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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.

-- Frank Ahrens
The Ticker is Twittering!

By Frank Ahrens  |  February 10, 2009; 6:14 PM ET
Categories:  The Ticker  | Tags: Geithner, bailout, stimulus plan  
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Comments

Geithner is full of it. He's bailing out his banking buddies at our expense.

Posted by: obrier2 | February 10, 2009 1:11 PM | Report abuse

The ignorance of the comments regarding the recapitalization of banks is astonishing. Who does the public think owns bank stocks? It’s mom and pop and, generally speaking, and conservative pension plans looking for dividends. They’ve never been considered go-go investments. So all this dopey talk about bailing out friends on Wall Street is strictly bigmouth ignorant hogwash. Banks are underlying cornerstones of commerce.

On the other hand, the compensation to bank executives (who, after all, don’t own the banks) has been outrageous. Paulson did a disservice by not limiting compensation to banks receiving gov’t aid in the previous rounds of TARP money. Now at least there’s a focus to cure that insult to taxpayer’s money.

As for Geithner’s comments today, the lack of hard facts and decisions on how to go forward with more public financing was woefully under explained – or planned evidently. The announcement seemed premature with little data, especially in the arena of housing where the majority of the public has their attention focused. Way too little meat on the bone. Having mostly only announced the outlay of big numbers of taxpayer money, Geithner needs to accelerate the actual explanation of the details.

Posted by: billingsgate | February 10, 2009 1:57 PM | Report abuse

As I am approaching suicide due to the unbelievable stress I am under, and the absolute despair I am feeling, listening to this little jerk who NEVER should have been allowed to participate in any more planning due to his Culpability in setting all of it up in 1998,

makes me SICKER!

I am NOT an Economist or a Banker. I would argue, that by NOT having my cranium shoved so far up my rectum, that I would have Ring-Around-The Collar, like all of them do;

That I might NOT have delusions from inhaling Noxious Vapors like they do!

I have a CLUE!

I see the Problems that CAUSED all of the mess!

First, an overwhelming FLOOD of Wage Destroying Community wrecking Illegal Foreign Nationals!

Second, Inflation on things like Gas, that gobbled up all our Liquid assets, while NOT putting the money BACK into our society(Yet!-I fear the money coming back. We are too likely to be owned by Royal Families!)

Then third, the Ponzi Schemes set up by Clinton, Geithner, and Summers!

The People are BROKE! We need $$$$$-BADLY!

But, because for so long, we just borrowed to make up for our lack of Wage Increases, when we broke, so did our Credit!

That, in turn, CAUSED the banks to get all their defaults!

Stimulus needs to be dealt out to the PEOPLE, to THEN pay to the banks!

It will NEVER go from the Banks, to People they destroyed!

Then, GET OUT AND FINE EVERY EMPLOYER NOT USING E-VERIFY to Make CERTAIN his Employees, are LEGAL!

REVOKE the US Citizenship wrongly bestowed on Children who's Parents are not deserving!

And send them PACKING with their Parents!

If you people have not caught on yet;

WE CANNOT AFFORD THEM!

Posted by: SAINT---The | February 10, 2009 2:53 PM | Report abuse

I agree. All of what happened was a perfect storm affect. Inflation, High debt loads, High cost of energy, taxes & food. Now add to that lack of employment. Trust me there is no cure. If you fix one dynamic, there will be another lurking (in our case global warming and natural disasters that follow). Insurance companies are now also crying broke and revoking coverage in effected areas. Democrats pushed to have minimum wage increases at a time when consumer spending was about to plummet. Now companies have to make painful choices like overworking less employees to save on payroll taxes and additional fringe benefits. States are to be faulted for blessing unions with unsustainable wage growth to both compensation and pension funds off the backs of taxpayer income, property and sales taxes that have now evaporated, and will continue to do so. Poeple are turning in keys because they can't afford to put gas in their cars food on the table and heat their homes at the same time no matter how low their interest rates are. People just don't want their homes. Over 50% of fannie mae forclosures result in zero contact with the borrowers due to borrowers not even wanting to work out a payment arrangement of any saught. Just look at the amount of vacant homes on the market now. Reality is that cost of living is eroding quality of life and the psycological impact will bring us further into a recession no matter what stimulus/bailout attempts are made. And further more, Geitner needs to speak english. Nobody understands his black magic predictions for curing the banking sector of its long begotten ills.

Posted by: kiboo | February 10, 2009 3:22 PM | Report abuse

What a question. When the Stock Market dropped below 8000 Tim wasn't in office, Hank Paulson was. Did Hank make the stocks drop well as the Media said it wasn't Hank's fault. Now the Stocks drop and it's all Tim's fault. I guess we can say it's Tim's fault for the pass 6 years. Should President Obama hire Hank Paulson to fix the problem as he will be joined by his adviser and the young man who Hank hired to do his job. Krugman and others who are get Economicist are jealous that Tim got the top join. So rather then help the US these guys are saying Tim is wrong. Where were all these so called Economicist for 8 years as they didn't say a word. Now the Republican Party has Joe the Plummer as their Economic Adviser. Wings Nuts run loose.

Posted by: qqbDEyZW | February 10, 2009 8:01 PM | Report abuse

Had Geithner really developed and presented a plan to deal with the mess we're in, there wouldn't have been a clean pair of shorts in the room. Nobody in Congress, on Capitol Hill or for that matter anywhere in America is really ready to confront the entire problem and deal with the fear that will result. Denial and waiting are the best answers for now and when opportunities present themselves, efforts can be made.

There's TRILLIONS (like 4 years worth of the entire GDP TRILLIONS) of toxic assets out there and much of it is 'unvalued' and sitting on bank balance sheets. That's why no one knows who's solvent and who's bust.
Confronting that now would produce panic big time and maybe a war. We are so much weaker economically than anyone wants to acknowledge that, well, no one will acknowledge it. Given some time, bank nationalization can occur without panic, but if hands are forced, we could be at war in more ways than one.
China and India, meantime will be doing everything they can to grow their consumer markets and that means they WON'T be sopping up US debt -- at any price.
If the idiots in Congress force the administration's hand, we could be in a real firesale position and we could have more than several decades of struggle ahead.


The Republicans are digging themselves into a black whole by adopting a lose-lose posture. Whatever good happens, they won't be a part, and if things go absolutely bad, they will be a part, but not putting their shoulders to the wheel.


It ain't gonna be pretty.

Posted by: bgreen2224 | February 10, 2009 8:54 PM | Report abuse

Geithner's presentation behaviors indicate he realizes he's in over his head, that he is not qualified for the job Obama gave him, and he's resorting to defensive bureaucratic responses. “We will have to adapt our program as conditions change. We will have to try things we’ve never tried before,” he said. “We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupted.” If you were a shareholder in a bank that was considering lending his company one or two TRILLION dollars, would you be in favor of trusting him with the money? Didn't think so. It's not really HIS fault, Obama GAVE him the job, and Obama will be responsible for what happens, (though he will NEVER admit it!)

Posted by: lightnin001 | February 10, 2009 9:27 PM | Report abuse

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