second:
I’m watching Barbara Boxer on MSNBC. She’s fast becoming one of my favorite Senators. I’ve watched her and listened to her over the past couple weeks/months and I nominate her for Senate Majority Leader.
Polish the Guillotines
The GOP wingnuts in the House are gumming up the works with a freakin’ procedural move to get the bill posted on the internet for 48 hours before the actual vote.
I noticed something really interesting, and let’s see if it holds up…. Mike Pence referred to the Democrats as the "Democratic Party", and so did some wingtard from Georgia.
WTF? Suddenly the brats are using restaurant manners?
Fencedude
@Wisdom:
How do you liberals function all day with all this flip-flop nuance? It’s no wonder you have mortgages you can’t pay for.
I know this is a hard concept, but you do understand that "liberals" are not a uniform block, right?
Adrienne
FTW.
gopher2b
Re the bank bailout. What’s amazing is the Drudge is blasting "2 trillion" for the banks on his site and the GOP will be crying about that number this evening, but if Geitner had come out and said "we’re giving 2 trillion to the banks" the market would be up about 1500 points. Talk about a disconnect.
Tonal Crow
gopher2b
The primary reason banks are hoarding cash is not because of a lack of creditworthy (non-bank) borrowers. They’re hoarding cash because their "toxic" assets keep depreciating, and regulations and their creditors require them to maintain a certain minimum collateral/debt ratio. If they don’t maintain that ratio, their creditors/regulators give them the equivalent of a margin call, which easily could force them into acute insolvency.
If we nationalize these ill (really, insolvent) banks, we can sidestep this issue and get credit flowing.
BenA
I might be the only one that thinks the market reaction to the bailout plan version 7.8 might be a good thing. I think what the jackasses at the banks really want is a huge bad bank for them to sweep all their stupidity into, at sky high prices… just dump them all on the taxpayers. All this talk about uniform stress tests and restrictions on funds scares the bajeezus out of them.
I think just coming out and saying we’re going to nationalize banks is probably as bad an idea as just creating a giant bad bank. Just a thought, if you were going to nationalize banks, would you say you were going to nationalize banks?
Polish the Guillotines
Jack Kingston, [R] Georgia on the floor of the House claims the Republican plan’s tax cuts for small business will create 6 million new jobs. Yes, he said 6 million.
Wasn’t Boehner bandying about this fictional notion a week ago?
Napoeleon
@anonevent:
FDR did it. Last Friday night it happened to somewhere around a half dozen banks when the FDIC took them over (which is nationalization). If I am Obama, I never call it nationalization, and I point out that the government has been doing just that for 77 years now, but in any event what the govenment is doing now reminds me of a little kid taking off a bandaid. He knows it has to come off, but because he is scared of hurting himself he pulls it off real slow, hoping that somehow that is better, when in reality he should just yank it off and be done with it.
myiq2xu
IACF?
kay
It’s populist rage time again.
We’re here. That’s the reality. Obama has to mitigate the short-term damage and try not to inflict permanent damage.
Incidentally, how Wall Street reacts to anything probably isn’t a good indicator. Wall Street reacted with unbridled joy when half a million people lost jobs last month. Because the childish wishing-and-hoping 6th graders who work there thought it was a "bottom".
If conservatives want to gin up unfocused mob rage, have at it. Their problem is, at some point they’re going to have to offer an alternate plan. And no one knows what banks are holding, or how bad this is.
Put up, or shut up. Let’s ask the House Republicans to put a number on it.
Church Lady
@Fencedude (#83) – Neither are "conservatives" or "Republicans". People in glass houses…..
demimondian
@Wisdom: It’s a pity that I know that the overwhelming majority of the defaulted loans went to Republicans, isn’t it? Can’t get that lie through here, puppykin.
Brian J
I believe he and other Republicans were citing Christina (and David) Romer’s research on which to base their claims. As Brad DeLong then said, one of the nice things about being confirmed as CEA chair is that Christina Romer could forcefully denounce the Republicans as being completely full of it. And that’s exactly what she did.
Face
The screaming that will come forth from the holes of Republicans should Obama attempt to nationalize the banks will make current Republican bitching over Tim’s plan look like a playful banner.
AnneLaurie
Network news theory last night was that Geithner’s announcement today was supposed to give Republicans & other Obama-stimulus-reward-averse politicians "some incentive" to stop dragging their feet. If you define "some incentive" as hearing their constituents scream "You gave these robber barons half a *trillion* dollars of *our* money, and now you’re bitching about every hundred-thousand-dollar chunk of the stimulus plan while we’re out here worrying about starving in the street!"…
Tonal Crow
@face
Cool. Make them scream. Every additional GOP scream convinces another American that the GOP is a sandbox of ill-mannered infants.
kay
@BenA:
I think the discovery aspect is really important. They have to get access to the books before making predictions.
Legalize
I think this was a punt. They said they were going to make an announcement this week, pushed it today, and determined that they had to say something. That the market tanked today on speculation that something resembling nationalization was coming along, might mean exactly that. The statement was so vague as to not expressly preclude such an outcome. My guess is that they still haven’t decided. They are still arguing internally about how to mix the right thing to do (a) with Obama’s long-term policy plans, and (b) Obama’s long-term political plans.
Maybe they’re looking for a politically safe way of nationalizing without calling it "nationalization." No matter what, they know that the GOPers are going to scream and bark about "socialism."
Maybe this was a tacit announcement for shareholders to jump ship from the sinking banks, thereby making it easier for the Feds to later nationalize them, by saying "hey, the market has no faith in these guys." Maybe they can get a sense of which banks are worth preserving and which ones have to be shit-canned.
Meanwhile they can do something with some of the remaining TARP money to give them some time to come up with something that will work substantively and politically.
Conservatively Liberal
Let me see, the people who caused this mess were laughing at someone who was explaining a way they were going to try and resolve it, regardless of who it is, and everything is game over?
For them I hope. If the Rushublicans were laughing a little harder it is understandable because they were the ones to lead us into this mess and they get to hinder us every inch of the way out. I guess they like that position, eh? Of course, the little fuckers who licked their boots every inch of the way (aka the Democrats) even had a little chuckle too eh?
Glad they think it is funny. I will be sure to find out who was there and make sure everyone knows by the next election about this little laugh they were having at OUR expense.
I’m pissed too John, but for different reasons.
Church Lady
@demimondian – How are you reading the maps? Quickly looking at % in foreclosure, # per 1000 in foreclosure, % current, and % 90 days or more delinquent, it seems that blue states as a whole seem to be in more trouble than the red states. Florida, California and Nevada seem to be in the worst shape. What I found surprising was Oregon and Washington. I figured their housing market was in better shape than this map shows.
Martin
Of course they know, but then the government will be on the hook for 100% of the bad debt rather than some fraction of it. I mean, I think it’s the plan most likely to succeed, but let’s not pretend it doesn’t come with its own costs.
And if the plans look like they suck, it’s because there is no good plan. There just isn’t. Every plan is bad, and it’s a matter of picking the one that is the least bad.
If we dump money into the banks, we don’t really have a whole lot of downside. Their stock prices are fucked, so there’s nothing there for investors to claim. Executive pay is annoying as all hell, but it pales compared to the price of the fix. If a bailout fails, nationalization is still an option and we end up nationalizing the bailout funds, so we probably won’t lose that much. Nationalization is a one-way move, though. There’s no undoing it until the banks are solvent, and that’ll be a long time coming. Simply put, it’s the last possible move, and they’re right to be conservative on that move.
In the end, I don’t see how the government doesn’t make most of the derivative market illegal and nullify most of the contracts there. With that looming, nobody knows where anyone stands, and it the derivative market is so huge, it can’t be fixed – they’re gonna have to kill it somehow.
BFR
I’m reminded of a discussion I read a couple of years ago about the V-22. Basically there was a widely held perception that the V-22 was a colossal waste of resources that should have been canceled at numerous points.
Opponents of the V-22 would claim that even Dick Cheney wanted to kill the program as wasteful. Someone arguing in favor pointed out that Dick Cheney has spent his entire career being wrong or poorly informed about military issues including procurement, so why should the V-22 be any different?
Basically, if the opposition is proven to be incompetent, then their views should be ignored.
passerby
@John Cole:
What they know and why they are laughing is what us rank and file citizens are kept in the dark about.
Here’s what I think it is:
ALL of these banks have assets and accounts that are illegally "off the books" for purposes of avoiding taxes. Global in scope. The CEOs, as part of the negotiations, are trying to avoid having to reveal the existence of these "assets", which by now are probably worthless or of questionable value. Because of the fraudulent nature of these assets, opening the books would be an admission of guilt.
This accounts for why no one can nail down a figure. Paulson couldn’t come in with a close figure so his people ballparked it at around $700B. And now we see Geithner with the same problem: an illusive, unspecified amount.
Ergo:
I’m hoping Holder is gathering his army in the event that Geithner can pull the string that unravels the scheme. [That’s why I think it’s a good thing Geithner is an insider. Get ’em boys.]
P.s. What’s stopping the administration from "temporarily nationalizing" the bank system by setting up the program ahead of time, seizing the banks and implementing the program, then turning them back over to execs and investors.
Adrienne
You do realize that the Republicans in Congress are trying REALLY really hard to prove you wrong right? 217/220 seems like a pretty uniform block to me.
ksmiami
Harvard’s Jeremy Stein – My husband’s roomate at Princeton is amazingly smart smart smart – so everyone chill out, let them come up with a plan. I agree it is a punt and that is a good thing despite the short term optics
Martin
You also need to look at 90 days delinquent. Different states have different laws regarding foreclosure. 90 days delinquent is GA, AL, SC, TN, and all by its lonesome, MA. You need to put the various ‘in trouble’ measures together.
Overall, I don’t think there is that strong a trend of red/blue on this. Most of the subprime went into growth communities – Cali, FL, NC, etc. My neighborhood in SoCal has very few foreclosures – but its an old neighborhood. 2 miles over is a new neighborhood that is 1/6 foreclosures.
I should add I’m skeptical of some of the data. Most states are showing 60% late or missed payment last 12 months, which, frankly is impossible. The country wouldn’t last 3 months with that going on.
The Grand Panjandrum
Geithner has a pretty idea of what this will cost. He’s just not going to say it publicly. It’s somewhere between 5-6 trillion dollars.
I still don’t understand why Obama picked people who didn’t see this motherfucker coming to be the people to now fix it. That is just plain stupid. He should put a couple of the people who saw this shitpile coming in charge. Once again Nouriel Roubini should be part of that team.
Forget the stimulus, forget Iraq and Afghanistan, because this will make or break Obama. Period.
He’s going to have to nationalize some banks in the same sense that the FDIC nationalizes a small bank that fails. They take over the assets, clean up the shit and sell off the assets to healthier banks. It’s going to be brutal and painful. You will see significant devaluation of almost everything over the next couple of years.
I also recommend giving ever corporate officer at the failed banks the bastinado on pay-per-view just to recoup a few one-hundredths of a cent per dollar of this fucking abomination.
anonevent
@Napoeleon
I personally am not against nationalizing the banks – in part to have government release their books just to embarrass the bastards that were in charge – and I even think the government should start taking some of them over right now. I just don’t think they can just come out and start doing it until they have tried to save some of the banks and Obama takes some time to sell the idea of nationalization.
woody
I do not think "Barack Hussein Obama" can nationalize the banks without the cry going up from the financiers, echoed far and wee by the captive corporat press, that he’s indeed the ‘socialist’ all feared.
Martin
I just noticed that the 60% was just on subprime – which I can buy. But damn.
woody
May one inquire why this comment is being moderated when previous comments were not? There is not an offensive word or even syllable in all 35 words. que pasa, amigos?
passerby
@passerby:
Oops, I didn’t make the point in my above post as to why Geithner is announcing now. It’s part of Obama’s chess game as he attempts to tighten the noose for what I believe to be an inevitable checkmate.
Don’t believe that we’re getting correct info just cuz we’re keeping an eye on what the media and the government pols are feeding us.
Anyone notice the bill introduced by Boxer, etal, that was to "repatriate" offshore taxes? The banks are writhing around, trying to find a legal way to avoid their criminality. Gazillions of $$$ are at stake. (Some in government are complicit in the scheme.)
kay
I would just suggest that there’s a political view and a policy view.
Do people really want David Axelrod trumping on a bank bail out? That’s akin to Karl Rove advising on the Iraq War roll-out. Are the "optics" of utmost importance here? I know politically they are, but didn’t we just have 8 years of government selling us policy dishonestly?
Maybe it rises or falls on merit. Ya know, using facts.
gopher2b
If they’re worthless then why do they owe taxes on them.
Conservatively Liberal
@anonevent:
I hope that is the case. I want the banks to hove to open their books, I want to hear about how much these fuckers were gambling with our economy. I want the toxic CDS and CDOs exposed to light and air. I want everything spelled out so we know what we are facing and not have to take these bastards words for it. I don’t trust them to straighten this out and the longer they get cover from our government the easier it will be for them to destroy any evidence. Right now, our politicians are helping to cover up financial crimes, and they are sending the bill to you and I.
Fuck the war on drugs, we need a war on bankers and financiers. We have been warned that drugs are going to destroy America but this has only been a distraction for the real threat to our country: The obscenely rich, our leaders the and financial system. While they have been waving red flags all over to keep us distracted, they have been looting our economy and stuffing their pockets.
Frankly I am more afraid of what the bankers and politicians can do to our country than any damned drug addict. Hell, I bet a fucking junkie could have ran this mess better than these crooks have.
Nationalize the fucking banks already and quit giving money to the crooks.
gopher2b
There is a real chicken vs. egg problem with this plan.
How do you do a stress test without pricing the assets first? Many of the banks will be solvent/insolvent depending on what the price of the assets they hold are but you don’t know how to price the assets until you look at them.
excathedra88
Perhaps today’s ( and likely tomorrow’s) sell-off is a feature, rather than a bug: if yer gonna buy up a lotta bank paper, better to buy it when it be real low and in the shitter, no?
TenguPhule
In exchange for the money, all corporate bank management must pledge their right arms as collateral.
If they don’t make good to the government, chop-chop.
Samuel
Take it easy slugger. They’re public companies and their financials
always have beenare open for all to see. The problem is the public doesn’t want to read through hundreds of pages of accountant-speak rambling on about mark-to-market and rate and currency hedges. They’d rather Wolf Blitzer tell them what the deal is in a quick 2 minute synopsis….georgia pig
Obama picked Geithner for a reason. Nouriel Roubini and Paul Krugman are great at modeling credit crises, but don’t know shit about the day to day workings of the banking system, e.g., how regulators operate. As the press conference showed, Geithner isn’t big on giving speeches. After watching the Senate Banking Committee hearings, however, he appears to be a real banking nerd. Maybe Obama felt he had to pick someone who knows where the bodies are buried. The real issue is whether Geithner will make the right choices, i.e., will he be another Paulson who is captive to groupthink and clubbishness. He is not stupid, however.
As to the "plan", there appears to be an implied possibility of nationalization. Characteristically, Obama wants to find out what the fuck is going on before jumping to that conclusion. The plan looks like it may include a full rectal exam for any bank wanting to participate. Depends on what a "stress test" is. If the "stress test" of a bank reveals a quadruple blockage, it would seem to be a distinct possibility that it would end up being eated. Geithner couldn’t answer questions regarding this now, however, because he can’t reveal which money center banks he suspects are insolvent because of the obvious ramifications. This isn’t a gift to the banksters – yet.
Legalize
There is a difference in using language calculated to appeal on a poltical level when the policy is a good one, and the same tactic to push rancid policy. Besides nationalizing the banking industry (which has to be what team Obama knows must be done), should be done carefully. It will take quite a bit of explaining to folks who are scared shitless. They have to figure out how to sell it, and I can see that being difficult. On the other hand, maybe it’s not such a bad thing to scare the banks by making such an ambiguous announcement. Maybe Barack is coming for their asses; maybe not.
srv
@BFR:
Like the neocons, you should be careful about declaring victory before all the data is in. $30B so far, and the program hasn’t met any budget or schedule set for it. Yes, if you literally throw unlimited amounts of money at a problem, you may make something work.
Funny, consequentialism seems to be prevalent in every bad choice made. The B-1B today is justified as an awesome CAS platform.
Martin
Another possibility is that Obama doesn’t want to go down the road until the stimulus bill is passed. Saying either nationalization or trillion dollar bailout will pretty much guarantee that nobody from the GOP votes for the stimulus, no matter what they do to it.
scarshapedstar
WE CAN’T STOP HERE THIS IS BAT COUNTRY
passerby
@georgia pig:
The plan looks like it may include a full rectal exam for any bank wanting to participate. Depends on what a "stress test" is. If the "stress test" of a bank reveals a quadruple blockage, it would seem to be a distinct possibility that it would end up being eated. Geithner couldn’t answer questions regarding this now, however, because he can’t reveal which money center banks he suspects are insolvent because of the obvious ramifications. This isn’t a gift to the banksters – yet.
Agree. I find myself resisting the urge to rend clothes and gnash teeth over this. "Yet" is the key word.
I’m worrying that us tax payers will be saddled w/ $Trillions in a futile attempt to save a failed system that is based on gambling that uses manipulated information and elaborate bank instruments that were designed to affect fraud.
Conservatively Liberal
Hey Sammy, roll it in glass and stuff it up your ass sideways. Please repeat endlessly. I hope you fucking wingnut apologists get what you deserve. If anyone deserves to be hungry and homeless its you assholes. If this system crashes I hope you and yours find yourselves living in a box outdoors.
While you fuckholes whine and bitched about teh libruls destroying our country, the Rushublican assholes and their business, banking and market buddies were sucking our financial system dry.
You and yours provided cover for the economic terrorists who have fucked everything up. Proud of yourself? I bet you are.
Stuck
Me, I trust bankers with all my heart. I am sure they will spend the money wisely, and baby jeevus will smile down upon the fruitful yankee peoples. It’s an American story, not a one with bad endings.
Brian J
If he was there at all, Axelrod was advising on what the public reaction would be. His name was probably used in a sloppy fashion, but through no fault of his own. I have complete confidence that Obama is looking for the advice of experts, not political operators, when talking about stabilizing the financial system.
Elie
I think that many make excellent points above. Basically, the answer he is saying is:
1) the solution to this is not going to be like pushing the "Easy" button. No one should be surprised that there is uncertainty. The need to for laughter revolves around the uncomfortable reality that a clean, well defined path out of this mess probably does not exist and that the thought that any tactic ("nationalize the banks", etc.), screamed from the rooftops will not make it certain to work, even if Nobel prizes are involved.
2) We are going to be damned lucky if we know even some of the details of the reality of this mess and all the others left by the Bushies within the next year, much less have a fix for all of them by then. Those little details of course we need to know so we don’t inadvertantly blow something up trying to fix something else. "Nice job Brow-er-Bushie"
3) Part of growing up is learning to deal with uncertainty and imperfection. We have been government and policy children for a long long time. The number of tantrums and sandbox fights has just begun..
4) We have to stop thinking in stove pipes about policy — as though one problem is unrelated to others and that solving one with a feel good solution may indeed make us worse off on others. In other words, some successes may cause other failures. Adults know this but children want it their way all the time…
Steve S.
John, I’m going to have to quit reading your blog entirely, because the utter irrationality of the varying standards you apply to criticism of Obama not only is making my head spin, it’s making me want to be downright mean. Case in point:
Let me see if I have this straight; the former will never be debated outside of a few lefty blogs, so everybody just STFU and send the circular firing squad home, whereas the latter will be Charlie Gibson’s top story tonight, so time to proclaim from hill and dale that Obama is "making shit up." John, that would be remarkably inane even there were years rather than hours between the two posts. Please try harder to make sense.
BFR
My point wasn’t that the V-22 has been an effective use of taxpayer dollars, just that the argument against it was flawed.
Compare the V-22 to the F-22 for example. The F-22 program has cost twice as much as the V-22 while providing little incremental utilitarian value over it’s predecessor (the F-15).
srv
@BFR:
By any rational measurement the V-22 has been a failure, and should have been written off 15 years ago. That that assessment might change after 10 years of operational use does not a success today define. Nobody, including Cheney, was wrong to call it a fiasco. It was.
I’m the last fan of the F-22, but I wouldn’t say the utilitarian value is incremental. Exactly what platform was going to offer all-aspect stealth, supercruise at Mach 1.78 and replace the obsolete F-117’s and F-15Cs with cracking bulkheads? And if they were built in similar quantities, I doubt there would be much of a price delta between them. That the V-22 costs 1/2 of a F-22 is not something to cheer about. Both are likely to be a complete waste of money.
terry chay
I’ll take Krugman’s take which seems to be: at least it’s not worse.
charlotte
shorter tim g: this a big mess; let’s get started; i’m not obama
El Cid
@srv: Plus, the F-22 can blow peoples’ minds open just by doing freakishly UFO-looking tricks in the sky.
pattonbt
This may or may not be the place or time to bring up my concern, but I will anyway.
As for the salve plans (stimulus, TARP 1, TARP2 Electirc Bugaloo, and such) I am going to be cautiously optomistic that the best they are going to do is slow the bleed and make a softer landing than would happen otherwise and maybe make the recovery quicker than would be otherwise.
But I really want to start to see some of the long term regulatory thinking come out.
Too big to fail. Financial reporting and valuation of exotic instruments. Leverage. Credit rating agencies. Moral hazards. Long term versus short term regulatory shifts (profit versus sustainability). Compensation restructuring. And so on.
That to me is where the real proof will be that we have learned our lessons and that we have a sustainable system for the future. That is where I will hold the administrations feet to the fire much more strictly and vociferously.
This is just me of course.
Neo
CNBC had on one fellow who said that "these guys don’t know markets".
He went on to explain that Treasury Secretary Timothy Geithner hadn’t disclosed a "plan" today, but rather gave a "broad" outline of a plan which, as far as the markets were concerned, was worse than nothing.
Geithner should have waited until the plan was complete rather than creating new uncertainty in the market with "vapor".
You can argue about the "stimulus" all you want, it is this "plan" (or lack thereof) that is the heart of the federal government’s contribution to stemming the recession. This started with "toxic assets" and it won’t end until these "toxic assets" are purged.
PeakVT
@Martin:
Nationalization is a one-way move, though. There’s no undoing it until the banks are solvent, and that’ll be a long time coming.
The point of taking over the bad banks is to segregate the good and bad assets, and then sell a "clean" and eager-to-lend bank back to private ownership. The government would be left with the bad assets, but the government doesn’t have to face the accounting rules of banks and doesn’t have to return a profit every quarter, so it can hold the assets as long as is appropriate.
Perhaps the Obama administration really does have a good plan and is just waiting for the right time to spring it. But based on my three concerns – moral hazard, zombie banks, and best value for the taxpayer – I don’t like what I have seen.