Is Geithner To Blame For Today's Market Plunge?
UPDATED WITH GEITHNER'S IMPACT ON STOCK MARKET:
In testimony wrapped up moments ago before the Senate Banking committee, Sen. Bob Corker (R-Tenn.) came as close as anyone to blaming today's 4.6 percent stock market dive on Treasury Secretary Tim Geithner.
Corker said Geithner rolled out an incomplete bailout plan today short on details and the market responded accordingly.
"The White House said....last night that you would be very clear and there would be specific plans," Corker told Geithner. "Today, we lost nearly a trillion dollars in the markets as people looked for very specific plans and instead heard guidelines and platitudes."
Geithner replied that what he did today was lay out a "broad set of principles" and said that if he rolled out details before he was confident they would work, it would have created more uncertainty in the markets.
Geithner is a cool customer and the closest he came to cracking -- near the end of a four-hour hearing and a long day of interviews, testimony and criticism of his plan -- came when Corker said, "I'm not being critical..."
Geithner interrupted: "You are, senator."
Committee Chairman Chris Dodd (D-Conn.) gave Geithner a soft exit, opining that, if Geithner had rolled out a detailed plan today, he would have been criticized for doing so without consulting Congress.
Geithner: My Bailout Plan Is Different. Really.
5:31 P.M.: Sen. David Vitter (R-La.) just asked Treasury Secretary Tim Geithner how his bailout plan is "fundamentally different," as Geithner said earlier today, from the one put in place by his predecessor, Hank Paulson.
Vitter ticked off Geithner's plan and noted how it is similar, point-by-point, with Paulson's.
How it's different, Geithner replied, is that it does all those things at once, instead of piece-by-piece.
After starting with the "I've only been in office two weeks" -- seldom a strong opener -- Geithner said: "To solve a crisis of this magnitude," you need very substantial fiscal force alongside very substantial monetary policy.
"We are moving together on all those fronts," Geithner said. "That has not happened to date for lots of complicated reasons."
Geithner: Govt. Should Not Intrude Further Into Boardrooms
5:07 P.M.: Geithner just stood up to further government intrusion into corporate boardrooms, a move that will hearten and perhaps surprise economic conservatives.
Rep. Sherrod Brown (D-Ohio) was upset to learn that some companies receiving bailout money are offshoring jobs to save money. He wondered if the government shouldn't require that such companies employ Americans, in addition to the limits on executive compensation they're now facing.
"I do not believe we can put ourselves in position of raising the prospect where government comes in and directly manages at great detail the choices [companies] make," Geithner said. "Ultimately, we will end up costing the economy and taxpayers much more."
Geithner said that he is "deeply offended" by "many of the judgments" top executives have made, clearly referring to big bonuses and other perks. "But the important offsetting obligation we have is to not create the prospect that the government is going to come in and make decisions for institutions that want to remain in private hands," he said.
Brown replied that it is "not very reassuring to hear" that a company is offshoring.
"I don't think your answer is cavalier, but I do think it implies something I don't like to hear," said Brown, who clearly wanted to hear that more government conditions will be placed on companies getting bailout money. "I hope you will revisit that, and we will do all we can to make sure you revisit it."
Geithner: Public-Private Partnership Is Best Way To Value Toxic Assets
4:21 P.M.: Geithner just took a shot at explaining how he will value all the toxic assets gumming up the balance sheets of banks that the government is going to buy, using a mix of private and taxpayer money he announced this morning.
Trying to figure out how much to pay for this assets -- which once had a value, now are virtually worthless and probably will have a value at some point in the future -- is a tough task.
Geithner just said there's a couple ways to price them: A) The government can set a price or B) The government can use an independent economic model to price them.
"We were concerned that neither of those two would give us the level of comfort" we want, Geithner said.
Instead, that's why he came up with the public-private funding mix: The government will use the private money as a kind of guide dog in entering this market, as the private sector has a better sense of the value of the toxic assets than the government does, and the private money knows it can invest without taking the whole risk on its shoulders, owing to the taxpayer co-investment.
At least that's how it's supposed to work.
Many traders are calling out for the government to set a price on the toxic assets -- any prices -- so they can get started at cleaning up the mess.
Geithner: Govt. May Not Have Overpaid In First Bailout
3:26 P.M.: Geithner just said -- we think he said -- that the federal government and its taxpayers actually did not overpay in its first round of the bailout.
Last week, one of the government-appointed bailout overseers said that taxpayers paid $254 billion for assets valued at only $176 billion, an overpayment of $78 billion, which naturally angered lawmakers and taxpayers.
Asked about that moments ago, Geithner said that governments investing in troubled companies are "taking actions that are vulnerable to the kind of analysis the report stated."
Okay, so that means if the government buys into troubled companies, it might well be overpaying.
Then, he said that, in doing so, the government is investing in companies that the private sector wouldn't touch: "There are risks the market won't take," Geithner said.
Therefore, he concluded, "there will seem to be a gap" between the value of the investment and what the government paid.
So, we didn't really overpay? Or we did overpay, but that's okay given the circumstances?
Geithner: My Bailout Plan 'Fundamentally Different' Than Paulson's
3:26 P.M.: Geithner said that his bailout plan, as outlined this morning, is "fundamentally different" from the one executed by his predecessor, Hank Paulson.
So we now have this choice to make: Either Geithner -- as head of the New York Fed Reserve last fall -- went along with a plan he hated all along or he didn't have the power or influence to change Paulson's mind or he has changed his mind since then.
Asked by Sen. Richard Shelby (R-Ala.) if the Geithner Plan is simply "Son of Paulson," Geithner said his plan is "fundamentally different."
"The path our country has pursued to date has been too limited in support, it came too late... and it offered too little direct support to businesses, consumers and households most affected by the crisis," Geithner said.
Market-wise, Geithner is having a terrible day: The more he talks, the deeper the markets sink.
The Dow Jones was down 190 points when Geithner began rolling out his plan this morning.
As of now, as he speaks before the Senate panel, the Dow is trading down about 400 points.
Geithner on CNBC: I Will Not Overpay For Bad Assets
12:22 P.M.: In an interview ongoing at the moment on CBNC, Geithner defended his private-public partnership to buy toxic assets on economic and political grounds.
Geithner said he did not want government to be "vulnerable to the charge" that the program is a "disguised subsidy for the financial system."
That would play poorly with Democrats and others who have been beating up on Wall Street and its large executive compensation history.
"I want to avoid a program that has government overpaying for a bunch of financial assets," Geithner said.
Interviewer Brian Williams asked Geithner how bad things are.
"We have parts of our system that strong and functioning well," Geithner said. "But we have parts of our system that are very badly damaged. We have to do substantially more to try to make the recovery work."
Geithner was pressed for details on his plan, which he has not yet given. He repeated that the crisis happened over a long time and will take a long time to work out. He said he wants to make sure the details are correct before divulging them.
At one point, Geithner became enigmatic.
Williams asked how much money has been lost in this crisis.
"It's the core of the problem," Geithner said. "The uncertainty at the heart of that concern has many different sources." Very Zen.
Geithner Announces Financial Bailout Plan
11:40 A.M. Treasury Secretary Tim Geithner just finished outlining his comprehensive financial-sector rescue package, which could cost up to $2 trillion so far.
"The financial system is working against recovery," Geithner said. "The recession is putting greater pressure on banks. This is a dangerous dynamic and we need to arrest it."
We are going to fundamentally reshape our program to fix the financial system," he said.
When Geithner started talking, the Dow was down 190 points. By the time he finished, it was down 275 points.
Geithner laid out four main points to his plan:
1) Creation of a stress test for banks to decide which deserve government bailout money and which don't.
2) Establishment of a public-private investment fund that pairs taxpayer money with private money to buy toxic assets off balance sheets. Geithner said the government would start at $500 billion and work up to $1 trillion for its contribution.
3) Working with the Fed, committing up to an additional $1 trillion to get consumer lending and the securitization process going again.
4) A "comprehensive housing program" that will be announced "in the next few weeks," Geithner said, designed to help homeowners save their homes and rework their mortgages.
Geithner said the plan will last as long as it needs to, saying that in the U.S. in the 1930s and in Japan in the 1990s, "the government applied the brakes too early," he said.
The new level of transparency for how the government money is being spent can be judged on a new Web site, www.financialstability.gov.
February 10, 2009; 6:14 PM ET
Categories: The Ticker | Tags: Geithner, bailout, stimulus plan
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