When Tim Geithner ran into trouble in his confirmation over unpaid taxes, Barack Obama and the Democrats insisted that Geithner had to be confirmed. He was not just the best qualified candidate for Treasury Secretary, they insisted; he was the only person qualified to handle the economic crisis. The Senate confirmed him, and the rest of us sat back to wait for the brilliance of Geithner and the plan that only he could devise to solve it.
Yesterday, after a delay, Geithner finally unveiled his master plan — and Wall Street realized that this emperor has no clothes:
Treasury Secretary Timothy F. Geithner vowed yesterday to bring the “full force” of the U.S. government to battle the financial crisis, assembling an unprecedented coalition of agencies and mustering federal resources on a scale rarely seen except at wartime. But the lack of detail in his plan dismayed lawmakers and investors, triggering a steep sell-off on Wall Street.
Treasury officials said they would commit $1.5 trillion in public and private funds, just for starters — with the possibility of more than $2 trillion — to aid banks, unfreeze consumer credit markets and stem the soaring foreclosure rate.
How Geithner would accomplish some of those tasks remained unclear yesterday. The Treasury Department provided only the most general descriptions of how struggling homeowners and small businesses would be helped. And officials said they have yet to design a program that is a core part of the plan: A public-private initiative that would encourage investors to buy up the toxic assets now weighing down the books of banks and threatening to overwhelm the firms with losses.
Cleansing the financial system of these assets, which are backed by failing mortgages and other troubled loans, has vexed officials since Congress approved the $700 billion rescue package in October. But financial analysts said Geithner, who took a strong hand in casting the new plan, appeared to have no better grasp on a solution than his predecessor, Henry M. Paulson Jr.
“What they did is over-promise and under-deliver,” said Thomas Barrack, chief executive of Colony Capital, a private investment firm in Los Angeles. “They said there was going to be a plan, so everybody expected a plan. And there was nothing.”
How did investors react to Geithner’s plan? Stocks tanked across the board. The Dow Jones lost 4.6% and the S&P fell by almost 5% as investors fled.
Larry Summers, the former Treasury Secretary and now on Obama’s Council of Economic Advisors, insisted that the market performance means nothing about the plan, but investors realized yesterday that the administration has no plan, despite the promises of Obama and Geithner. After all, Geithner stood on his podium and told investors that the federal government would give all of the toxic assets a soft landing. If he had a real plan to do that, investors would have been buoyed by that news and would have been encouraged to buy — or at least not to sell. But all Geithner had was a bunch of slogans and concepts, and investors realized that The Indispensable Man hasn’t got a clue.
Even Democrats in Congress were displeased by Geithner’s performance. They expected a coherent plan, with clear costs and processes. Barney Frank and Chris Dodd criticized the Obama adminstration for not having its homework done by now. Republicans agreed, and Richard Shelby called Geithner’s performance “son of Paulson” — and not in a complimentary way.
Time to look for a better Treasury Secretary. Maybe this time, we can find one smart enough to successfully file his income taxes.