Timmy On The Teevee

Dday gives us the rundown on Geithner's appearances today on the Sunday shows.

On both shows, Geithner was asked about the potential flaw in the plan for toxic assets, that the banks simply won't sell at the prices set by private investors, because taking losses would reveal the banks to be insolvent. Geithner didn't have the best answer for this other than to urge the banks to "take risk again." Indeed, there is no mechanism to force the banks to sell.

Once again, the No Right Price Problem says the Geithner Plan can't work on the truly insolvent banks -- there's no right price that meets both the criteria of "high enough so the banks will sell" and "low enough that the buyers will make any money buying", but No Right Price is only part of the real issue:

On some other fronts, however, Geithner displayed a definite concern to reel in the massive financial sector and build a broad-based economy that can better manage systemic risk. Here is an answer from Meet the Press on his regulatory proposals:

SEC'Y GEITHNER: Core thing is to make sure that the institutions at the center of our financial system are subject to much more conservative, much tougher requirements on capital and leverage that are applied more evenly and more effectively, frankly. We need to make sure that hedge funds and derivatives come within a framework of oversight so we protect the system from the risks they may present. And we need to make sure the government has the authority it needs to come in more quickly, to help contain the damage, restructure the system, so we can have a stronger system going forward [...] We need a better model. What we're proposing to do is use a model that exists for small banks that was designed by the Congress in the wake of the S&L crisis, build on that model and give the government a capacity to act more quickly, more effectively to contain the damage at least risk to the taxpayer and the economy as a whole.

Certainly, over-leveraging caused a good deal of this crisis; other countries where the banks are leveraged more conservatively are in better shape. Obviously, the devil is in the details - there are currently no capital requirements for hedge funds in the Geithner proposal, for example, and the real issue is whether the regulation will be strictly enforced. Our experience with bank regulators who are too cozy with the subjects they regulate recently suggest that the real problem is a lack of will.

Regulations will have to be enforced at this point, but you notice Geithner keeps falling back on Congress for not having provided him with the authority needed to deal with the issue. It seems to me that Geithner is passing the buck to Congress, and Congress has no real intention of giving Geithner any more powers.

So yeah, Geithner raised many more questions than answers. He certainly talks the talk, but his actions leave much to be desired so far.