Geithner Plan - Praised or Panned? Depends whether you're an Optimist or a Pessimist.

Posted by Pat Kitano at 3/23/2009 7:17 PM
Categories: Economy
Tags: Geithner stimulus


Geithner unveiled the Treasury's plan to deal with toxic assets met mixed economists' reviews, but received Wall Street support with a 7% jump in the Dow. Simply put, the arguments about whether the plan will pull America and the world out of its slump are dependent upon whether you believe the toxic assets will perform better or worse than its current (and depressed) marked-to-market value.

Those who believe toxic assets are pessimistically valued to pennies on the dollar and note that 85% of all mortgages are still in normal service (and therefore can't be all that bad) will also believe that investors will be buying at a depressed bottom (including the taxpayer via the TARP funds) and will benefit from future appreciation when the economy stabilizes. Bringing institutional investors into the game could turn the markets around if they start gobbling up REO properties en masse (I bring up this scenario at Mortgage Transparent) and create enough buyer demand to stabilize real estate prices.

Those who believe toxic assets are indeed worthless are saying taxpayers are being conned into buying these assets at inflated prices. If Treasury Plan then fails to correct the credit markets, the Treasury is left with worthless assets, Obama/Washington with no more political capital, and the global economy facing an even deeper cliff to dive off. The NY Times' Nobel laureate Paul Krugman calls it "cash for trash".

I will also be commenting on the credit markets and the stimulus plan at the new Mortgage Transparent blog.

 

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  • 3/24/2009 6:38 PM Barb Lamont wrote:
    Obama and Geithner Knew and Bonuses Flew. There are many reasons we cannot trust Geithner. Chief among them is the grossly incompetent way the treasury has handled the AIG bonuses. Both Obama and Geithner knew of the bonues and then acted outraged when the public showed uproar. In addition, they still have not corrected mistakes like TARP. They
    should correct what mistakes were done in the past before they ask for more money. Otherwise we are burning money. Get the full details here:

    http://tinyurl.com/obamaknew
    Reply to this





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