Why The Geithner Plan Makes Sense
Regardless of the laughter, the more I read and consider Geithner’s plan, the more I think it will effectively address the problems we currently have.
But hey, before you go plowing into me, here’s Stephen Pearlstein breaking it down on Hardball…
Pearlstein didn’t get a chance to address the relief for homeowners in the proposal before Matthews cut him off, so let’s look at each one of the four points…
– A new program, jointly run by the Treasury and the Federal Reserve, with financing from private investors, to buy up hard-to-sell assets that have bogged down banks and financial institutions for the past year. The program, often described as a â€œbad bank,â€ is expected to spend $250 billion to $500 billion.
– Direct capital injections into banks, which would come out of the remaining $350 billion in the Treasuryâ€™s rescue program.
– A vast expansion of lending program that the Treasury and Federal Reserve had already announced, which is aimed at financing consumer loans. The two agencies had originally announced their intention to finance as much as $200 billion in loans for student loans, car loans and credit card debt. Instead the program will be expanded to as much as $1 trillion.
– A separate $50 billion initiative to enable millions of homeowners facing imminent foreclosure to renegotiate the terms of their mortgages is to be announced next week.
So the plan is designed to address many of the problems that exist currently, not just the toxic assets.
And sure, Wall Street apparently didn’t like it, but as Pearlstein said, they wouldn’t be happy with any plan that didn’t involve the federal government loading up trucks full of money and driving them down there. Yes, unfortunately there’s still a surprising amount of hubris in the financial sector right now. As if this is any surprise?
And to that point, I hope you realize that gauging “Wall Street’s reaction” to Geithner’s plan is the height of cluelessness (yes, I’m talking to you Matt Drudge) given that, well…you know…Wall Street nearly caused a complete worldwide financial meltdown.
But many ask, “Why not nationalize?”
Well, besides the glaringly obvious political problems that would represent, it’s just unrealistic. As Obama pointed out yesterday in an interview with Terry Moran, you can’t nationalize thousands of banks. This isn’t Sweden and while many economists argue that this is the only way things will get better, there are other ways and Geithner’s plan represents a multi-pronged approach that deals with many problems at the same time, not just one.
And, by the way, Republicans should be heavily in favor of this bill because it doesn’t seek to insert the government into anything more than what’s needed. However, crazy prediction here, I’m not anticipating that they’ll be agreeable to any plan the administration comes up with.
But hey, read the plan for yourself. And when you do, take note of this passage…
The core of the new monitoring requirement is to require recipients of exceptional assistance or capital buffer assistance to show how every dollar of capital they receive is enabling them to preserve or generate new lending compared to what would have been possible without government capital assistance.
Intended Use of Government Funds: All recipients of assistance must submit a plan for how they intend to use that capital to preserve and strengthen their lending capacity. This plan will be submitted during the application process, and the Treasury Department will make these reports public upon completion of the capital investment in the firm.
The Impact on Lending Requirement: Firms must detail in monthly reports submitted to the Treasury Department their lending broken out by category, showing how many new loans they provided to businesses and consumers and how many asset-backed and mortgage-backed securities they purchased, accompanied by a description of the lending environment in the communities and markets they serve. This report will also include a comparison to their most rigorous estimate of what their lending would have been in the absence of government support. For public companies, similar reports will be filed on an 8K simultaneous with the filing of their 10-Q or 10-K reports. Additionally, the Treasury Department will â€“ in collaboration with banking agencies â€“ publish and regularly update key metrics showing the impact of the Financial Stability Plan on credit markets. These reports will be put on the Treasury FinancialStability.gov website so that they can be subject to scrutiny by outside and independent experts.
Taxpayersâ€™ Right to Know: All information disclosed or reported to Treasury by recipients of capital assistance will be posted on FinancialStability.gov because taxpayers have the right to know whether these programs are succeeding in creating and preserving lending and financial stability.
Long story short, this plan is all about helping normal people get the money they need, not the Wall Street crowd. Because now they’ll actually have to be held accountable for a while until they can get back on their feet.
More as it develops…