How Much Longer Can Obama And Geithner Avoid Dealing With The Financial Crisis?

I think not much longer. From the NYTimes:

Analysts say it is far too early to know if Mr. Geithner and his team will be effective. But some worry that political and financial constraints have made them reluctant to grapple with the full magnitude of the crisis.

Many financial experts estimate that the nation’s banks are holding as much as $2 trillion in troubled assets . . . To avoid asking Congress for more money, Mr. Geithner has been trying to stretch government money by working with private investors, the Federal Reserve and government-controlled companies like Fannie Mae and Freddie Mac, the mortgage giants. But that has introduced other tough policy issues, many of which remain unresolved. “Their huge problem is that the American public is not willing to accept large losses for large financial institutions,” said Vincent Reinhart, . . . “Everything they are doing is about having the smallest possible footprint on the federal budget. They don’t want to engage the Congress and they don’t want to engage the American people in that discussion.”

(Emphasis supplied.) The ostrich approach does not have much life left I think. Speaking for me only.

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    unbelievable (5.00 / 1) (#2)
    by BobTinKY on Mon Mar 09, 2009 at 10:17:01 AM EST
    "Their [Geithner & crew]  huge problem is that the American public is not willing to accept large losses for large financial institutions," said Vincent Reinhart, a former Fed official and senior fellow at the American Enterprise Institute, a conservative research and lobbying organization.


    So given the problem the solution apparently is to convince the American people to to accept large losses for large financial institutions.  Methinks they all have a fundamental misunderstanding of the problem.

    I agree with Warren Buffet that those who behaved well will have to pitch in to solve the problems created by those who haven't behaved well.  But taxpayers should take only those losses remaining after bank shareholders and the other private investors who gambled so badly absorb as much of the problem as possible.

    Every day we wait to put these banks into government controlled receivership with full cramdown of these "troxic assets"  merely postpones the inevitable and diminishes the effectiveness that such a receivership plan would have if implemented today.

    I still don't understand how buying shares (5.00 / 1) (#4)
    by tigercourse on Mon Mar 09, 2009 at 10:50:23 AM EST
    of a company like Citigroup or Bank of American can be considered a bad gamble. It's not like they invested in Fly By Night Bank.

    That's what we thought too............. (none / 0) (#12)
    by BrassTacks on Mon Mar 09, 2009 at 01:57:37 PM EST
    Bank of America had done so well for so long, we thought it would be a good investment.  So did some of retirement fund managers.  Ha!  Say goodbye to that money!  TaTa!  

    Ya never know... (none / 0) (#14)
    by kdog on Mon Mar 09, 2009 at 02:49:23 PM EST
    if a gamble was/is good or not till you get the results.  Betting on a 50-1 shot at the track looks like a bad gamble before the race, but if that nag crosses the line first it was a great gamble.

    And on the flip, betting on a 3-5 favorite looks like a safe bet, until the chalk runs third and it is proven a bad gamble.

    Citibank and Bank of America looked like the NY Yankees of the banking industry, how could they lose?  Well, as the Tampa Bay Rays showed us last year, they can and do lose.  The proof is in the balance sheet.


    I would be a leetle bit (5.00 / 2) (#7)
    by gyrfalcon on Mon Mar 09, 2009 at 11:15:16 AM EST
    wary of accepting an American Enterprise Institute guy's mind-reading about what Geithner and crew are thinking.

    Non sequitur (none / 0) (#10)
    by gyrfalcon on Mon Mar 09, 2009 at 12:31:15 PM EST
    Your comment has nothing to do with what I said.

    Hokay. Gotcha. (none / 0) (#15)
    by gyrfalcon on Mon Mar 09, 2009 at 03:32:42 PM EST
    My apologies, but there's so much fuzzy non-thinking going around on this whole subject, it's hard to keep track sometimes.

    With so much undisclosed (5.00 / 2) (#8)
    by Militarytracy on Mon Mar 09, 2009 at 11:30:11 AM EST
    toxicity out there, I imagine it is impossible to find eager investors and very hard to find interested investors.

    Yves Smith (none / 0) (#1)
    by kidneystones on Mon Mar 09, 2009 at 10:01:51 AM EST
    at naked capitalism is invaluable. Folks who can set aside biases against Megan McCardle, will likely enjoy their diavlog from October 1st, last year before things got really ugly. If I understand Yves correctly, she pretty much expects the Obama team to fiddle through the fires. Not even a full-scale financial melt-down will make Republican attractive overnight. But Dems are going to own this crisis if there isn't an end to the bleeding pretty soon.

    Not So Much Ostrich Syndrome... (none / 0) (#3)
    by santarita on Mon Mar 09, 2009 at 10:30:03 AM EST
    as a belief that they have few options.  If you read the NY Times article cited above, the Obama team feels that going to Congress for the $$$ necessary is not a viable option (largely because of the hash that Paulson made out of Tarp I.) .  Couple that with the fact that Geithner is understaffed and one gets the impression more of Last Stand at the Alamo rather than the ostrich syndrome.

    The good news seems to be that all of the other governments are dithering as well.  So at least misery loves company.

    TARP I... (none / 0) (#5)
    by lambert on Mon Mar 09, 2009 at 10:53:17 AM EST
    ... was drafted and passed by a Democratic Congress, and Obama worked the phones for it.  No doubt Paulson would have made a hash of anything, but the lack of transparency and accountability is down to the legislators who wrote the law, not the executive who signed it. This is a Village phenomenon -- so, oddly enough, I agree with the "post-partisan" crew on this one.

    "Act in Haste, Repent at Leisure"... (5.00 / 2) (#6)
    by santarita on Mon Mar 09, 2009 at 11:03:05 AM EST
    I'd assign blame at 75% Paulson and 25% Congressional Democrats for Tarp I.  Paulson put a gun to their head.  Paulson didn't see the meltdown coming in time to allow a proper discussion.

    For the economic mess that has been simmering for the last 10 years and finally boiled over, I'd assign blame at 65% Republicans and Greenspan and 35% Congressional Dems.  (I may be too partial to the Dems, though.)

    Don't really understand your "Village" comment.


    Sorry, but that is not reassuring (none / 0) (#13)
    by BrassTacks on Mon Mar 09, 2009 at 01:58:48 PM EST
    I'm not all that interested in what the President of Spain is doing for his country.  I am VERY interested in what our President is doing.