The Rorschach plan (wonkish, or at least hard to read) An old joke from my younger days: What do you get when you cross a Godfather with a deconstructionist? Someone who makes you an offer you can't understand. I found myself remembering that joke when trying to make sense of the Geithner financial rescue plan. It's really not clear what the plan means; there's an interpretation that makes it not too bad, but it's not clear if that's the right interpretation. The plan deserves praise for what isn't in it, at least as far as I can tell. There doesn't seem to be provision for mass purchases of toxic waste at premium prices; there also doesn't seem to be a massive "ring-fencing" guarantee against private losses on bad assets. In that sense the plan is better than what the last few weeks of leaks led us to expect. What is in it, in reverse order: Super-TALF: a big expansion of the Fed's quantitative easing, with Treasury backing. I'm OK with that. Private-public purchases of questionable assets; as I understand it, private investors would be the junior partners, so this is probably not a big giveaway (unless there's huge public financing, in which case it amounts to ring-fencing after all). I also suspect it wouldn't accomplish much, but no harm, no foul. Stress test: everything depends on how this is actually implemented. What happens if, or more likely when, a major money center bank is stress-tested and found to have negative net worth? One possibility is that the auditors are told to come up with a different answer; that's a big concern. The other is that the bank is effectively nationalized; as I read the language that could be achieved as part of the public capital injection. So what is the plan? I really don't know, at least based on what we've seen today. But maybe, maybe, it's a Trojan horse that smuggles the right policy into place.
An old joke from my younger days: What do you get when you cross a Godfather with a deconstructionist? Someone who makes you an offer you can't understand.
I found myself remembering that joke when trying to make sense of the Geithner financial rescue plan. It's really not clear what the plan means; there's an interpretation that makes it not too bad, but it's not clear if that's the right interpretation.
The plan deserves praise for what isn't in it, at least as far as I can tell. There doesn't seem to be provision for mass purchases of toxic waste at premium prices; there also doesn't seem to be a massive "ring-fencing" guarantee against private losses on bad assets. In that sense the plan is better than what the last few weeks of leaks led us to expect.
What is in it, in reverse order:
The same thought occurred to me reading what Mig had to say. Are they setting up these audits and mechanisms as a back-door nationalization policy?
Need to know more.
Might explain why the CNBC crowd immediately began screeching after the speech.... Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
(unless there's huge public financing, in which case it amounts to ring-fencing after all)
Second clue.
Despite feeling like i'm having my pocket picked again, and despite feeling more comfortable living in Europe, i will add without detailed explanation what is so obvious from the comments on this thread and others...
[System.Is.Broken Alert] "Life shrinks or expands in proportion to one's courage." - Anaïs Nin
Shorter point 2 : depends to what extent private investors determine the price they're willing to pay, and the taxpayer comes up with the rest;
Shorter point 3 : depends on how the audits are run and what consequences they are allowed to have.
(Both points I made less diplomatically, in the story, and in response to Mig.)
I'll go along with Martin Wolf more on this one:
Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing.
Yes, why the need for a Trojan horse?
ABC News: Obama: No 'Easy Out' for Wall Street
PRESIDENT OBAMA:Well, you know, Wall Street I think is hoping for an easy out on this thing and there is no easy out. Essentially what you've got are a set a banks that have not been as transparent as we need to be in terms of what their books look like. And we're gonna have to hold out the Band-aid a little bit and go ahead and just be clear about some of the losses that have been made because until we do that, we're not going to be able to attract private capital into the marketplace. And so, you know, I think that you have two choices in this situation: you can prolong the agony and shareholders will be happy until they're not happy, and that could be a year from now or two years from now, or in the case of Japan, eight years later. Or you can just go ahead and acknowledge that yeah, there's, there's a lot of work that has to be done to put these banks back on a firmer footing.
PRESIDENT OBAMA:Well, you know, Wall Street I think is hoping for an easy out on this thing and there is no easy out. Essentially what you've got are a set a banks that have not been as transparent as we need to be in terms of what their books look like.
And we're gonna have to hold out the Band-aid a little bit and go ahead and just be clear about some of the losses that have been made because until we do that, we're not going to be able to attract private capital into the marketplace. And so, you know, I think that you have two choices in this situation: you can prolong the agony and shareholders will be happy until they're not happy, and that could be a year from now or two years from now, or in the case of Japan, eight years later.
Or you can just go ahead and acknowledge that yeah, there's, there's a lot of work that has to be done to put these banks back on a firmer footing.
"Today we have established the Civilian Energy Bank, to finance near-term renewable energy security. We will syndicate project finance to the sick banks, in the hope we can turn their balance sheets around. But if not, the CEB, will go forward with the peaceful equivalent of the warfare footing of WWII, and fund putting people to work on their children's sustainable future.
We will begin by funding service technician programs in community colleges across the windy plains, in addition to the existing portfolios of quality developers."
In reaction, Wall St was down 7%, which didn't account for the people partying in the streets. "Life shrinks or expands in proportion to one's courage." - Anaïs Nin
