Sunday, March 29, 2009

Geithner Bashing Link Roundup

Just watched Geithner dance around the questions on two Sunday morning talk shows. Basically, he's saying, "it could be worse, we could have no private money in the plan," and when the Krugman critique (bank nationalization) comes up, he shouts, "look, over there, a market!"

Not encouraging.

Henry Blodget also hates the Geithner plan, for a variety of reasons:

The big problem with Tim Geithner's plan to fix the banks is the same as it ever was: The gap between what banks say their assets are worth and what the market says they are worth.

When a bank says an asset is worth 60 cents and the market says it's worth 30 cents, someone has to cover that spread. The genius of Geithner's plan is that it pawns most of the cost (and most of the risk) off on the taxpayer without the taxpayer noticing.

But unless the taxpayer gets stuck with the entire spread, which is probably what Geithner is hoping, banks that sell assets will have to take massive writedowns. This will start the whole cycle of violence again.

And, he thinks Geithner's view of the problem was formed when he was sitting down with the Wall Street guys back during his New York Fed days, leading to a bunch of misconceptions:

Bad assets are "bad" because the market doesn't understand how much they are really worth. The reality: The bad assets are bad because they are worth less than the banks say they are. House prices have dropped by nearly 30% nationwide. That has created something in the neighborhood of $5+ trillion of losses in residential real estate alone (off a peak market value of housing about $20+ trillion). The banks don't want to take their share of those losses because doing so will wipe them out. So they, and Geithner, are doing everything they can to pawn the losses off on the taxpayer.

There's some tepid support for the plan over here, though.

No comments: