US Economy: Stimulus Plan Approved But Geithner Plan Draws Little Support

-ridden banks, whom Obama accused of looking for an “easy” way out of their financial woes.

New Treasury Secretary Timothy Geithner, who formerly was head of the New York Fed, announced a separate plan to stabalize the financial system and tighten up banks’ books, but it does not seem to have the same rosy glow of success around it.

He said, “Our plan will help restart the flow of credit, clean up and strengthen our banks, and provide critical aid for homeowners and for small businesses. As we do each of these things, we will impose new, higher standards for transparency and accountability.”

The plan includes the following measures:

· A commitment of up to $1 trillion to expand the Fed guarantee of illiquid loans to support lending to small businesses and consumers.

· Arrangements to take $500 billion of distressed assets off bank books.

· $50 billion committed to prevent foreclosures; plans to bring down mortgage payments in interest rates still being discussed.

· A Treasury injection of new capital into banks and other institutions through a funding process (which hasn’t been defined yet).

· Requirements of participating firms to show how government funds will expand lending.

· Requirements of recipient firms to be involved in government initiatives to reduce mortgage foreclosures.

· New restrictions on stock repurchases, common dividends, and acquisitions.

· Senior executive pay caps while the institutions they represent are paying back the government.

But to some, Geithner didn’t say enough. Just a day before, Obama announced that “specific details” about his package would be released, but many feel that Geithner ’s plan lacks such detail, as the full structure of plan is not in place. Moreover, the ideas in the Geithner Plan are not really new.

Geithner even said so himself, “We’re not going to put out details until we’re confident that we’ve got the right structure.”

Apparently the markets didn’t like the plan, or didn’t think it was complete either, as they crashed after he announced the plan. Or maybe this is what happens when announcing measures dealing with private sector money

 

that are vague or unclear. Markets don’t like uncertainty.

The Dow Jones industrial average lost more than 4.6%, and the S&P/TSX composite shed more than 2.5%.

There have been reports that some people think this is a big stumble for Obama’s team, which in the past two years has run a flawless campaign.

Others believe that it’s appropriate for Obama to make the details of his first personal victory public, for if this were to have failed in Congress it would have been a considerable embarrassment for the Obama administration.

And if what Geithner says is true, the sooner the better: He contents the financial system is working against recovery and is fundamentally flawed.

Criticism for bailout plans of any sort make people nervous. Some are uncomfortable restoring credit when that is what got us into this problem in the first place, and this plan would only mean more incentive to create more debt, and others are simply unhappy to see their tax dollars be used in bailout after bailout.

Ron Portobello, EconomyWatch.com