Wednesday, 11 February 2009

The Geithner plan so far...

...this sums it up reasonably

OK, that was perhaps unfair. But it is a little short on details, and what he did say is not enormously reassuring. There are three steps Geither detailed in his announcement.

First, a stress test for everyone big enough to matter, and TARP 2 capital for those that need it based on the results of that test. Fair enough, although I would want to be sure that the original shareholders were being sufficiently diluted.

Second, a bad bank, which you, lucky investor, can participate in. But how it will price the assets it buys is currently shrouded in mystery.

Third, a massive expansion of the Term Asset Backed Securities Loan Facility to get the securitisation markets going again (or at least to get them 100% financed by the FED). Clearly Geithner believes that we need securitisation, and that these markets are key to getting credit flowing again. You could read this as quantitative easing (but I'd still prefer it if he repaired a few bridges and such like).

Thus far, then, it is hard to form a comprehensive judgement on the plan. I do think, though, that the lack of tighter controls on compensation is bad, that nationalisation is a necessary step before deploying the bad bank, and that this public/private partnership idea is just screwy. But what do I know.

Update. Because I have a childish streak, I just had to apply cornify to Geithner's website. Well, someone had to.

There, isn't that better looking? Doesn't it fill you with optimism and hope?



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