Gut Plays
by digby
I'm all for leaders being willing to change their minds, so this article about Geithner's late change of heart about his toxic asset plan doesn't bother me. What does bother me is the fact that they didn't see that a half-assed presentation would likely be worse than postponing things until they had their plan together. (The whole thing seemed very odd anyway, happening as it did right in the middle of the stimulus debate. What was up with that?)
I'm not an expert, but it seems to me that the whole point of appointing Geithner, who is hardly an electrifying figure and has quite a few other problems, was that he had the confidence of the markets. I always thought that was supposed to be one of the most important parts of his job description. Judging from the stock market reaction and the commentary, his presentation failed to do that in a pretty major way. The WaPo article suggests that this was done because they needed a vague amorphous plan in order to woo congress, but if that's true, they are putting the cart before the horse. Geithner needs to create a fix for this problem that will work and then woo congress, not the other way around. (And after his performance the other day, I would suggest that they might not want to depend upon Geithner for political persuasion at all. Let him deal with his pals on Wall Street and leave the politicking to the president.)
Anyway, I'm fairly over my head with this on the substance, but I do think it was a political mistake to roll out that vague plan and I'm also suspicious, as Brian Buetler writes here, that the administration is depending on gut plays this late in the game.
The proof will be known before too long, and I'm sincerely hoping that these guys are able to construct some kind of plan that will put the financial system back on its feet without giving away the store to the very people who put us in this position. But from this layperson's perspective, this story doesn't inspire confidence. Maybe the Galtian Masters of the Universe see it differently.
You should all set Your TiVOs for Frontline tonight if you want to see what's purported to be an excellent tick-tock of the unfolding financial crisis called "Inside the Meltdown" (9 p.m. on PBS, check local listings). This is from Heather Havrilesky's review in Salon:
By piecing together a colorful series of first-person accounts, "Frontline" does a nice job of capturing the sheer disbelief that arose the day that Bear Stearns' stock started falling precipitously, without warning. Author Bill Bamber called the day's events "nothing short of surreal." Desperate to set the record straight, the company's CEO, Alan Schwartz, sat down with CNBC anchor David Faber, only to have Faber suggest that Goldman Sachs, Bear's most important client, might stop working with them. As Bear Stearns' stock sank further, Geithner, then head of the Federal Reserve Bank of New York, examined the firm's books and realized that allowing the company to go under would set off a chain reaction of other bank failures. Geithner called his boss, Federal Reserve Chairman Ben Bernanke, at 4 in the morning. Soon, Bernanke and then-Treasury Secretary Henry Paulson were scrambling to find a way to keep Bear Stearns from falling and taking a bunch of other banks with it.
But Bear Stearns was just the beginning of a series of disasters encountered over the next several months by Paulson, a free-market Republican forced to contemplate an unthinkable financial black hole. Fannie Mae and Freddie Mac, behemoths that held $5 trillion in mortgages, quickly lost 60 percent of their stock value. Bernanke and Paulson moved to nationalize Fannie and Freddie, only to see Lehman Brothers stumble the next day. At this point, Jon Hilsenrath of the Wall Street Journal explains to the "Frontline" cameras, Paulson "started to show signs of bailout exhaustion."
It sounds fascinating.
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