Via Ezra Klein, we learn from the WSJ:
A government program designed to rid banks of bad loans, part of a broader effort once viewed as central to tackling the financial crisis, is stalling and may soon be put on hold, according to people familiar with the matter.
…the reasons appear to be twofold. First, few investors or banks want to work with the government. And second — and maybe more importantly — few investors and banks now think they'll have to. The banks, in particular, are apparently enthused by their ability to raise private capital, and now think they can wait out the market turmoil and sell their toxic assets in a few years, when they'll be worth more money.
And then:
Recently, I asked an administration official which government program we'd remember as making the most difference in averting catastrophe. Where will the history books place the credit?
"It'll be the Federal Reserve," he replied. "It'll be their decision to increase the size of their balance sheet from whatever it was before the crisis to whatever it is now."
That’s right, Ezra. The nerdier children of tomorrow will look on Ben Bernanke is the same sense that nerdy children today honor the great Arthur Burns.
“Recently, I asked an administration official which government program we’d remember as making the most difference in averting catastrophe.”
There is absolutely no question in my mind that this statement is correct.
Really, I was under the impression that the consensus was that the balance sheet expansion had had little effect or benefit. I.e., its the aggregate of a series of ultimately sterile (experimental) interventions.
Barry – a truer way to state your second point would be that “the Fed’s bailout + the Bush-Obama bailout has established that the government can permit catastrophic failures to remain in (the banking and financial) system, thus thwarting market forces attempts to root them out. That’s got to make doing business much more worrisome.”
> I asked an administration official which government program we’d remember…
note bias in this statement toward _doing something_
The plan is stalling because no one wants to admit the truth- the assets have to be taken off the bank’s balance sheets at a hefty premium. Remember, the original Paulson plan was to do just this, and he was actually quite open about it, but it was politically impossible to accomplish. The Geithner plan was an attempt to disguise the process, but the politics is still in the way- witness the inability of any official in the administration to catagorically rule out the banks selling and buying the same set of toxic assets. No one else with an IQ above 88 will put up their own or their client’s money to overpay for these assets.
Doesn’t anyone give the plan credit for putting a floor under the banks and the markets? No credit for averting the domino effect of systemic failures? This is not rhetorical, but an honest question. My impression was that systemic failure was a real possibility absent a plan like this.
Did anyone else read that as “Is Geitner planning on dying a natural death?” at first glance?
If banks raise enough capital privately, it works. If they each try to raise as litte as they can get away with, the catastrophe will not have been averted. Raising as much new capital as teh stress tests tell them looks dangerously close to raising as little as they can get away with.
bankers selling our childrens futures..for more bailouts? the disgrace. it’s horrible. too big to fail needs to fail. we neeed LESS bailouts. If you fail U fail. Tons of informative
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And here I thought the “stimulus package” that none of the people in Congress read was responsible for averting catastrophe.
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