Geithner's first test is a disaster
In his initial public pronouncement on the government's financial bailout plans, the best the new Treasury secretary can offer is an uninspiring rehash.
[Related content: banking, banks, investments, loans, Jon Markman]
By Jon Markman
MSN Money
You know that awful feeling when you're the new guy and you've been working on a project for three months, and you've made no progress, and then the boss gives you a deadline? First you ask for one more day, but when the time finally comes that you've got to deliver, you've still got nothin', so you talk fast, use a lot of jargon, promise more details soon and hope no one notices you've got squat.
It's happened to all of us, but few have failed their first assignment on such an epic scale as Tim Geithner, the new Treasury secretary.
On Tuesday afternoon, he delivered the most remarkable "dog ate my homework" excuse in the history of the U.S. financial markets, making it more plain than ever that the government simply has no idea how to end the financial crisis or how to reassure the world that everything will be all right anyway.
The big idea was a vaguely described public-private partnership to acquire soured loans from banks that real-money investors have already said they would buy only if offered full guarantees against loss -- and even then only with a gun at their heads.
"His speech was totally uninspiring. There was nothing new, no change," said Stan Shipley, a senior analyst at ISI Group in New York. Said David Kotok of Cumberland Advisors: "The proposal was nothing more than a promise to deliver a proposal. People are getting tired of this."
Best and brightest come up empty
The lack of a detailed plan is important not just for investors but also for the average worker, mom and student because it means there really is no easy way out of the global economic crisis. It means we have assigned the job of fixing the banking system to the smartest guy the government could find and surrounded him with every possible resource, and given him plenty of time to think, and still he came up with bupkis.
That is scary to people, as well it should be. No one is going to cry crocodile tears for 30-year-old investment bankers who have lost their million-dollar jobs, but the impact on all Americans will be harsh and long-lasting.
Once the government truly socializes the banking system's losses by taking on the ruined loans, there will be little credit left for all the things that were so much fun in the past two decades. It will be hard to persuade banks to lend their precious money to dads for unproductive assets like leisure boats or even to real-estate investors for new apartment buildings, or to farmers for new tractors.
Salaries and living standards will come down, as instead of borrowing and spending we will have to develop a culture of saving and waiting.
Eventually, we will innovate and grow our way out of this hole, but it will take patience and time. Politicians don't want to tell us this, so they have planned a final $800 billion-plus party paid for with taxpayer appropriation and borrowing.
But eventually, when that money is spent, there will be no other choice but to admit our mistakes and buckle down for a world with less credit and lower asset values. Call it a depression, a prolonged recession or a flat spot in the road, but it will likely lead to a string of one-term presidencies and the relegation of the name Tim Geithner to trivia contests.
Created from, and vanished into, thin air
That's part of the reason investors, who had shown remarkable restraint and hope in recent days as they awaited Geithner's plan, responded in the only way they knew how, which was with a giant raspberry: Shares of big companies were flung to their biggest losses in three months as a shiver of despair ripped through trading floors.
There was a slight lag of disbelief that the Treasury secretary had offered nothing but a rehash, a repackaging and renaming of old ideas, before markets tumbled with a great collective sigh in the afternoon, wiping out 10% of the total market value of major banks in four hours.
Video on MSN Money
China © Lawrence Manning/Corbi
How bad is China's economy?
China's biggest holiday season is over, and migrant workers are returning to work. The official numbers indicate that China's economy isn't too bad, MSN Money's Jim Jubak says, but the real test will be whether they still have their jobs when they return. (Feb. 9)
Though it may have seemed to casual observers that Geithner had offered a set of decisive options with a $1 trillion price tag, people in the investment industry realized all his ideas have already been tried and failed or have little support outside Washington intellectual circles.
"Geithner showed that not only does the emperor have no clothes, but he has nothing else either," said Satyajit Das, a global banking expert working in Australia. "He showed that the government has exhausted its ability to use monetary policy and has no new ideas to use alternative strategies, so-called quantitative easing, to relieve credit stresses either."
articles.moneycentral.msn.com |
