Geithner’s puzzling, awful performance
These days, it is often a sign that a politician’s performance was particularly noteworthy in some respect if you cannot easily find it on YouTube or similar sites. Maybe it’s just us, but video of Treasury Secretary Tim Geithner’s testimony is hard to find. (Google produces year-old results like this to our, perhaps flawed, inquiries.) What made Geithner’s performance awful was that it should never have been given and never announced and hyped as it had been. The build-up had been huge.
After all, there was no reason for the appearance unless he was going to talk about the details of his plans, and that was the one thing he did not do. The NYT reported:
The White House plan to rescue the nation’s financial system, announced on Tuesday by Timothy F. Geithner, the Treasury secretary, is far bigger than anyone predicted and envisions a far greater government role in markets and banks than at any time since the 1930s. Administration officials committed to flood the financial system with as much as $2.5 trillion…Basic questions about how the various parts of the program would work, especially those involving the unsellable mortgages that banks are holding and preventing home foreclosures, were left for another day.
The performance of the markets told the story. NYT: “Stock markets slid through the day, perhaps spurred downward by withering punditry on the business-news cable channels faulting Mr. Geithner for not providing more details”:
Something appears to have gone very wrong just before Geithner was to testify. The WSJ reported that Geithner was to announce the details of a government “aggregator” bank, a bad bank similar in some ways to the RTC of the last big real estate recession. It didn’t happen. Some speculated that the reason Geithner was short on substance is that the President’s much hyped “stimulus” bill hadn’t yet been agreed upon. But that explanation doesn’t seem adequate.
We think that it is possible that there continues to be radical, deep dissension within the administration as to what the plan will entail. Given the leftward direction that the administration appears to be taking, that would not be surprising. Professor Brad DeLong provided some suggestive comments on how some in the administration view Geithner and his plans:
Brief Notes on the Geithner Financial Rescue Plan…1. Called the Geithner Plan, not the Obama Plan — distancing of the president from the proposal. 2. Reinforced by Axelrod leaks to Labaton and Andrews painting Geithner as the Wall Street loving holdover — and this the person to take the blame if things go south.
We have a very queasy feeling about all this. Perhaps we’re wrong, but we can just imagine debates among the populist wing and the financial wing in the administration about how much money x or y might make out of the deal, and how unfair that might be, and so forth. And as of last Tuesday, these arguments had not been settled. Therefore, Geithner had no choice but to temporize during his hearing, and looked foolish for doing so.
It is clear that the major institutions thought that the administration would have had its act together by now — after all, the election was almost four months ago, and Obama made a big show as early as November 8 about how he was already fully engaged on these issues. So when Geithner testified and said absolutely nothing new, the major financial institutions were stunned as well as blindsided.
As a result, Goldman Sachs immediately called an emergency meeting of two dozen major financial players the evening of Geithner’s non-testimony testimony. Charlie Gasparino had several reports on that meeting. In this clip, he notes that the Goldman press officer dissembled about the meeting — trying to downplay its emergency nature.
What seems clear to us is that some group within the administration killed the idea of the “bad bank” that the market had been anticipating, and did so at the very last minute, causing some degree of chaos at the upper echelons of US financial institutions. As one participant in the Goldman meeting said, according to Gasparino: “I can relate to the bad bank…I can’t relate to whatever sort of gibberish Geithner spouted.”
Maybe we’re wrong, but in our view the most logical explanation for the last minute killing of the broadly anticipated financial rescue plan is that there is a war going on between the Geithner-Paulson-Volcker types and the large leftist contingent in the administration — and the financial guys lost. One more reason for pessimism about the next four years.
UPDATE – The FT has now raised many of the same questions addressed by the piece above.
February 13th, 2009 at 9:12 pm
Look into the Swedish model of the “Bad Bank” theory to see what should be expected. It appears the Swedish Nordbanken and Gota Bank assets that were rolled into their “Bad Banks” were bank owned companies et al rather than debt instruments. As these many businesses were ongoing, the bad bank concept gave these businesses more of a “Chapter 11″ reprieve.
It is my understanding that these assets were transferred to the Bad Bank. They were not purchased by the Bad Bank. Pricing of these assets was of no concern to Nordbanken and Gota Bank.
All this talk about a current “Bad Bank” deals with toxic financial assets, not operating businesses.
I don’t think the Swedish experience with “Bad Banks” is what is actually being sold to the American taxpayer. I suspect we have a bait and switch ongoing where the toxic assets truly are toxic. The taxpayer will pay a heavy price if they actually have to pay for these toxic assets.
February 13th, 2009 at 9:26 pm
Here is a Federal Reserve Bank of Cleveland policy discussion paper on:
href=”http://www.clevelandfed.org/research/POLICYDIS/pdp21.pdf”>On the Resolution of Financial Crises: The Swedish Experience
February 14th, 2009 at 12:56 am
It seems plausible that some leftist cabal is blocking sensible policy, but what are these leftists’ names?
Alternatives are: bureaucratic squabbling (for example, Larry Summers strikes me as a self-important ass despite his IQ), corruption (last-minute hitches in the seven-to-eight-figure post-government job offers), and/or incompetence. The Congress routinely passes bills whose entirety no member has read, and I assume similar things happen in the executive branch; the necessity for coherence may have discombobulated high officials who thought such strictures are only for entry-level staff.
Meanwhile, Goldman Sachs has denied Gasparino’s story (which, presumably, they’d do whether or not it’s true). I couldn’t find a Goldman link for the denial, but their institutional perspective on the crisis strikes me as constructively formulated without being pollyannish.
Searching for what Warren Buffett had to say, instead I learned what he did. He obviously doesn’t think the world will plunge into permanent poverty: he just bought Tiffany debt.
February 14th, 2009 at 11:35 pm
From the FT piece linked in the update:
Bush-appointed FDIC head Sheila Bair is necessarily the only culprit, but she is an obvious one. This is worse than a leftist cabal. It’s a compassionate conservative who cares about The Children.
Bair has essentially no private-sector experience. Apparently she views her agency, which is independent, as having powers which parallel some of the Treasury Department’s functions. She gets fawning write-ups in the liberal media:
I take it as a contrarian indicator that Larry “Goldilocks Economy” Kudlow likes her.
To be fair, Bair spotted the housing trouble in late 2007, but her proposed solution was to have ARM teaser rates be made permanent. Unsurprisingly, the banks were not enthusiastic. (And lots of people saw the problem looming. Bair’s approach, arguably, is to demagogue the situation and grab for power that she seems unqualified to wield.)
No worries, though. According to the Examiner piece linked in the previous paragraph:
For more reassurance, let’s hear Obama say that he remains very much committed to holding elections in 2010 and 2012…
February 14th, 2009 at 11:39 pm
“…is not necessarily the only culprit…” Oops.
March 24th, 2009 at 2:58 am
No one can trust him for a lot of reasons. First, his tax problem. Highly unlikely it was an honest mistake. 2nd, he was a main author of TARP, which has yet to be effective. 3: He lied about the AIG bonuses. He knew, bonuses flew; and now the story changes because of outrage. We don’t have honest people. They must have another agenda, otherwise they’d be totally honest. Also, even if he did know about the bonuses, then they did not do due diligence, or in other words, they do not know what they are doing!
It is well documented to a point there is not a question they are not telling the truth. Here is why O and G are spewing misinformation!
http://tinyurl.com/cuer6d