Friday, May 08, 2009

Geithner Redeemed!!!......

Sometime in Feb 2009, Tim Geithner was scheduled to address the public on a plan to save the banking sector. The market was high on hope and expectations. Geithner delivered a vague plan without details causing the markets to lose confidence - the DOW fell 382 pts. This half-baked plan shattered hopes that the new US treasury secretary had a solution and left more questions than answers[Link]. Shortly after the disastrous address, many were asking for him to be fired[Link]. Obama was made to defend Geithner on numerous occasions...critics called his plan a disaster, Krugman was trashing it mercilessly[Link]. Just imagine the enormous pressure Geithner was facing as US Treasury Secretary- you can say the global economy was resting on his shoulders.

I went through Geithner's Feb 2009 plan and thought it had some merits and was the only logical way to move forward although the details were lacking. I wasn't really sure and looked around but couldn't find somebody who had anything positive to say about the plan until I read Jim Jubak's article[Jubak's Article Link, My blog entry Link] - Jubak is outstanding! Not only did he go against the prevailing overwhelmingly negative views on the plan he gave an insightful explanation why the plan actually had a good chance of succeeding. Jubak contrarian view of the plan is starting to look correct with the conclusion of stress tests for the banks[Link].

For Geithner, he must have had the toughest job in the world for the past 3 months - he was grilled by congress numerous times, asked to resign[Link]...many wanted him fired as he was trying to solve the worst financial crisis since the Great Depression. He was painted as a villian in the AIG bonus scandal and many wrote that he was unqualified as he had no economics degree. It was very tough for President Obama to stand by this man but his support never wavered. There must be a reason for Obama to choose Geithner over more prominent candidates including Nobel Prize winners - it was a huge risk and perhaps we are seeing big payback.


Anonymous said...

I am inclined to agree with Krugman, that the stock market verdict does should not be the final judge.

Throwing in lots of money into finance will shore up the stock market... yes? Which is more or less what Geithner did. Whether it sold out the tax payer is another issue.

The banks are making lots of money lending out money at high interest rates, while borrowing at low because tax payers are acting as their gaurantors. Ordinary citizens are loosing lots of interest income while taking the risk for the financial institutions.

Yes, it is good for the stock market. Is it good for anything else?

Anonymous said...

Lucky My Boy

Yet another excellent piece!

I know Timmo isn't the brightest spark but u know good help (who are deficient in conscience) is sooo hard to get these days. Dun you just miss the good old days of Nixon and Bush?

Fortunately, with Hanks achieving his goal of restoring Goldman bonuses to pre-crisis levels and it wasn't too difficult to convince him. *hint* *wink* Like you, Timmo is a smart boy. Especially when the alternative was to be like Volcker *sneer*

Oh well, when the party music stops someone has to hold the baby and who better than the stupids who believe that we are helping them. the irony ... hahahahahah

Your Proud Mentor

Anonymous said...

"Geithner Redeemed!!!......"

Lucky, are you speaking too soon?

You will never know what's going to happen between now to end of 2009 or 2010.

The stock rally is a bear market rally!

Just look at STI. Even when the economy is in shit, more people jobless, STI still rally 50% over 2 months!

Anonymous said...

and no doubt cheaper than any of the ministers that we have.

our pm even had the cheek to say depend on luck lah.

better don't let geithner know how much pinky is earning & yet is depending on him.

Anonymous said...

Guranteeing these banks that would otherwise be bankrupt is just buying time. There is nothing to suggest recovery in the near of distant future. It is going to be a slow drawn out pain.

Anonymous said...

Hi Lucky,

Before praising Geithner and hailing the partial success of his PPIP you may want to take a look at this WSJ article on how the banks essentially cheated in the stress tests:

To summarise, the banks undergoing the stress tests objected strenuously and successfully to reduce their projected capital deficits (see in particulr Citi's shortfall fell from $35.5bn to $5.5bn), the Fed changed its yardstick of measuring the health of the banks by maeasuring Tier 1 common capital ratio as opposed to TCE as agreed upon earlier. The consequence of choosing such a less severe measure? Over $68bn in identified capital shortfalls magically disappears.

In short, the 'stress tests' (if you could call it that) were consequently nerfed. It's no surprise the banks did better than expected.

Of course an argument could be made that the nature of this crisis (as for every financial crisis) is psychological and releasing better-than-expected results would propel the financial industry towards quicker recovery. But doing so makes a mockery of the supposedly objective nature of the tests.