CHESSNOID

Our new Treasury Secretary Timothy Geithner delivered his plan today to help the economy recover.  After his announcement, the stock market plummeted. It was like watching our previous Treasury Secretary Paulson.  Whenever he appeared on TV, the market would take an immediate dip. Today was reminiscent of that.

The markets closed down sharply today:

Many questioned whether Geithner’s plan would work and were more critical about his plan not being specific enough. Reuters:

Two weeks into his tenure, Geithner already finds himself on the defensive as he tries to convince the world that he is up to the challenge of repairing the U.S. economy without squandering public money or enriching bankers.

His first big policy speech was greeted by a sell-off on Wall Street and a series of sometimes awkward television interviews that contained almost as many questions about Geithner himself as the plan he had just announced.

Just before its interview with Geithner, CNBC ran a headline questioning whether his neck was on the line, and then asked him to respond to a commentator’s assessment that the Treasury secretary was “really kind of a disaster.”

It was a chilly reception for a man who was considered so perfectly suited for the Treasury job that Congress was willing to overlook his embarrassing failure to pay certain taxes and confirm his appointment anyway.

Like his predecessor, Henry Paulson, Geithner seems to be more popular with investors in theory than in practice.

Much as Paulson was well received on Wall Street because of his years at Goldman Sachs, Geithner’s experience as head of the New York Federal Reserve Bank made him a popular pick. Stocks soared when word leaked out in November that he would get the job.

Now Geithner is drawing the same sort of criticism that dogged Paulson for much of last year — namely that he failed to produce a comprehensive and quick plan for shoring up the financial system.

“We did not see convincing evidence that the government is moving away from its Band-Aid approach to helping banks,” said Axel Merk, chief investment officer of Merk Investments.

Geithner’s plan actually was specific from what I read. His plan consists of 3 parts. Here is a quick summary:

Part 1.

Efforts will be made to improve banks’ public disclosure of their holdings. Furthermore, banks with assets greater than $100 billion will have to undergo individual assessments.

Capital Assistance Program (CAP): Similar to the existing $250 billion Capital Purchase Program (CPP) under the Troubled Asset Relief Program, Treasury will continue to help banks shore up capital after undergoing a stress test. Like the TARP program, Treasury will take an equity position in the form of preferred shares in banks receiving CAP investments.

Geithner said the CAP is a “buffer” for banks aimed at increasing lending.

Financial Stability Trust: The investments that Treasury makes will then be placed into a separate trust, overseen by fund managers.

Part 2

The Treasury detailed a brand new program that will coordinate a public and private effort to buy up hard-to-sell assets from banks. The public funds will be combined with private capital to fund the purchases. Private sector buyers will set the price for troubled assets, which were previously hard to value.

Part 3

Unlike the previously announced TALF program, the new initiative will also purchase commercial mortgage-backed securities. Furthermore, the new plan will only buy up the highest-quality loans to protect against losses.

Previously, the Fed dedicated only $200 billion to the program, with $20 billion in backstop support from TARP. Treasury will now spend $100 billion to leverage up to $1 trillion in Fed lending.

The plan is specific on what they plan to do with the money spent, but doesn’t really explain how this helps the economy in general.  Investors are not convinced this plan will lead the US economy out of a recession or even get the momentum started. Many suspect he will be back soon only to ask for more funds because it is not enough.

Ron Paul on Timothy Geithner