Geithner Plan D.O.A.

Via Kevin Drum, ding dong the Geithner Plan is dead:

The Federal Deposit Insurance Corporation indefinitely postponed a central element of the Obama administration’s bank rescue plan on Wednesday, acknowledging that it could not persuade enough banks to sell off their bad assets. . . . Many banks have refused to sell their loans, in part because doing so would force them to mark down the value of those loans and book big losses.

The entire plan was ridiculous. Now the question is what does it mean and do we need to do something different? More . . .

Is everything fine now?

“Banks have been able to raise capital without having to sell bad assets through the L.L.P., which reflects renewed investor confidence in our banking system,” said Sheila C. Bair, chairwoman of the F.D.I.C.

But some analysts said the banks’ reluctance to clean up their balance sheets meant they were merely postponing their day of reckoning. Indeed, some analysts said government policies had made it easier for banks to gloss over their bad loans. “What’s happened is that the government’s programs have addressed the symptoms of the financial crisis, but not the cause,” said Frederick Cannon, chief equity strategist at Keefe, Bruyette & Woods, which analyzes the industry. “The patient feels better, but the underlying cause of the problem is still unaddressed.”

If you read me previously, you know what I think - this is all a sham. We have many insolvent banks and we are pretending they are not insolvent.

Drum comments:

Maybe this will work out in the end. But history suggests that we'd all be better off if banks were forced to honestly account for their losses, take their lumps, and then move on. Instead, Geithner's stress tests have persuaded everyone that things are fine and losses on these securities aren't as bad as everyone thinks. Maybe so. But if Geithner and the banks are wrong, doing it this way is likely to drag the pain out over years, producing a long period of sluggish semi-recovery and slow, fragile growth.

That's basically my fear at this point. I sure hope Geithner knows what he's doing.

I imagine Geithner knows what he is doing - hoping that an economic rebound will save the banks. Can we have an economic rebound with a bunch a insolvent megabanks? As Roland Hedley says, time will tell. I suspect it will not work.

Speaking for me only

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    This: (5.00 / 4) (#1)
    by Ga6thDem on Fri Jun 05, 2009 at 08:20:49 AM EST
    But some analysts said the banks' reluctance to clean up their balance sheets meant they were merely postponing their day of reckoning.
    it the key.

    Despite what the pundits and the dont worry be happy idiots say out there I think the current depression is going to literally last for years and it seems everybody is either proposing some sort of supply side garbage solution or simply putting their heads in the sand trying to deny there's really a deep seated problem out there.

    'lost decade' time (5.00 / 4) (#2)
    by jeffinalabama on Fri Jun 05, 2009 at 08:24:29 AM EST
    for the US if the banks aren't held accountable. Is Geithner a Chicago School economist? Is this their approach? I am still waiting for the merits of it.

    Banks still sitting on these assets? (5.00 / 1) (#3)
    by ricosuave on Fri Jun 05, 2009 at 08:32:27 AM EST
    If the banks are still sitting on the mortgage-backed assets, then the time bomb is still ticking.  Foreclosures are still on the rise.  Foreclosures are a double-whammy for these securities: a defaulted loan on a home valued below the loan amount means the security has less value than expected; and the more foreclosed homes on the market, the lower the prices of other homes are driven (both from increased supply and from the vacant-house-next-door problem), and therefore the less the securities are really worth.

    The banks haven't diversified or unloaded these assets, so the big stinking pile is still sitting in the middle of the room.

    Yup (5.00 / 2) (#5)
    by cal1942 on Fri Jun 05, 2009 at 08:48:49 AM EST
    I imagine Geithner knows what he is doing - hoping that an economic rebound will save the banks.

    A rudderless ship.

    This is the "hope" side of Hope and Change (not).

    At least they aren't selling their (5.00 / 1) (#10)
    by ruffian on Fri Jun 05, 2009 at 09:53:28 AM EST
    toxic assets to us taxpayers.


    Any bets that Geithner's next step is to sweeten the deal for the banks?

    Geithner cannot (none / 0) (#12)
    by JThomas on Fri Jun 05, 2009 at 10:24:39 AM EST
    win. When he proposed this plan, he got shredded by both the right and the left...and especially on this site. Now, it appears that the banks are rebounding due to a little stronger than anticipated markets so they will not be forced to sell their assets at what people here thought were sweetheart deals for them structured by the evil Geithner and Geithner is getting shredded.

    So,was the original plan put forth by Geithner a giveaway to the banks or not? If so, why are they passing? If not, why isn't Geithner being praised as cutting a tough deal with the banksters?

    If Geithner is such an idiot, why has the economy and markets rebounded enough to dissuade the banksters from taking his sweetheart deal?

    I am puzzled how Geithner can be so dumb/evil that even the banksters do not want the free money he is supposedly giving them?

    I know there is an evil plan buried in there somewhere..afterall, he is bought and paid for by the very banksters who are rejecting his sweetheart deal for them.


    but this is moot if Banks are not accepting (none / 0) (#15)
    by of1000Kings on Fri Jun 05, 2009 at 12:44:36 PM EST
    the 'free money' for the wrong reasons, which this article implies...

    The Good News Here... (5.00 / 1) (#14)
    by santarita on Fri Jun 05, 2009 at 10:49:23 AM EST
    may be that Geithner (and by extension the Obama Administration) can at least recognize a mistaken path and not take it as opposed to the Bush Administration which would go down the wrong path even when it knew it was wrong.

    they have until 12-31-09, (none / 0) (#4)
    by cpinva on Fri Jun 05, 2009 at 08:41:35 AM EST
    at which point, they will be forced to revalue those assets, at market, or run the risk of a bad audit opinion.

    you can refuse to sell an asset all day long, that has no bearing on its actual FMV.

    Ouch, I hadn't thought about (none / 0) (#6)
    by Militarytracy on Fri Jun 05, 2009 at 08:53:30 AM EST
    having to close the books for the year.  OUCH!  Unless bookkeeping rules become "revised".

    banks and the 'accounting firms' that work for (5.00 / 1) (#16)
    by of1000Kings on Fri Jun 05, 2009 at 12:47:19 PM EST
    them have 'revised' the bookkeeping rules all along...
    it's actually pretty scary if you go out and search for articles about these so called major 'accounting firms' and their relationships with the banks they serve...

    it's a large part of the reason they are in this mess...


    Anybody else read that Giethner (none / 0) (#7)
    by Militarytracy on Fri Jun 05, 2009 at 08:55:03 AM EST
    couldn't sell his over priced Tudor style and had to rent it out?  It's called HOLC Tim.

    YEp (5.00 / 1) (#8)
    by Ga6thDem on Fri Jun 05, 2009 at 08:59:22 AM EST
    it was on the front page of yahoo yesterday I think.

    This, to my eye, kinda puts the kibosh (5.00 / 2) (#9)
    by scribe on Fri Jun 05, 2009 at 09:36:26 AM EST
    on the whole idea that "Geithner knows what he's doing".

    At least, if people say that to me when I can't make my mortgage payments then the least we can do is say the same about him.


    Maybe actually experiencing (5.00 / 2) (#13)
    by sj on Fri Jun 05, 2009 at 10:28:54 AM EST
    some of the same pain that "regular folks" do could give him a broader perspective than he's shown up til now.  He's been all about the finance, big money people with little or no regard for the borrowers.  Perhaps bleeding money on his own home will do what no words have been able to do so far.

    I heard that he's renting it for $7500 (5.00 / 3) (#17)
    by DeborahNC on Fri Jun 05, 2009 at 06:06:47 PM EST
    a month, and that's still not covering his $1.5 million mortgage. Oh well, just what we need in a Treasury secretary--inability to manage his own assets!

    Still confusing assets... (none / 0) (#11)
    by kdog on Fri Jun 05, 2009 at 10:21:20 AM EST
    with liabilities I see...for a bunch of braniacs with economics and business degrees, the bankers and government bueracrats sure are dumb if they can't understand that by now...jeez.