Finally, A Good Day For Geithner
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Tim Geithner's spent the last month in the hot seat.
With no end in sight for the current economic calamity, the newly minted treasury secretary was thrust into the political spotlight from the second he squeaked by in his Senate confirmation.Â
To say it hasn't been an easy few weeks for Geithner is an understatement. The fresh-faced 47-year-old inherited an economic system teetering on collapse. After some tax SNAFUs threatened to set back his own confirmation (and cast enough scrutiny over Obama's vetting process to screw several other nominees out of their jobs), Geithner is tasked with fixing the economy with the help of a woefully understaffed Treasury Department.Â
His February address, which was billed as a preview for the policies to come, fell flat on its face. "Wide in scope, short on detail" an MSNBC headline screamed, capturing the general sentiment about the speech. The poor performance invited comparisons between his confused, unclear delivery and the complete ambiguity that clouded former Treasury Secretary Hank Paulson's failed attempts to save the economy last fall. Most recently, Geithner dropped the ball on controlling the backlash over the massive bonuses doled out by bailout-recipient AIG ($50 billion in bonuses, according to New York Times reports, will be returned, by the way.) Some critics, especially those on the right, have even called for his resignation.
The president has stood behind his pick in recent weeks, but Geithner's plan (or, as some contend, lack thereof) for rescuing the collapsing banking system came under fire before it was even announced.
Today, that plan was officially unveiled. The three-part Public-Private Investment Plan basically allows the government to team up with private investors to buy "toxic" assets to help financial institutions get their books balanced again. A "toxic" asset is just a scary-sounding term for an investment that has dramatically dipped in value -- i.e. sub-prime mortgage-backed securities (here's a good FAQ on what exactly we're "rescuing.") Salon's Mike Madden has, in a piece about how Obama's now keeping Geithner out of the spotlight to sell the plan, a good summary of the Treasury's explanation for how the plan will work:
A bank decides it wants to sell off a pool of bad mortgages with a face value of $100. The government auctions the mortgages, and the highest bid is $84 (which means the bank loses $16, instead of the whole $100 on the line now). The FDIC backs $72 worth of loans for the public/private fund to buy the mortgages, meaning the public/private fund has to come up with $12. Treasury kicks in $6 and private investors kick in $6. If the mortgage can eventually be sold for more than $100, everyone wins -- the private investors get a big gain after risking only $6 of their own money, the Treasury gets the same gain, and the FDIC never has to take on the $72 in loans it guaranteed because they're repaid once the mortgages are resold for a profit. But if the mortgage winds up losing money, the private investors are only on the hook for $6. The FDIC has to repay the $72 in loans regardless.
The $1 trillion question: will it work?
Wall Street sent out a resounding yes, even though it really is too soon to tell. New York Times columnist/economist Paul Krugman, who was also critical of the stimulus rollout, is so sure the answer is no that he finds himself "filled with despair." But fellow Nobel laureate Michael Spence says he is confident the Treasury "did its homework" and the plan has a chance. Portfolio's Felix Salmon blogs on how the plan could actually make things worse. Salon's Andrew Leonard points out that it's impossible to predict whether this specific plan will fly and whether Geithner will ultimately be offered as a political sacrifice when this whole thing plays out -- but, he concludes, it's a good sign that the Obama administration continues to press forward with a comprehensive combination of initiatives to deal with the economy.
The MSM has declared the plan a victory for the former chair of the New York Federal Reserve. POLITICO gave this round to Geithner, reporting that he cleared the bar by making good with Wall Street and pols on Capitol Hill. The New York Times appears to be in agreement, saying Geithner's plans "dazzled" Wall Street and injected a much-needed jolt of political capital into the administration's plans. The polls also point to better days for Geithner, who will be in the hot seat yet again today, testifying at a committee hearing on the Hill. Fifty-four percent of respondents to a new CBS poll say they have some to a lot of confidence in the man.Â
Obama's taking the stage Tuesday night in another prime-time presser (perhaps this time he'll control his urge to chuckle at the unfolding economic mess), in which he will undoubtedly continue to make the case for his three-pronged plan.
Still trying to get up to speed on how we go here and who's trying to get us out of this mess? "This American Life" has dished up several excellent shows explaining in the simplest of terms how the economy collapsed, and New York magazine's always astute John Heileman has a piece on the cracks in Obama's bank brain trust.
