Is Tim Geithner Just Another Wall Street Avatar Of The Predator State?

I was uneasy yesterday because I couldn't understand what the hell Treasury Secretary Tim Geithner was talking about when he presented the Administration's latest bailout proposals. Turns out even before I couldn't figure out what the hell he was talking about, members of Congress, in a private late Monday meeting, greeted the double-talking bullshit worthy of a Bush Regimist that he was dishing out with laughter, sarcasm and derision.

The laughter was at its height when Obama officials explained that the White House planned to guarantee a wide swath of toxic assets -- which they referred to as "legacy assets" -- but wouldn't be asking Congress for money. Rep. Brad Sherman (D-CA), a bailout opponent in the fall, asked the officials to give Congress the total dollar figure for which they were on the hook. The officials said that they couldn't provide a number, a response met by chuckling that was bipartisan, but tilted toward the GOP side. By guaranteeing the assets, Geithner hopes he can persuade the private sector to purchase a portion of them.

Meanwhile both Democrats and obstructionists seem to be wary of Geithner's plans-- way beyond laughter. And the self-inflicted collapse of the country's banking system is hardly a laughing matter and the congressional merriment at Treasury's expense didn't exactly make me feel any better. When I read Paul Krugman's incomprehension late yesterday, at least I felt like my own inability to comprehend didn't mean I was a moron. The Nobel prize winning economist wrote that "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." Still, Krugman seems to be making a lot more sense out of it than anyone else can.

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.

The Wall Street Journal hasn't figured it out yet either, although I don't understand why a proposal to rescue a pack of crooked, thieving banksters with 2 trillion taxpayer dollars doesn't cause half the commotion the $800 billion Stimulus package, meant to rescue the whole economic and millions of working families, gets filibustered within one vote of its life by the Republican Party obstructionists. At least Geithner claims he has a plan he'll be releasing "in coming weeks" to stem the tide of foreclosures. I sure hope it's to help homeowners and not banksters!

The absence of detail speaks to the thorny issues that lie at the heart of the financial crisis: how to value the toxic assets causing banks to report losses and how to shuffle aid to homeowners and stem the rise of foreclosures. Many of the potential solutions come with a host of fresh problems, which Obama officials have grappled with much as their predecessors did.

...Geithner presented the moves as a multi-pronged effort to encourage financial institutions to lend again. The administration's goal is to unfreeze dysfunctional credit markets that have dragged the economy into a recession. He also announced new conditions on banks receiving aid, including documenting how the money is helping to generate new loans.

Many U.S. banks will be subjected to rigorous examinations to see if they are healthy enough to lend before receiving additional financial aid. The move could address disagreements between bank regulators about the viability of scores of institutions. Regulators have struggled to come up with a common set of criteria for deciding which banks should receive money. Setting up a stress test could create a more objective set of standards, which might reveal the depths of the industry's problems.

Meanwhile, Geithner certainly didn't do the stock market any good; the Dow lost nearly 400 points after he started making his case. Economist James Galbraith was Amy Goodman's guest on Democracy Now and it's worth watching his analysis. Like many people, he thinks the banks that need to be bailed out with taxpayer money should be declared insolvent. So far it looks to me that Geithner thinks his role is to protect the crooked banksters rather than the economy. I'm wondering if Obama didn't pick the wrong guy for the job.