The Obama administration's plan to bail out the banks as described by Timothy Geithner yesterday achieved an amazing feat. Not only did the stock market tank but there is near unanimity from commentators from left to right that the plan is a disaster in the making. The plan lacks detail, direction, and a coherent philosophical point of view. It is true that no one really knows how to get us out of this mess, but the appearance of understanding would be better than offering the verbal certainty that you know what you are doing followed by a plan that offers the exact opposite. For example, when Barack Obama essentially says, a la George W. Bush, that you are either with him or against him on the Stimulus Plan (and makes this announcement without giving anyone time to actually read and understand what is in the bill) and then follows it up with a bill that proclaims, "we don't know what we are doing so we will spend one or two trillion dollars and hope for the best and if that doesn't work there's a couple trillion more where that came from" (ie, the printing presses), it does not inspire confidence.
I am not particularly sophisticated when it comes to economics. It is not my field of expertise. But I do know a couple things about it. The economy is one of the most complex man-made structures ever built. It is a classic example of complexity arising from the application of simple rules on a very large scale. As with any complex system, it is impossible to accurately define all, or even most, of its parameters, and impossible to predict the effects of any single perturbation. Within limits, the economy has been a self-correcting system, as long as none of the basic rules are interfered with, ie, over time, markets are the single best tool for discovering prices and once prices have been established, supply and demand takes over and temporary downturns remain temporary. The business cycle includes recessions because humans are not rational actors (despite the most profound wishes of economics professors and modelers) and governments can worsen economic downturns much more readily than they can reverse them.
Although I am not an economist, I do consider myself an expert on the structure and workings of the human mind (and I must admit that being an expert on the mind means that I realize I know much less about the mind than most people think they know.) My study of the mind and brain over the last 30-40 years has meant that I have a fair amount of experience reading scientific literature as well as Psychoanalytic literature. I long ago determined that the best Psychoanalytic literature was that which was written most clearly and concisely. If an author confused me, it was likely that the confusion had more to do with the author's shortcomings as a writer than my shortcomings as a reader. I am not being immodest here; I simply recognized that I am pretty good at understanding what I read and when I can't understand what I read it is usually the case that the author was confused or unnecessarily arcane. It is an unremarkable observation that most academic literature has minimal substance. Perhaps 10% will include real ideas of some originality, the majority will involve restating the obvious and corroborating other's more original work, and a small but not insignificant percentage will be dross. The worst examples of academic nonsense typically involve papers which are almost purposely abstruse and laden with jargon rather than ideas. (Post-modern literary and art deconstruction offer classic examples on a regular basis.) My conclusion, having read a fair amount of commentary on Geithner's performance, is that the Geithner plan falls solidly in the last category; dense, confused, and confusing. Yves Smith has collected a number of excellent links and has, perhaps the best take on the plan that I have seen:
I cannot recall a major US policy initiative being met with as much immediate revulsion as the so-called Geithner plan. Even the horrific TARP, which showed utter contempt for Congress and the American public was in some ways less troubling. Paulson demanded $700 billion, nearly $200 billion bigger than the Department of Defense, via a three page draft bill, nothing more that a doodle on a napkin, save that it did bother to put the Treasury secretary above the law. But high-handedness was the hallmark of the Bush Administration; it was only the scale and audacity of the TARP that was the stunner.
And the TARP initially did have some supporters (perhaps most important, among the media, who trumpeted the "Something must be done" case). Fans are much harder to find for the latest iteration of the seemingly neverending "let's throw more money at the banks" saga.
As we, and increasingly others, have said, the Obama economic team is every bit as captive to Wall Street's interests as the Bushies were. The differences increasingly look stylistic, not substantive.
Treasury Secretary Geithner presented today what in essence was a plan to come up with a plan. I now understand why he is so loath to have government run banks. He presumably sees himself as an elite bureaucrat, as his glittering resume attests. Yet the man has a deadline to come up with a proposal, yet puts off presenting it twice (the "oh he has to work on the stimulus bill" is as close to "the dog ate my homework" as I have ever seen in adult life). What he served up as an initiative is weeks to months, depending on the item, away from being operational (if even then; the public-private asset purchase program will either not see the light of day, or be far narrower and smaller than what is needed).And in case you think I am being unfair, yesterday I got an e-mail from a political consultant who got a report on the Senate Banking Committee briefing by the Treasury the night before the announcement. No briefing books, no documents. He deemed it to be no plan. That assessment was confirmed today by a participant at the session, who said that the details were so thin that one staffer asked, "So what, exactly, is the plan?" and repeated questions from one persistent Senator got "absolutely no answers".
Thus Geither's belief that government can't manage assets is sheer projection of his own inability to deliver. The FDIC winds up banks all the time. During the S&L crisis, as William Black reminds us, FSLIC appointed receivership managers that later research determined did reduce losses. Sweden, Norway, and Chile all nationalized (and relatively quickly reprivatized) dud banks during their financial crises. This isn't like trying to go the moon (which was a government initiative, lest we forget). There are plenty of models and lots of good proposals. What is lacking is will. History says that an aggressive, take-out-the-dead-banks program is the fastest and all-in cheapest way out of a financial crisis. But if you believe that something will not work, as Geithner does, it isn't at all hard to produce that outcome.
I am tempted to steal all of Yves's post and reproduce it here because it is everything that Geithner's Plan is not: Yves is crystal clear, unequivocal, and does a better job pointing out the holes in the so-called plan than Geithner did in presenting it. Please read her entire post, and consider following some of her links as well. There is no better round-up of reactions around.
Lest I end on such a decidedly depressing note, consider this piece of work that was sent to me by a Wall Street Executive and expresses sentiments that are apparently quite old and growing:
Geithner's Plan Template found...
In the beginning was 'the plan'.
And then came the assumptions.
And the assumptions were without form and the plan was without substance
And darkness was upon the face of the company and they spoke among themselves saying, "The plan is a crock of s**t and it stinketh."And the company went to their supervisors and sayeth, "It is pail of dung and none can abide the odor."
And the supervisors went unto their department heads and sayeth unto them, "It is a container of excrement with an odor that few can tolerate."
And the department heads went unto the vice presidents and sayeth, "it is a vessel of fertilizer and its strength offends many."
And the vice-presidents spoke among themselves saying, "It contains that which aids plant growth and it is indeed strong."
And the vice-presidents went unto the president and sayeth unto him, "It is a powerful promoter of growth."
And the president went unto the chairpersons of the board and sayeth, "This plan will greatly stimulate the growth and efficiency of this company."
And the chairpersons looked upon the plan saying, "This is a good plan."
And the plan became policy. And this is how s**t happens.
(The quip is unattributed but was, according to the originator of the e-mail, "pulled up by googling... not sure of ultimate origin, but when I heard/experienced Geithner yesterday - I thought it was fitting...")
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