Our Treasury Secretary Speaks
If Tim Geithner actually believed his "Financial Stability Plan" was going to calm anybody, we'd hate to hear his ideas on how he would wreak true terror.
Stocks in New York sold off sharply Tuesday after the Treasury secretary unveiled his much-hyped plan. (The fact that he called it a financial stability plan is an oxymoron, italics intended.) In short, Geithner's $1.5 trillion program aims to combat the financial crisis through a collaboration of public and private investments and a consumer and business lending initiative.
In prepared remarks released ahead of his press conference, Geithner offered his plans for deploying the second half of the $700 billion Troubled Asset Relief Program, or TARP, to banks that can pass "stress tests" to prove their worthiness. And in order to ensure more transparency and accountability, the plan requires firms to show how government assistance will expand lending and mitigate mortgage foreclosures.
Additionally, banks will be required to restrict dividend payments, stock repurchases and acquisitions. Executive compensation, of course, will be limited.Geithner referred to the Financial Stability Plan as a "comprehensive strategy" that "will cost money, involve risk and take time."
Well, he was two-thirds right on that prediction. His risky plan cost investors a lot of money, but it didn't take much time.
When the dust settled from Geithner's big day, the Dow Jones Industrial Average fell 381.99 points, or 4.6%, the S&P 500 fell 42.73 points, or 4.9%. The Nasdaq was lower by 66.83, or 4.2%.
Wall Street's misgivings were primarily motivated by Geithner's failure to address whether banks overburdened with toxic debt will be forced to fail, how illiquid assets will be excised from bank balance sheets, and perhaps most importantly, how the plan will stem plunging home prices and rising foreclosures.
To be fair, the market's dissatisfaction may not have been purely of Geithner's making. In his first evening press conference on Monday, President Obama raised Wall Street expectations by saying his Treasury secretary was going to announce "some very clear and specific plans" for loosening up credit in the system.
In the end, Geithner offered neither clarity, nor specificity, and stocks sold off. And we here at The Five Dumbest Lab know one thing is for sure: The market's not stupid.Dumb-o-meter score: 95 -- Time for TARP III?