This week Treasury Secretary Tim Geithner unveiled a financial stabilization plan that could cost $2 trillion, in addition to the $790 billion that Congress plans to spend on economic stabilization. All this without any consultation with Congress.
That’s financial stability?
The Dow Jones Industrial average fell almost 400 points Tuesday on the news, and the Asian equity markets followed. This steep decline is symptomatic of the unease that permeates financial markets.
It’s not just the amount of money that is troubling. The markets were also distressed by a lack of detail, especially on how to deal with so-called toxic assets – loans with diminished and uncertain value. The previous Treasury secretary, Henry Paulson, proposed to buy toxic assets, then discovered the difficulties of pricing and so switched to purchases of banks’ preferred stock to infuse capital into the banks.
Geithner promised “to consult closely with Congress” as he moved forward, but Congress has not held hearings on implementing the program, even though it would leverage $1 trillion of Federal Reserve funds and close to that in private-sector funds. The public fears that the $2 trillion dollar bank bailout fund would be just throwing good money after bad.