Geithner’s Far-From-Magical Publicity Tour

March 23, 2009


Tim Geithner was interviewed by Erin Burnett on CNBC today. Here’s a snippet:

Sec. GEITHNER: The alternative approach is–which you have the government buying all this stuff, taking on all the risk under a balance sheet, which would be much more expensive to the taxpayer. The alternative of letting it just sit there, let these assets just sit on the balance sheets of banks who are at risk, creating a much longer, deeper recession.

BURNETT: And see, because some of the banks say to me they could do that. They could sit on the stock.

Sec. GEITHNER: They could.

BURNETT: They are making loans, but the real lending problem is in the nonbank system, which did account for half of the lending in the country. And they say, `We could sit on it. In fact, we’re not really sure we’re going to like the pricing here. And maybe we will sit on it.

Sec. GEITHNER: Well, you know, parts of our banking system are growing and expanding. We have plenty of capital. But there are other parts of the system that are going to need a bit more insurance, a bit more assistance to get through this and be able to lend. But, you know, what guides what we’re doing, again, is what’s what’s–we’re going to try to do what’s–all that is necessary…

BURNETT: Mm-hmm.

This neatly encapsulates everything that’s wrong with the Geithner plan — not least that Geithner just isn’t expressing himself clearly.

Geithner says that if the government bought all "this stuff" it "would be much more expensive to the taxpayer", despite the fact that there will be very little in the way of private funds. Then he segues straight into the Hempton plan of "letting it just sit there" on bank balance sheets, and declares that option would be dreadful and create "a much longer, deeper recession" — presumably because the banks, under that option, would be less prone to lending new money.

Yet immediately after saying that, Geithner says that the banks "have plenty of capital", before descending uncomfortably into content-free political talking points about doing "all that is necessary".

The only remotely reassuring part of this interview is the only bit that Geithner had no control over: the little picture in the bottom right-hand corner of what the Dow is doing today. It’s up sharply, which is something for which Geithner and Obama must be very grateful. If it had plunged again, in the same way it did the first time Geithner tried to reveal his bank bailout plan, the Treasury secretary’s incredibly hard job would have become all but impossible. Still, Dow 7,600 is still a very long way from the point at which it can be said that the stock market feels remotely good about the future. It’s just maybe not as apocalyptically pessimistic as it was a few hundred points ago.

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