Geithner Plan Smackdown Wrap

From Yves Smith at Naked Capitalism:

I cannot recall a major US policy initiative being met with as much immediate revulsion as the so-called Geithner plan. Even the horrific TARP, which showed utter contempt for Congress and the American public was in some ways less troubling. Paulson demanded $700 billion, nearly $200 billion bigger than the Department of Defense, via a three page draft bill, nothing more that a doodle on a napkin, save that it did bother to put the Treasury secretary above the law. But high-handedness was the hallmark of the Bush Administration; it was only the scale and audacity of the TARP that was the stunner.

And the TARP initially did have some supporters (perhaps most important, among the media, who trumpeted the “Something must be done” case). Fans are much harder to find for the latest iteration of the seemingly neverending “let’s throw more money at the banks” saga.

As we, and increasingly others, have said, the Obama economic team is every bit as captive to Wall Street’s interests as the Bushies were. The differences increasingly look stylistic, not substantive.

Treasury Secretary Geithner presented today what in essence was a plan to come up with a plan. I now understand why he is so loath to have government run banks. He presumably sees himself as an elite bureaucrat, as his glittering resume attests. Yet the man has a deadline to come up with a proposal, yet puts off presenting it twice (the “oh he has to work on the stimulus bill” is as close to “the dog ate my homework” as I have ever seen in adult life). What he served up as an initiative is weeks to months, depending on the item, away from being operational (if even then; the public-private asset purchase program will either not see the light of day, or be far narrower and smaller than what is needed).

And in case you think I am being unfair, yesterday I got an e-mail from a political consultant who got a report on the Senate Banking Committee briefing by the Treasury the night before the announcement. No briefing books, no documents. He deemed it to be no plan. That assessment was confirmed today by a participant at the session, who said that the details were so thin that one staffer asked, “So what, exactly, is the plan?” and repeated questions from one persistent Senator got “absolutely no answers”.

Thus Geither’s belief that government can’t manage assets is sheer projection of his own inability to deliver. The FDIC winds up banks all the time. During the S&L crisis, as William Black reminds us, FSLIC appointed receivership managers that later research determined did reduce losses. Sweden, Norway, and Chile all nationalized (and relatively quickly reprivatized) dud banks during their financial crises. This isn’t like trying to go the moon (which was a government initiative, lest we forget). There are plenty of models and lots of good proposals. What is lacking is will. History says that an aggressive, take-out-the-dead-banks program is the fastest and all-in cheapest way out of a financial crisis. But if you believe that something will not work, as Geithner does, it isn’t at all hard to produce that outcome.

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