I was going to post something on the Geithner speech today...

[randomness]

...but it got all TL;DR.

Suffice to say I'm as impressed as the markets were today.

The kindest thing I've seen said about it so far is from Paul Krugman:

An old joke from my younger days: What do you get when you cross a Godfather with a deconstructionist? Someone who makes you an offer you can’t understand.

I found myself remembering that joke when trying to make sense of the Geithner financial rescue plan. It’s really not clear what the plan means; there’s an interpretation that makes it not too bad, but it’s not clear if that’s the right interpretation.

The plan deserves praise for what isn’t in it, at least as far as I can tell. There doesn’t seem to be provision for mass purchases of toxic waste at premium prices; there also doesn’t seem to be a massive “ring-fencing” guarantee against private losses on bad assets. In that sense the plan is better than what the last few weeks of leaks led us to expect.

So what is the plan? I really don’t know, at least based on what we’ve seen today. But maybe, maybe, it’s a Trojan horse that smuggles the right policy into place.

Comments

[docorion.livejournal.com]

A lot of the radio commentary I've heard boils down to "Just buy the damned things (speaking of toxic assets) already, and get it over with. You know you'll have to eventually." Which fails to rescue the taxpayer from them in the long term, but (theoretically) gets things moving in the short term.

Part of me says that's a good idea-another part says *someone* is going to have to eat a lot of sludge, and I don't want it to be me, or the general tax base.

But yeah, everyone would have been more impressed had there been more, you know, *there* there.

[r-ness.livejournal.com]

Someone *is* going to have to eat the sludge. I'd prefer it if the bank shareholders were at the head of the queue.

[tavella.livejournal.com]

Precisely. And any other creditors, including any CDSes the bank offered. Zero them out first. Just like any other bankruptcy.

[redhound.livejournal.com]

I am somewhat swayed by the notion that market slumps are not necessarily a sign that a bank-reform plan is bad, because a hypothetical good plan would likely lead to bank stockholders getting wiped out, and hence a rush for the exits.

[r-ness.livejournal.com]

In fact, I'm of the opinion that short-term market swings more reflect trader's nerves than anything else. However, the chart did a fine job of graphing my own feelings, so I linked.
(Also, I like the FT.)

Truth be told, I was pretty underwhelmed going into this thing, so my personal sentiment chart would have stayed low and perhaps dipped slightly on hearing that Geithner was starting the fog machines again, but the chart was more fun.

[amelia-g.livejournal.com]

LOL Funniest thing I've read all day!