Mr DJIA down 290... 292 ... 10 YR is holding tight, white-knuckled.

Diversity is the key to economic and political evolution.

There are extensive quotes from Geithner. Here's one:

Op-Ed Columnist - Showing Some Discipline - NYTimes.com

"I was very worried about us looking like we're vulnerable to the charge that we're overpaying as a way to provide disguised subsidies to banks."

So that isn't going to happen. Private capital is going to come in and buy those assets at fair value. Hallelujah.

When locusts move on, they leave nothing behind

because the banks would not accept the approximate real price

They can't.  If the assets were sold at market values, the banks would go bust.

Could we please just nationalize them and stop fucking around?

4. To keep people in their homes and curb the housing crisis, Treasury will work with the Federal Reserve to commit $50 billion to reduce monthly payments and establish loan modification guidelines for government and private programs. The Financial Stability plan will also require all firms receiving federal funds participate in foreclosure mitigation plans to stem the housing crisis.

Why not do what Obama proposed yesterday and pass a bill in Congress granting bankruptcy court judges cram-down power?  That way, the banksters and the housing gamblers both take a hit.

Could we please, oh please, stop pouring renters' tax dollars into schemes to "rescue" homeowners?  Everybody should have the right to a roof over his or her head, but nobody's entitled to ownership of a house.

WHEEEEEEEEEEEEEEEEEEEEE!!

1. To stabilize the system and restore confidence in our markets, for the first time ever federal bank regulators will come together to institute uniform standards to help clean up and strengthen banks, and conduct "stress tests" to ensure the nation's largest banks can withstand a worsening economy. Those banks that need it will be given a capital buffer to ensure they can keep lending to families and businesses until they can attract additional private capital and weather economic downturns.

Perhaps Geithner will present this in more convincing language. If not, here we have a case of the proverbial anchor in aspic. Those "stress tests" had better be good. And banks will be given - yet again - capital that they should lend out again. Except that they have every reason to hang on to whatever capital they can and avoid lending. As for hearing that they can "keep lending to families and businesses"... (shattered jaw on floor).

On March 5, 1933, the day after Roosevelt's inauguration, he called a special session of Congress which instituted a mandatory four-day bank holiday. This act provided for the reopening of banks after federal inspectors had declared them to be financially secure.

Hereafter know by its acronym.

WHEEEEEEEEEEEEEEEEEEEEE!!

Instead of catalyzing recovery, the financial system is working against recovery. And at the same time, the recession is putting greater pressure on banks. This is a dangerous dynamic, and we need to arrest it. It is essential for every American to understand that the battle for economic recovery must be fought on two fronts. We have to both jumpstart job creation and private investment, and we must get credit flowing again to businesses and families. ...

We believe that access to public support is a privilege, not a right. When our government provides support to banks, it is not for the benefit of banks, it is for the businesses and families who depend on banks... and for the benefit of the country. Government support must come with strong conditions to protect the tax payer and with transparency that allows the American people to see the impact of those investments.

We believe our policies must be designed to mobilize and leverage private capital, not to supplant or discourage private capital. When government investment is necessary, it should be replaced with private capital as soon as possible.  ...

Our work begins with a new framework of oversight and governance of all aspects of our Financial Stability Plan. ...These new requirements, which will be available on a new website FinancialStability.gov will give the American people the transparency they deserve.

um ... BWAHAHAHAHHAHAHAHA. 'K.

Under this framework, we are establishing three new programs to clean up and strengthen the nation's banks, bring in private capital to restart lending, and to go around the banking system directly to the markets that consumers and businesses depend on. ...

First, we're going to require banking institutions to go through a carefully designed comprehensive stress test, to use the medical term. ...assessment about the risk on balance sheets ...access a new funding mechanism that uses funds from the Treasury as a bridge to private capital. The capital will come with conditions....

Bad Bank: three parts Ch 11 (RFC), one part Ch 7 (yer RTC).

The Treasury's investments in these institutions will be placed in a new Financial Stability Trust.

Second, alongside this new Financial Stability Trust, together with the Fed, the FDIC, and the private sector, we will establish a Public-Private Investment Fund. This program will provide government capital and government financing to help leverage private capital to help get private markets working again. This fund will be targeted to the legacy loans and assets [?!!] that are now burdening many financial institutions. ...We believe this program should ultimately provide up to one trillion in financing capacity, but we plan to start it on a scale of $500 billion [oops], and expand it based on what works.

Fresh coat of paint for Geithner's FRBNY babies, birthed by TALF. To mix metaphors.

Third, working jointly with the Federal Reserve, we are prepared to commit up to a trillion dollars to support a Consumer and Business Lending Initiative. This initiative will kickstart the secondary lending markets, to bring down borrowing costs, and to help get credit flowing again.

In our financial system, 40 percent of consumer lending has historically been available because people buy loans, put them together and sell them. Because this vital source of lending has frozen up, no financial recovery plan will be successful unless it helps restart securitization markets for sound loans made to consumers and businesses - large and small.

This lending program will be built on the Federal Reserve's Term Asset Backed Securities Loan Facility, announced last November, with capital from the Treasury and financing from the Federal Reserve. ...

Our focus will be on using the full resources of the government to help bring down mortgage payments and to reduce mortgage interest rates. We will do this with a substantial commitment of resources already authorized by the Congress under the Emergency Economic Stabilization Act.

Especially the Secretary's gaping discretionary powers to value and to spend $1.5T on "troubled assets".

The success of our financial stability plan is going to require an unprecedented level of cooperation, here in the United States and around the world. Federal Reserve Chairman Ben Bernanke, FDIC Chair Sheila Bair, John Dugan, the Comptroller of the Currency, and John Reich the head of the Office of Thrift Supervision, are here today. I want to thank them for helping to shape this plan, and their commitment to making it work.

Expanding membership of the President's Working Group (PWG). See "Blueprint for a Modernized Financial Regulatory Structure." Short-term Recommendations concern standardizing mortgage products, establishing fed reg and licensing of insurance products, then consumer revolving and other primary market contracts; securitized domestic debt for sale in global capital markets.

Sad.

Diversity is the key to economic and political evolution.

1. To stabilize the system and restore confidence in our markets

The first point is that to stabilise banks only stops the bleeding of credit that is visible.

It doesn't stop the internal bleeding of the shadow banking system of Investors which was in fact largely responsible for inflating the Bubbles in property (deflation well under way) and private equity (just beginning, and with a knock on effect on employment and hence on property....)

European Tribune - MLECTARPPPIF, Same Story

And banks will be given - yet again - capital that they should lend out again. Except that they have every reason to hang on to whatever capital they can and avoid lending.

Second point is that in fact, they don't lend out capital. They create credit on the basis of it.

They are avoiding lending because they see very few credit-worthy prospects due to falling asset prices, and borrowers with increasingly rocky prospects.

This reluctance will continue until asset prices and employment stabilises, and we have  along way to go on that IMHO.

European Tribune - Comments - MLECTARPPPIF, Same Story

3. To get financial markets working again, we will create a new Public-Private Investment Fund which provide government capital and financing to leverage private capital to buy up the "toxic assets" that are dragging down lending

Thirdly, I've been advocating a PPIF for a while -but not exactly what they have in mind.

1. Create First Toxic Bank LLC

2. Transfer all assets and liabilities to a Custodian member of the LLC (the local Fed?)

3. Put all the shares in First Toxic Bank Inc into trust on behalf of the management and staff. This is the Manager member of the LLC

4. Finally, existing shareholders and government money as necessary become the Investor member of the LLC, in return for transferring assets and liabilities to the Custodian.

Defaults are shared proportionally between the Investors

So that if private investors had (say) $5bn nominal share capital, and the government puts in (say) $15bn, then losses would be shared 25%/75%.

If new capital is needed, it then simply dilutes existing capital proportionally.

European Tribune - Comments - MLECTARPPPIF, Same Story

4. To keep people in their homes and curb the housing crisis, Treasury will work with the Federal Reserve to commit $50 billion to reduce monthly payments and establish loan modification guidelines for government and private programs.

Finally, people get to stay in their homes through the use of "Unitisation", not debt forgiveness or refinancing. We must change the quality of the financial obligations, not the quantity.

ie transfer distressed properties to the Custodian; set affordable index-linked rentals; divide the resulting pool into Units, and simply sell them to pension funds.

For Occupiers it's a new form of "rent to buy"; for Investors it's an index-linked, property-based, low risk (because "affordability" = "certainty", by definition) investment.

Right! That's sorted out the US property market, what about energy? ;-)

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

Why Obama's new Tarp will fail to rescue the banks

If Mr Obama does not fix this crisis, all he hopes from his presidency will be lost. If he does, he can reshape the agenda. Hoping for the best is foolish. He should expect the worst and act accordingly.

Yet hoping for the best is what one sees in the stimulus programme and - so far as I can judge from Tuesday's sketchy announcement by Tim Geithner, Treasury secretary - also in the new plans for fixing the banking system. I commented on the former last week. I would merely add that it is extraordinary that a popular new president, confronting a once-in-80-years' economic crisis, has let Congress shape the outcome.

The banking programme seems to be yet another child of the failed interventions of the past one and a half years: optimistic and indecisive. If this "progeny of the troubled asset relief programme" fails, Mr Obama's credibility will be ruined. Now is the time for action that seems close to certain to resolve the problem; this, however, does not seem to be it.

Ouch.

In the long run, we're all dead. John Maynard Keynes

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:

1. Super-TALF: a big expansion of the Fed's quantitative easing, with Treasury backing. I'm OK with that.

2. 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.

3. 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.

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....

WHEEEEEEEEEEEEEEEEEEEEE!!

On the bright side, maybe none of the traders worldwide have learned that the Senate passed its version of the American Recovery and Reinvestment Act of 2009, S.336.

Tomorrow they may rally with Mr Bond.

Ha.

Diversity is the key to economic and political evolution.

It's not a bailout.

Overview of U.S. bank rescue plan | Top News | Reuters

It's not a bank rescue.

It's a mandatory audit.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith