US TOXIC ASSETS PLAN: REACTION:IF THE stock market is the barometer of Tim Geithner's public standing, yesterday's announcement on toxic assets proved a success.
The fact that the treasury secretary ensured the cameras were turned off when he laid out the details of the plan may have proved helpful.
Mr Geithner gave a much more confident performance than his unfortunate first attempt last month, indeed some were even suggesting he may now be able to dispel calls for his resignation.
At the weekend several Republicans, including John McCain, Arnold Schwarzenegger and Michael Bloomberg, declined to join members of their party in calling for his head.
“Even God would have a difficult time being treasury secretary right now,” said Fred Bergsten, head of the Peterson Institute of International Economics.
“But if Geithner can stick the course and get the other pieces of the strategy in place then who knows, six to 12 months from now he may be in high standing.”
Given the hair-trigger populist mood on Capitol Hill, trying to project events even five days ahead may be somewhat pointless. There was outrage over the revelation that JPMorgan Chase, which has so far received $25 billion (€18 billion) in public money, would be spending $138 million on two new corporate jets and a plan to build the “premier corporate aircraft hangar on the eastern seaboard”.
It comes amid continuing anger over the revelation that AIG paid out $165 million in retention bonuses, having received more than $170 billion in public funds. In all such cases, Mr Geithner remains the main whipping boy on Capitol Hill.
“In this highly-populist climate stuff can come out of nowhere and completely derail the best-laid plans,” said Jim Lindsay, a political scientist at Texas University.
While presented as the best technical solution to address the trillions of dollars worth of bad securities sitting on bank balance sheets, the speech also bowed to political realities. Rather than going back to Congress and asking for additional taxpayer money, Mr Geithner leveraged the balanced sheets of the Federal Reserve and the Federal Deposit Insurance Corporation to get the toxic asset purchase scheme off the ground.
“There is just no way that Congress will give up new money in its current mood,” said Thomas Mann at the Brookings Institution.
This presents a dilemma for the Obama administration. If the new public-private finance scheme begins to work it will start to ease pressure in the credit markets, which would lower the political temperature. That would make it easier for Mr Geithner to request new funds from Congress to recapitalise the banks.
Should the plan fail to lead to a narrowing of credit spreads, Congress will be in no mood to authorise more funding.
“It is a real catch-22,” says Mr Bergsten. “The better the plan works the more willing Congress will be to grant money when it is needed less. And vice versa.”
As for Mr Geithner, he chose his words carefully . "We need to balance the basic objective that we do not reward failure . . . that we get the financial system doing what it needs to do," he said. – ( Financial Timesservice)
