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Obama Defends His Bailout

President Obama finds himself at a disadvantage today when it comes to defending the bank-bailout plan announced by his Treasury secretary yesterday.

At the very least, as Frank James blogs for Tribune, Obama oversold what Timothy Geithner ended up delivering.

At his Monday night press conference, Obama said Geithner would "be announcing some very clear and specific plans for how we are going to start loosening up credit once again..... It means that we correct some of the mistakes with TARP that were made earlier, the lack of consistency, the lack of clarity in terms of how the program was going to move forward."

But as David Cho and Lori Montgomery write in The Washington Post, "the lack of detail in [Geithner's] plan dismayed lawmakers and investors, triggering a steep sell-off on Wall Street....

"The Treasury Department provided only the most general descriptions of how struggling homeowners and small businesses would be helped. And officials said they have yet to design a program that is a core part of the plan: A public-private initiative that would encourage investors to buy up the toxic assets now weighing down the books of banks and threatening to overwhelm the firms with losses.

"Cleansing the financial system of these assets, which are backed by failing mortgages and other troubled loans, has vexed officials since Congress approved the $700 billion rescue package in October. But financial analysts said Geithner, who took a strong hand in casting the new plan, appeared to have no better grasp on a solution than his predecessor, Henry M. Paulson Jr."

Neil Irwin writes in The Washington Post: "In rolling out his overhaul of the financial rescue yesterday, Treasury Secretary Timothy F. Geithner lambasted the Bush administration's response to the crisis over the past year.

"'Policy was always behind the curve, always chasing the escalating crisis,' Geithner said, criticizing his predecessor, Henry M. Paulson Jr. 'The emergency actions meant to provide confidence and reassurance too often added to public anxiety and to investor uncertainty.'

"But yesterday, Geithner seemed to be following the Hank Paulson playbook, according to a wide consensus on Wall Street, in Washington, and beyond."

In Geithner's defense, he's trying to solve an enormously complicated problem in a challenging political environment.

Jim Puzzanghera and Maura Reynolds write in the Los Angeles Times about the "double bind for the Obama administration.

"Fixing the financial system has turned out to be a bigger, harder and much more expensive challenge than expected, potentially requiring billions more in additional federal commitments.

"But the political climate has turned so sour that Congress, enraged by what it sees as irresponsible excesses by Wall Street executives, is unlikely to approve more funding, at least for now.

"As a result, the administration is moving toward approaches that reduce the government's financial risk and require no new congressional action. But those constraints mean the plans are taking longer to design and implement."

Deborah Solomon writes in the Wall Street Journal: "A senior Treasury official said the administration explored 'quite a few alternatives' but concluded it was a 'challenge' to have the government set a price for the bad assets. Instead, they believe their structure will allow the private sector to value them."

In his interview with ABC News's Terry Moran yesterday, Obama didn't seem overly troubled at Wall Street's negative reaction to the Geithner plan.

"Well, you know, Wall Street, I think, is hoping for an easy out on this thing and there is no easy out. Essentially, what you've got are a set a banks that have not been as transparent as we need to be in terms of what their books look like," Obama said.

"And we're going to have to hold out the Band-Aid a little bit and go ahead and just be clear about some of the losses that have been made because until we do that, we're not going to be able to attract private capital into the marketplace. And so, you know, I think that you have two choices in this situation: You can prolong the agony and shareholders will be happy until they're not happy, and that could be a year from now or two years from now, or, in the case of Japan, eight years later.

"Or you can just go ahead and acknowledge that, yeah, there's a lot of work that has to be done to put these banks back on a firmer footing."

Obama also explained why he thinks nationalizing banks -- the increasingly preferred solution of many left-leaning economists -- wouldn't make sense.

Moran: "There are a lot of economists who look at these banks and they say all that garbage that's in them renders them essentially insolvent. Why not just nationalize the banks?"

Obama: "Well, you know, it's interesting. There are two countries who have gone through some big financial crises over the last decade or two. One was Japan, which never really acknowledged the scale and magnitude of the problems in their banking system and that resulted in what's called 'The Lost Decade.' They kept on trying to paper over the problems. The markets sort of stayed up because the Japanese government kept on pumping money in. But, eventually, nothing happened and they didn"t see any growth whatsoever.

"Sweden, on the other hand, had a problem like this. They took over the banks, nationalized them, got rid of the bad assets, resold the banks and, a couple years later, they were going again. So you'd think looking at it, Sweden looks like a good model. Here's the problem; Sweden had like five banks. [He laughs.] We've got thousands of banks. You know, the scale of the U.S. economy and the capital markets are so vast and the problems in terms of managing and overseeing anything of that scale, I think, would -- our assessment was that it wouldn"t make sense. And we also have different traditions in this country."

New York Times columnist Paul Krugman responds in his blog: "Yes, we have thousands of banks — but the problems are concentrated in a handful of big players. In fact, the Geithner plan, such as it is, already acknowledges this: the 'stress test' is to be applied only to banks with assets over $100 billion, of which there are supposed to be around 14.

"And the argument that our culture won’t stand for nationalization — well, our culture isn’t too friendly towards bank bailouts of any kind. Yet those bailouts are necessary; and even in America they may be more palatable if taxpayers at least get to throw the bums out.

"Oh, and not a week goes by without the FDIC taking several smaller banks into receivership. Nationalization is actually as American as apple pie."

By Dan Froomkin  |  February 11, 2009; 12:35 PM ET
Categories:  Financial Crisis  
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Comments

There's no point in building roads that in twenty years will lead to abandoned settlements.

Posted by: Attucks | February 11, 2009 1:21 PM | Report abuse

I'm so tired of being anxious about the financial crisis and these rescue packages... What a terrible way to waste the early stages of an Obama presidency.

Where's my "Gore 2000" T-shirt again?

Posted by: mobedda | February 11, 2009 1:41 PM | Report abuse

On Sept 18th 2008, over about a 2 hour period, there was $550 billion electronic run on U.S. money market accounts which precipitated the $700 billion TARP bailout crises.

Can anyone tell us who instigated this breathtaking run in such a short time? That kind of laser accurate strike on the financial system doesn't occur on its own does it? Especially coming such a short time after the Republican Convention with McCain surging in the polls.

We are not getting the truth from anybody on what's really going on here. Come on WaPo: do your investigative job and stop twiddling over the Obama Soap opera.

Posted by: tom2 | February 11, 2009 1:55 PM | Report abuse

I agree that Obama oversold Geithner's bailout plan. Geithner was not specific. And I guess I am not too disturbed about the lack of specificity right now. I am disturbed that Obama oversold it and that he was content to put Geithner out there when he wasn't ready.

Here's the problem from my perspective. Geithner speech yesterday was not meant for Wall Street but for Main Street. Obama wants to show that he is aware of the problem and that he is doing something about it.

Fine and well. Obama has a lot of irons in the fire right now and all of them are red-hot. He has to get the stimulus bill passed and before he can drop the dime on us about the costs of the financial bail-out. I saw Geithner speech as laying down the direction, if not the premises, of what this program will have to entail at the same time allaying the effect of culture shock that would occur if this all came in one big speech.

Wall Street was just as upset, I reckon, that Geithner said that this will not be a 100% gov't bailout: that they will have to pick up some of the costs of recovery. So the Dow dropped 400 points yesterday at the bad news. I don't care. I am not part of the vaunted "investor class." The heck with Wall Street. They are going to do what it is that they do anyhow. Let's hear their ideas, and Republican ideas while we're at it, of how they should and are going to get out of this mess.

Obama hasn't even been president for 3 weeks. By now, Bush would have been upstairs in the White House residence playing golf on his PS3.

Posted by: Anadromous2 | February 11, 2009 2:09 PM | Report abuse

I feel for the government. They've been put in a terrible, terrible position. Either way you look at it, there will be people trying to blame the current administration for the mess we are in as if they are supposed to have some magic plan—waive a wand and fix it. But how does one fix years of unchecked, unabashed, intentional greed and manipulation of the publics earnings and gullibility. Greed on the part of banks and conservatives who think it is okay for businesses to do whatever they want with no accountability, and to the general public that often times prefer to follow behind material trends instead of living within their means and using their heads. Now we know in more ways then one that we are not made of steel and like the rest of the world we can hurt when our behavior is not disciplined or respectful to the laws of cause and effect.

There is nothing that anyone could tell me to make me believe that when those interest rates first dropped for housing loans then continued to stay low even as the prices of homes skyrocketed that the government in power then did not know what would happen if they continued on that course. They knew. They knew this was coming just as I knew. Those over educated, pompous people knew what would happen. Why they did it--well now that is the question to be answered and the mystery to be solved. Why would they want to bankrupt America? I mean 1 percent chance that they were really just that dumb. Now, with all the things they can pick apart about the stimulus what solutions can they offer? Oh, I know the same ones they offered over the past 8 years. Tax breaks, tax breaks, tax breaks that have done no good and that do no good. So what is the real agenda and point? Am I the only one who’d like to know what’s really up besides such shameless desperation for power that repubs would crush America’s citizens and thus America? If they got back into the presidency in four years then what? Resume the course of destruction…is that on purpose? I am just a humble citizen trying to understand.

Posted by: anla1974 | February 11, 2009 2:27 PM | Report abuse

Just as now certain Repu'ublicists are saying that FDR CAUSED the Great Depression, they would apparently also prefer to see our economy totally crash so they can blame it on Obama. After all, they're already saying that the 2006 mid-term results "caused" the current financial crisis. I'm more interested in constructive solutions. I posted one small idea on my blog at bgladd.blogspot.com

Posted by: BGladd | February 11, 2009 2:30 PM | Report abuse

@anla1974: "Why they did it--well now that is the question to be answered and the mystery to be solved."

No big mystery really. Artificially propping up the economy via the housing market was necessary for the maintaining the illusion that, as candidate McCain said, "the fundamentals of our economy are strong." Just as corporations use accounting tricks to push unpleasantness down the road, so too did those in charge use economic tricks to forestall the inevitable crisis. This was self-evident to anyone willing to put politics aside, but no one wanted to blow the whistle as long as times were good. The only part of the plan that went wrong was that the market gave out before January 20th. Hence the planned argument, "it's Obama's fault", had to be modified to become "it's the fault of the Dems who were elected in 2006."

If Republicans spent half as much time governing as they do scheming to place blame, we'd all be filthy rich.

Posted by: BigTunaTim | February 11, 2009 3:04 PM | Report abuse

I'm still waiting for the jail terms for the CEOs and CFOs and current/former execs who misstated earnings (aka "LYING") and got salaries, bonus, options, and retirement funds based on said lies even using our tax dollars ...

Well?

Posted by: WillSeattle | February 11, 2009 3:20 PM | Report abuse

Another really - really bad day for the DEMOCRUDS.

Posted by: hclark1 | February 11, 2009 3:58 PM | Report abuse

I'm curious. Why is it that no one has pointed out that Nouriel Roubini sent out an RGE Monitor report today that actually explained and approved of Geitner's plan as presented? It provides clarity where everyone else has been claiming obscurity. It seems many should think about going back to school for refresher classes, in particular the dolts at CNBC.

Posted by: Amilius | February 11, 2009 6:15 PM | Report abuse

Too bad Mr. Dan Froomkin cant get Harold Meyersons web designer. Harold is able to put All of his post plus the comments on one page that only need s one click to get to. I sure wish Dan Frrooomkin was able to do something like that. In order to see all of todays Froomkin and comments you have to open 5 different pages and 12 pictures of Froomkin. Must be some kind of ego thing going on. I love the writing but hate the new format. Please Dan, Dont be a DECIDER, help us out. One page for all!!

Posted by: waawaazaire | February 11, 2009 11:23 PM | Report abuse

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