Geithner's Vague Plan 41 comments
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I like the symmetry here. On November 21, when Barack Obama announced that he was nominating Tim Geithner to be his Treasury secretary, the Dow rose 494 points and broke through the 8,000 barrier. On February 10, when Geithner gave his first major speech as Treasury secretary, the Dow fell 273 points and broke through the 8,000 barrier.
The speech was surprising only in its vagueness. It's been over 11 weeks since Obama's announcement, and this is the best that Geithner can come up with?
We are exploring a range of different structures for this program, and will seek input from market participants and the public as we design it.
Geithner promises unprecedented levels of transparency for the new plan. So far, all we have is talk. The markets will wait to actually see the details -- and, of course, will wait for Congressional approval of all this -- before they start believing.
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1. Keep the plan simple enough, so that it is very easy to understand and implement
2. Instead of buying the assets from the Banks, Government can actually loan out say in three parts 50% of the face value, 65% of face value and 80% of loan value
3. The Government can issue say $1 trillion of 10 year treasury bond for around say 2.9 coupon.
4. the government will charge 3% over the coupon rate for 80% of loan value, 2% over the coupon rate for 65% of loan value and 1% over the coupon rate for the 50% of the loan value
5. The banks need to pay 10% of the Loan value as principal each year with the interest accrued.
6. The mark to market for these securities will be waived. But, as soon as the mortgage defaults they have to mark to the market that portion of the loan. The waiver is only for the loans that were originated before say 2008.
7. Get back the $350 billion distributed as capital and use this way. That way, we'll taken care of $1.4 trillion worth of CMBS et.al. which will allow the banks to keep the capital and allow them to lend as they have to pay interest on the loan.
8. Because of the ownership not changed from the banks to Government, the loss to the government will be limited
9. At the same time, the banks will have enough capital and they can distribute the losses the problem loans over a period of 10 years.
10. I'm not saying there won't be any Bank failures, because of the program but, this plan will limit it to minimum.
11. Also, this is not the perfect plan but, people smarter than me can build on the framework.
12. This will free up capital from Banks and they don't need to dump at depressed price which is vicious cycle and at the end of the day (rather 10 years), they need to eat out any losses on the problem loans they had and government is not going to take much loss.
13. Also, we can put the government loans at the top of the capital structure so public money won't be spent on unwise decision the part of banks
14. The same model can also be applied to the Mortgages of individual homeowners with slight modifications to suit them
Let me know your comments/ideas/suggest...
Thanks for taking the time to read.
Ramesh Krishnan
On Feb 10 01:52 PM Borscht wrote:
> We have a history of great people doing great things in times of
> great need, so we expect the same to happen now. Geitner is obviously
> not one of those people. Time to ratchet down our expectations of
> him and look for some black swan to swoop in and save the day.
On Feb 10 02:25 PM jack59 wrote:
> What would you do if you do not have the vaguest idea of the actual
> damage? We are faced with a hole in the trillion dollars and somebody
> has to decide who will pay the bill. If the Fed buys the toxic assets
> at fair value the bill will be paid by shareholders and the banks
> will have to be nationalized, if they buy it at more than fair value
> they'll save Wall Street but the taxpayers will pay the bill for
> generations to come. I hope they help Main Street and do not think
> about Wall St.
On Feb 10 01:52 PM Consider_this wrote:
> There *are* good ideas out there, just for some reason the govt isn't
> paying attention to them!
>
> Here's what I've heard from various sources:
>
> 1. Instead of creating a BAD BANK. Create a GOOD BANK! With Private
> Equity and Govt Capital injection to create a brand new spanking
> bank. With 750B and PE money, this can actually lend money to companies
> that need it and it makes finance sense. It'll force current banks,
> which are all content to sit back and watch the world collapse around
> them, while they "enjoy" their bailout money; to either play the
> lending game, or lose market share. Recruit talent from banks and
> credit unions that are still posting a profit in this market (Yes,
> those exist!)
>
> 2. Outlaw new CDS creation (at least a moratorium for n years); create
> a clearinghouse for existing CDS, complete with margin transparency.
> Any CDS not registered with the clearinghouse will be declared invalid
> in 6 months.
>
> 3. Expire existing FDIC insurance in 6 months. For banks and funds
> that have passed government inspection (and marked assets to market);
> issue a FDIC guarentee stamp, and up the guarentee to 500,000 per
> account. Watch the depositors market do Darwinism magic for the rest.
>
>
> 4. Let GM, Chrysler, States and (insert any other "too big to fail"
> entities) go into Govt Receivership; whose defined goals are: 1.
> Wipe out equity and debt; 2. Break down company into parts; 3. Auction
> said parts to PE market. Union is welcome to bid on the company itself.
> Define a fix duration for this re-org, say 2 years.
>
> 5. Stimulus package: Expand Medicare, MASSIVELY. Leverage existing
> medicare infrastructure to provide universal coverage on existing
> conditions already covered by Medicare. This will instantly shave
> 30% or more of our labor costs from all companies. Fastest stimulus
> possible, faster than building roads.
>
> 6. Stimulus package: (Time limited) Expanded bankruptcy incentive
> confessional. Let banks, companies, individuals who're living zombies
> because they're technically insolvent, but hanging on and draining
> capital / resources come out into the light. Allow for n% tax credit
> on losses declared in 2009. I know a lot of you won't like it (moral
> hazard, etc), but we need to speed things up so recovery can start
> -- not force people / entities into hiding their losses. Chase out
> the skeletons in the closets, if you will, so that the closet is
> sparkling clean afterwords. (and confidence restored)
>
> Nothing like these will ever be implemented. As they'll speed up
> the recovery but at the expense of the currently vested elite.
On Feb 10 01:18 PM Larry House wrote:
> No one KNOWS what will get us out of this mess.
No disclosure, no transparency (no matter how much other arbitrary garbage they quantify), no trust, no recovery.
With hundreds of trillions of dollars in turd sandwiches hidden from view its time to take the conversation away from banks!!
I guess you liked it when Paulsen showed up with a 4 page proposal, that asked for us to give him money and trust him.
I hear Republican's say, 'what's the rush', or some of them want to do nothing. Now they complain that Geithner wants to take the time to get it right.
As to speaking skills. I didn't know that was what the President hired him to do, but I think his skills measure up favorably to Sec. Paulson's.
After the performance of the Republican administration over the last 8 years, I think it is laughable for you to be attacking Geithner or the President at this point.
You are all like Russ. You want Obama to fail, because you are not true patriots. You are Republicans first and Americans second. Just like those secessionist oriented southern Senators like Shelby. He cares more about Alabama than he does the Union.
Last episode recap:
Timmy learns a valuable lesson about paying taxes.
Tuesday, Feb 10
Timmy learns a valuable lesson about being prepared
Next episode:
Timmy learns a valuable lesson about playing games with the economy.
The question for the day: Was Geithner more 1) Unprepared, or 2) Over His Head, or 3) Scared Shitless, or 4) All of the Above?
You must have been watching a different program than me.
I guess you see what you want to see.
Was he as charismatic and cool as the President? No. Did he stumble over his words? No. Did he mispronounce any words? No. When he got done, did I understand what I had just heard? Yes. Can I say the same for former (thank god) president bush? Are you kidding me?
My wife listened to the speech in the car on her radio, and heard nothing to complain about in the presentation. It was what it was. It was not dressed up with a lot of fancy quotations, analogies or comparisons. It is a serious topic, and was a serious presentation, presented in a serious manner.
Does everything need to be political oneupmanship, or tearing down the other side? At least there are 3 Republicans Senators with some common sense. The others, and the Republicans in the House..."I'm going to take my ball and go home. Or maybe I'll hold my breath until I pass out".
On Feb 10 11:43 PM Fracuss wrote:
> Neil C.
> You must have been watching a different program than me.
> I guess you see what you want to see.
> Was he as charismatic and cool as the President? No. Did he stumble
> over his words? No. Did he mispronounce any words? No. When he
> got done, did I understand what I had just heard? Yes. Can I say
> the same for former (thank god) president bush? Are you kidding
> me?
>
> My wife listened to the speech in the car on her radio, and heard
> nothing to complain about in the presentation. It was what it was.
> It was not dressed up with a lot of fancy quotations, analogies or
> comparisons. It is a serious topic, and was a serious presentation,
> presented in a serious manner.
>
> Does everything need to be political oneupmanship, or tearing down
> the other side? At least there are 3 Republicans Senators with some
> common sense. The others, and the Republicans in the House..."I'm
> going to take my ball and go home. Or maybe I'll hold my breath
> until I pass out".
>
His plan was an outline. Did you expect details after 3 weeks? I'm relieved that there is honest admission of the complexities of the problems and no asking for blind faith. I'm taking the day's market nose dive as a good sign that there is realization that the banks won't get off scot free.
How discouraging that our new leader's judgment is so poor. There is no way that this tax cheat, this stooge, this ethical cretin of a man should be anyplace other than behind bars. It is tragic that our ship of state will is now adrift with an individual so lacking in substance and wisdom at the helm of the Treasury Department.
That said the sell off itself could have been worse today. Assuming that there isn't a total panic by noon tomorrow, I will be keeping a close eye on how the markets close the rest of the week. If there are significant drops in the NYSE financial sector after 1400hrs tomorrow, Thursday and Friday, I will take that as a sign that "smart money" is heading out the door and that the floor is coming up very quickly. If there is some evidence of bargain hunting going by Friday then the picture will be murkier.
I will alsp keep looking at 13D Filings on a regular schedule to see who, if anyone, is substantially increasing holdings in financial entities.