Yesterday the markets started selling off before Geithner even started his speech and continued their free fall throughout the day. The claim made by the pundits who get paid to sound like they know what they are talking about is that the plan lacked specifics. Well, Geithner said that would be the case before he ever started. I think this was a trader’s play. I’m sure you’ve heard the saying, “buy on rumor, sell on news”. The traders were going to sell whatever Geithner said. The Big Picture agrees.
When you step back and actually contemplate what Geithner laid out, it appears to offer a reasonable framework. Perhaps even better than what some were fearing, unless you are an executive at one of the 14 largest banks that are going to be “stress-tested” (a list which includes my employer). The plan seems to offer a framework for the big, bold shot in the arm that so many were asking for without asking for the taxpayer to take on all the burden upfront. Sure, the devil is in the details, which are still unknown at this point, but let’s give it a chance.
“Wall Street, I think, is hoping for an easy out,” President Obama said in an interview on ABC’s Nightline in reaction to the stock market’s drop following his Treasury secretary’s outline of the credit rescue plan. “There is no easy out.”
CalculatedRisk has an interesting discussion of this as well here. The point he makes is that the “stress testing” of the 14 big banks is a “very good idea” and is a back-door method of nationalization. This remains a very real, and potentially necessary, step. Also included in CR’s post is an interview with Obama discussing the Japan Scenario and how the US is on that path.