The market did not think highly of Tim Geithner's new proposal, delivered live yesterday. The Dow finished down 381 points at the end of his speech. All the chatter going on last week involved creating a "bad bank" or a "bridge bank" and most on wall street expected that to be done. Instead, he spoke of a new concept that will be created with the private industry, hedge funds and 500 billion to begin with. The concept was there, the details were missing.
The market was waiting to see how the bad loans and distressed assets would be removed from the banks balance sheets, thus improving the banks positions. That was the concept of the "bad bank". The bad assets of a bank would be moved to the newly created "bad bank" that the government would thus own and they would hold the mortgages or assets to maturity.
Geithner, however, came to market with a new concept and gave no direction in how the assets will be priced or who would actually be buying them or details on how this new concept would actually work. The market wants concrete details and a path to guide us out of the financial black hole the banks have created by the CSOs, leverage and bad loans.
The plan needs to succeed so the banks do not need a continued bail-out , funded by the frustrated the tax payers. I am anxious to read the details when they are released in the coming weeks.
By the way, why was Geithner doing his taxes himself with Turbo Tax? Did this lead to the careless errors which caused him to owe payroll taxes to Social Security and Medicare? No, he underreported income. It seems as though the IRS picked up the errors in 2006 and sent him a bill for taxes owed. Geithner did not pay the taxes due until he was selected to be the Treasury Secretary (chief of the IRS) by President Obama. Ironic, I think.
Sandy