NYT at IHT -- Joe Nocera Thinks Geithner's Plan "Just Might Work"

Barrels of Salt Water Taffy

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The NYT financial page columnist asks if getting the banks back to health isn't the most important thing, after all.

He reports in "Geithner just might be onto something " that after going through the details,  he has determined it has a chance to put a floor on the bad assets, which would help get private investors interested in buying them.

Nocera also notes the problems that Krugman and others have with the plan.  Krugman would rather nationalize banks, while others (mostly Republicans and centrists) would rather not create any debt. 

Excerpt:

But I think it could put a real floor on the price of the bad assets — critically important to stabilizing the banks — and change the market psychology so that securitized assets can begin to trade again, which is important to get credit flowing. And it will give regulators a far sounder basis to ask Congress for more money to recapitalize banks — or take them over, if it comes to that.

The columnist also reports that the FDIC chief Sheila Bair is in support of Geithner's plan. 

As it turns out — and this was also something of a surprise — there is a consensus, both in Washington and on Wall Street, that mortgage-backed securities have been marked down to levels that have started to approach reality. These securities come under mark-to-market rules, so they have to be marked down as they decline in value. They are the primary reason the banks have had to take write-down after write-down, decimating their capital.

Still, to get investors to buy those assets — and get a market flowing again — they still need some leverage to bolster potential returns. Critics complain that the government-provided debt amounts to a bribe to get investors to purchase the assets at inflated prices. But I don't think that's what's really going on. Instead, it appears that the government is trying to return some normalcy to the workings of the market.

And the really good news seems to be:

When I asked Thomas F. Steyer, the head of Farallon Capital Management, the big West Coast hedge fund, whether he thought America was acting like Japan during its lost decade, he scoffed. "We were interested in some of the assets in Japan, but whenever we asked them when they were going to start dealing with them, the answer was always 'in two years,' " he replied. "Japan fell apart in 1989, and we were having those conversations in 1998 and 2000. Our country is moving on this. This administration has only been in office for a little more than two months, and they are already grappling with this."

No this isn't the best plan but we liberals have mostly dithered and dicked around, playing "I want" games, instead of working hard at convincing others of the rightness of our cause.

Lets focus on strengthening  our arguments among people we know or meet online.  Maybe later we can help work that liberal magic.  

tags: economy  toxic assets  japans lost decade  leverage  

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