President Obama,
Treasury Secretary Timothy Geithner needs to be replaced with a leader who engenders respect and can create and explain in detail an honest, fair, realistic, general-purpose plan to restore the US' financial health.
Many people were skeptical of Geithner's nomination since he is one of the key banking insiders responsible for our current financial crisis. After all, as head of the New York Fed, Geithner was the primary regulator for Citigroup and other Wall Street banks. Additionally, he ignored the danger of the unregulated OTC derivatives market which appears to be the most destructive, yet completely unaddressed, threat to our financial institutions. It seems unlikely a person so blind to the warning signs and ineffective in the past year will guide us out of this crisis.
Today's joint release is a shockingly perfect example of Geithner's ineffectiveness. The
Magic Pixie Capital 'plan' whereby Treasury and the Fed sprinkle borrowed/printed capital on obviously insolvent financial institutions whenever they need it is worse than ineffective. The stock, bond, commodity, and political Markets are looking right through this thinly-veiled guarantee to 'bail at all costs.' The Markets know that Citigroup and its ilk are worth far less than zero, and the US taxpayer cannot bear their debt. US fiscal policy alone has placed us on the path of monetizing the debt (aka
buy silver and gold - Asia, India, and the Middle East love these timeless monies). Adding the financial system's liabilities to the US' balance sheet risks the destruction of the dollar. Iceland and the UK have provided us a warning -- the
krona is done and the
pound is on its way.
China's warning has been even more explicit.
The citizens of the United States are already on the hook for three black holes: AIG, Fannie Mae, and Freddie Mac. Combined, they have expressed need for $260B in the last 7 days! We do not
need Citigroup, Bank of America, or any other institution. If a bank is insolvent, guarantee the deposits and cram down the capital structure until it is ready to go. If there is not enough capital, then liquidate them without creating more 'too big to fail' institutions. We
need a functioning banking system and there are plenty of good banks out there -- the zombies are just getting in the way.
Former Treasury Secretary Henry Paulson's ad-hoc approach to the financial crisis could be explained away as the winddown of the Bush administration and the 'surprise' of it all -- classic Kick The Can
by a guy who helped create the problems. However, now that we have been
in the frying pan for more than a year no one can claim to be surprised, least of all Timothy Geithner.
Maybe it's time to pass the reins to
Volcker; he is a respected leader with a track record of speaking clearly and he proved his mettle in hard times. There are many people qualified for the job, but perhaps the most important quality to obtain is courage as there is a lot of painful work that needs to be done and now is the best time to start that work. If the plan is honest and fair, the American people will do their part.
P.S. Press Secretary Gibbs should probably tone it down. Many people have had the chance to read the
Homeowner Affordability and Stability Plan Executive Summary and it
will bailout a significant number of reckless lenders and borrowers. We get that you need to throw another $100B at both Fannie and Freddie -- not your fault. However, marketing the Affordability Plan as something which will not bailout Sub-prime/Option-ARM/Alt-A/income-could-never-retire-the-debt borrowers and lenders is a mistake because it's provably not true. Gibbs probably doubled the turnout to the
Chicago Tea Party with his
response to Santelli which starts off decent enough, but then goes overboard on the sarcasm.
bank still cannot survive, the FDIC takes over the bank and handles it like the Resolution Trust Corporation of old. This is actually a self-funding bad bank model that has no/minimal asset valuation problems. The taxpayer won't be financing a give-away to the banksters.