Yet even if President Obama gets the stimulus spending just right, the economy could still be sandbagged by a collapsed banking system. Treasury Secretary Timothy Geithner’s plan is far too complex, and too much of a gift to Wall Street. Judging by the initial verdict of Tuesday’s financial markets, the plan might well fall of its own weight.
Geithner’s plan basically tries to paper over the fact that several of America’s biggest banks are insolvent in the absence of taxpayer bailouts. It attempts to restart the same system of excessive loan securitization that caused the crash ”” this time with guarantees or loans by the Treasury or Federal Reserve. Many details have not been released, because the Treasury has not figured out how this can work.
The taxpayers have already effectively bought much of the banking system. It would be far cleaner and more efficient for government to acknowledge that, take over the large banks, clean out their balance sheets, and then sell healthy banks back to private industry.
Many thought Paulson’s scheme was sketchy, poorly planned, and unlikely to help. Nobody at all, except Geithner himself, seems to find his plan any better. Why did he have to be pushed through as a flawed nominee if this pabulum is all he has to offer?