On the Geithner Plan

Due to a lot of work I will be posting smaller and less frequently.

My first take on Geithner's plan: he doesn't have one!!! On closer reflection, i realise there are two possible reasons for the approach: One would be that he is afraid of hurting creditors and private shareholders of the bank....and is hoping for the best. The other is that he actually believes nationalization is the way but this is a creeping version (with this as a first step)to make it the most palatable form for US citizens to digest.

Will private investors really come in? Hardly a chance. Will this remove uncertainty? No. Can he value assets? No. Are guarantees protective of tax payers? No. However, this is better than two other options: "bad bank" buying at par, and "bad bank" buying at market price. Maybe the hope is that the economy recovers. In that case the guarantees are sufficient and more loans wont go delinquent. Eventually private investors enter. If not, as is currently the case, the system will be insolvent and we nationalize at that stage (end of the year?). Either way he can make it seem that he has no choice at that stage.

It is not often that I agree with a Wall Street Journal article but I think a quick nationalization, stripping bad assets and injecting fresh equity and handing it back to private investors is the best way. This way govt. fear mongering is removed and free marketeers are happy.

More on this later.