Strike Three for Geithner Today?

Treasury Secretary Tim Geithner will get another opportunity this morning to "try" to ease the public's skittishness with our economy...specifically, the financial sector. I have a very bad feeling that this may be the last strike for our Doogie-Howser look-a-like.

His first strike came when he had to sheepishly admit that he failed to pay over $34,000 in taxes, yet he still felt he deserved to run the institution that demands we pay ours. Yet the President stood beside him and assured us, he was the right man for the job.

Strike two came just a few weeks into the new administration when Geithner was expected to deliver all the details of how he/they were going to save our financial institutions. The plan was short of details, and the market tanked in response.

This morning, "Little Timmy", as I like to call him, will get an opportunity to try again at laying out "the details". This time, he has had an additional month to prepare his remarks. Unfortunately, I believe he is doomed to fail. I believe the market is looking for the perfect plan, a magic bullet, if you will. Any opportunity to pick apart "the details" or lack thereof, is inevitable. Anything short of perfection will be a bad sign. Details of what Geithner will be laying out today have already been released. It's already being viewed with skepticism in the media. Basically, the government would offer loans to private investors (hedge funds and smaller banks) to buy up the troubled assets at the bigger banks. I see two immediate problems with this plan.

First, and most obvious, who would want to buy assets (with borrowed money, nonetheless) that are virtually worthless and have very little chance of providing a return?

Second, what healthy institution would want to accept government money (to buy bad loans) in the face of Congressional shenanigans like 90% taxes on bonuses? Meanwhile, the US taxpayer is out another TRILLION dollars to fund this plan. Have you found any good Tea Parties to attend this year?

Will Geithner be able to deliver today? You'll find your answer in the market's reaction. Personally, I believe Geithner's stock will fall even farther today.

The band is playing somewhere, and somewhere hearts are light,

And somewhere men are laughing, and somewhere children shout;

But there is no joy in Wall Street— Little Timmy has struck out.

Comments

[Moon Kil Woong:]

How many ways can this go wrong?

How about this for instance. Investment houses sell all their really bad assets to the government netting $1 to $1 on the assets. Let's say company GS sells say $1 billion to the fund. Then they throw in $30 million to support the fund so they have skin in the game, haha. Then the bad assets go very bad.

Oh well. Do you really think they are losing in this transaction when their $30 million is now worth $300,000? They just saved themselves from $1 billion going to $10 million.

Optimists may argue that this will never happen because the government is great at regulating everything. Judging past history doesn't make me optimistic at all.

Mar 23 05:59 AM

[Truefire:]

Who crafted this plan, PT Barnum? (of there's a sucker born every minute fame).

Mar 23 08:16 AM

[Big K:]

Another permabear saying nothing will work. The financial system is doomed, hopeless, according to this author. He says Geitner's plan won't work, but what will? No thoughts on that. Just a guy saying, "no, bad idea", on everything. The economy will recover despite all the naysayers.

Mar 23 08:41 AM

[Matt Callow_:]

Big K> A Permabear? Really? You must not have read my last article. I don't see "doomed" or "hopeless" anywhere in my article. I agree, the economy will recover, just not in the near future. I refuse to go along with the main-stream-media and hope and wish this market to higher highs. The reality is what it is. If you want to be a buy-and-holder at this point, go for it. I hope that plan works out for you.

Mar 23 09:09 AM

[ricardoRI:]

This isn't permabear thinking. Just a simple sensitivity analysis, or "stress test" in the current lingo. What happens if these assets fall by 50%? You have basically bankrupted the country.

Who is going to reap huge profits if the plans works sorta well? The same people who got us in this mess, right, that plays well politically.

There are so many things that could be done for "free", but are ignored:

Change mark to market.

Fully disclose all TARP recipients balance sheets. Every asset (loan, CDO, CDS, etc.) over $9 million, publish the complete document on their website (redact addresses, phone #, taxpayer ID #, etc.). The uncertainty and opaquenss is killing the markets. Bring in the sunshine. Fully disclose ALL CDS

Stop naked short selling. Require the owner (not the custodian) to approve loaning stock)

Return the uptick rule

Require CDS buyers own the underlying security - no more buying fire insurance on you neighbor's house. Full disclosure on buyers and sellers.

Require all short positions be disclosed (names of sellers) within seven days of transaction.

A highly progressive tax rate on short term securities trading to reduce volatility, say 75% on less than one week ownership, and a reduced long term capital gains for over three years ownership without lending stock to shorts, say 5% (tax-free is better, but won't fly politically)

A tiny transaction tax, say 0.1%, to slow down excess trading which creates instability.

I could go on. But this plan stinks like a bailout for the undeserving, and does nothing to








On Mar 23 08:41 AM Big K wrote:

> Another permabear saying nothing will work. The financial system
> is doomed, hopeless, according to this author. He says Geitner's
> plan won't work, but what will? No thoughts on that. Just a guy
> saying, "no, bad idea", on everything. The economy will recover
> despite all the naysayers.

Mar 23 09:25 AM

[Scott Kreitz:]

The markets will fall when Geithner speaks today. This senseless destruction of our nation's balance sheet is insane. Washington keeps coming up with acronyms to save the economy, and the economy keeps going down. When will they realize that the four letter word that best describes our economy is not TALF or TARP?

Save us all a lot of money and consider the following by John Hussman:

1) The U.S. government takes receivership of the financial institution, changes the management, wipes out the stockholders and a chunk of the bondholders claims entirely, continues the operation of the institution in receivership, eventually reissues the company to private ownership, and leaves the bondholders with the residual. This is not “nationalization,” but receivership – a form of “pre-packaged bankruptcy” that protects the customers and allows the institution to continue to operate, followed by re-privatization. This would fully protect all of the customers and depositors at no probable expense to the public.

2) The bondholders voluntarily agree to move a portion of their claims lower down in the capital structure, swapping debt for equity (preferred or common), allowing the bank to have a larger cushion of Tier-1 capital, avoiding insolvency, and hopefully allowing the bank to recover by its own bootstraps, preferably assisted by debt restructuring on the borrower side.

Mar 23 10:03 AM

[rdr4:]

I thought John Stewart already established that the markets reaction to any given stimulus was irrelevant except to those engrossed in it.

Mar 23 10:08 AM

[kelm:]

Markets world wide are rallying, the dollar is sinking, commodities are headed north.

My take - Equities like the plan because it will get the banks solvent again and that will get the economy moving. World equities like the plan because it will get our economy moving. Money will flow from the US as the massive debt we are creating will (is) sinking the dollar), commodities will rise because of the dollar and because all the money will be inflationary and demand will start to pick up in an environment of reduced supply. Finally, more signs from China today on Bloomberg that they may be coming out of it.

So buy commodities and Asian shares. US equities are impaired due to the dollar and debt.

Mar 23 10:22 AM

[Fairness:]

Matt Callow, your logic is totally flowed, and besides, pessimism doesn't help at all. While we do need constructive criticism, you are not helping at all, YOU ARE PART OF THE PROBLEM. Besides if an institution is healthy, why would they need to have the government bail them out? Oh, and I do like the 90% tax on bonuses, if one runs a company to the ground, that should automatically imply that no bonuses should be distributed because that company is definitely no longer healthy...
Give the guy a chance, will you! If you can't help, get out of the way. Under the circumstances, Tim Geithner's done everything he could: a decent job, and I’m sure nobody would’ve done any better. I prefer to trust his expertise, and hope they'll be fewer and fewer people like you standing in his way, so we can achieve our common goal: get the economy back on track and on a stronger footing then before.

Mar 23 12:56 PM

[Homer II:]

Well, so far, the markets are digesting Mr Geithner's remarks without so much as even a burp.. The S&P 500 is up over 800.

Mar 23 12:58 PM

[JHG:]

"Little Timmy"? What's that all about?

Mar 23 01:02 PM

[henarl:]

You should have waited a day and then you could have written about why the markets liked the plan. Oh well, maybe you can still do that tomorrow.

Mar 23 02:22 PM

[ain't no fo...:]

"The band is playing somewhere, and somewhere hearts are light,

And somewhere men are laughing, and somewhere children shout;

But there is no joy in Wall Street— Little Timmy has struck out."

No, little Matty, it looks like you have.

Mar 23 02:43 PM

[willynill:]

This market has some one-day wonders: Ben Bernanke's announcement last Wednesday and now Geithner's. Geithner hit a long fly ball but tomorrow may find that it didn't get outside the park.

Mar 23 07:14 PM

[CJJ:]

I love how those on the negative side have an unlimited length of time for their calls to come true. I'm sure any rally is just fake, just like the last 10, 20, 30, 50 year periods.

This is why bloggers are a waste of time. They have absolutely no accountability. This guy will hide until stocks go down and then he'll be back.


On Mar 23 07:14 PM willynill wrote:

> This market has some one-day wonders: Ben Bernanke's announcement
> last Wednesday and now Geithner's. Geithner hit a long fly ball but
> tomorrow may find that it didn't get outside the park.

Mar 23 07:21 PM

[willynill:]

CJJ, you're talking about a perma bear whose future is into virtual perpetuity. I'm talking about tomorrow only, and the futures markets are pointing down with about ten hours to go before the spot market opens again tomorrow.


On Mar 23 07:21 PM CJJ wrote:

> I love how those on the negative side have an unlimited length of
> time for their calls to come true. I'm sure any rally is just fake,
> just like the last 10, 20, 30, 50 year periods.
>
> This is why bloggers are a waste of time. They have absolutely no
> accountability. This guy will hide until stocks go down and then
> he'll be back.

Mar 23 11:28 PM