The Geithner Plan

[Bando]

Does any of our usual financial crew (Pushy Guy et al.) have any analysis of the Geithner plan they'd like to share? Krugman's not pleased, but that's nothing shocking.

[Boz]

What was that 800 number again?



I am DEFINITELY not one of the "financial crew" (do you guys have jackets?), so I will defer to them, but just chiming in to say it's not just Krugman. Everyone at NYT seems to be not very pleased.

Though Donnie Deutsch is giving the administration a 9.8 out of 10 so far, and Carl Bernstein has praised the "remarkably smooth" transition, so that's good news.

EDIT: (sorry, I should have clarified. Not all of the columns in the NYT were about this issue specifically).

Looking forward to hearing what people who know more about this than me have to say (I don't necessarily include NYT writers in that group). Til then, I'll hold off on any more snark.

[Bando]

I know one of the features of the plan is that everything in it can be done without further Congressional approval, i.e., they're using mechanisms authorized in previous legislation. That's probably why the administration chose this route.

[PushyGuyFanClub]

Pros:
Tries to solve the problem rather than throw money at the problem and then watch in horror as the money is peed away.
By moving obligations off of balance sheets, banks can lend and stay in accordance with federal capital requirements (though they could have just changed the requirements, which would have been cheaper, but maybe that's a slippery slope).
By making the government your creditor, you're less likely to get foreclosed upon (could be considered a "con" if you believe in the free market, but if the government kicks somebody out of their house, they're just going to have to pay to be the social safety net anyway).

Cons:
Government taking lots of downside risk with little-to-no upside risk. In the private sector this would be viewed as an unfavorable risk/reward scenario and it's subjecting taxpayers to enormous losses.
Should proceed quite slowly and thus may not have the reinvigorating effect (today's stock market performance aside) that they hope. (If it goes fast, then you'll know they're doing it wrong.)
Lets banks off the hook for years of bad decisions.
We're sort of just shuffling things around in a way to make the accounting look better without actually getting at the heart of the matter.

[jgalt]

Mar 23, 2009 11:10:08 GMT -5 Bando said:

I know one of the features of the plan is that everything in it can be done without further Congressional approval, i.e., they're using mechanisms authorized in previous legislation. That's probably why the administration chose this route.

Hope for Change indeed!

[Bando]

Mar 23, 2009 14:01:42 GMT -5 jgalt said:

Mar 23, 2009 11:10:08 GMT -5 Bando said:

I know one of the features of the plan is that everything in it can be done without further Congressional approval, i.e., they're using mechanisms authorized in previous legislation. That's probably why the administration chose this route.

Hope for Change indeed!

Yes. Acting within the law, rather than outside of it, is sadly change.

Also, there's speculation that they're trying this so that they can go to Congress later with nationalization saying they've tried everything else.

[GIGAFAN99]

I might be wrong but I think this plan sucks and blows if you're a taxpayer.

The presence of that non-recourse loan distorts the asset price upward (hooray, the banks lose less on the sale!). For the asset manager, it essentially becomes an option, because if the crap doesn't sell, I just simply let the government own said crap (hooray asset manager has low risk). Fittingly, asset managers get to do with these loans what people are doing to their homes. And oh yeah, if that loan doesn't get repaid, guess who still foots the bill? Uh, yeah that would be the US Treasury.

So we basically are now making it look like we're paying off two things when really we're paying off one. And let's say these assets are totally awesome, any payday seen on them is still a massive boon for the asset manager middle man and a tiny one for the taxpayer at best.

But if you want to know, that's my least cynical view on this. My most cynical view starts with how rigged this auction process is going to be.

[TC]

The fact that the market liked this plan says to me that it is ripping off the taxpayer.

[GIGAFAN99]

Mar 23, 2009 17:57:35 GMT -5 TC said:

The fact that the market liked this plan says to me that it is ripping off the taxpayer.

Yeah, that's pretty much right. Markets like games of "heads I win, tails you lose, and you can't see the coin I'm flipping."

[Cambridge]

The cynic in me says the only way we get out of this mess is by making a few people really rich...and it won't be the tax payers. When it's time to eat , don't nibble.

[Filo]

Well, looks like the investment bankers will continue to get filthy rich thanks to AIG and all of us taxpayers. Some IBs have some nice one-time profits to book:

Exclusive: AIG Was Responsible For The Banks' January & February Profitability

Complicated stuff, but there is an attempt to simplify it.