Suddenly Tim Geithner Is The Problem In Rome.
The Tim Geithner flop on Tuesday 10 at his Treasury maiden speech that was to roll out the Obama administration recovery plan -- the metaphor of the three-legged stool -- is now the weak seam in the American government that will be attacked and opened by U.S. rivals. Jim McTague identifies the twin errors made by Geithner in his first weeks in Jim's pithy column this weekend in Barron's, the tax fraud errors in his confirmation hearings, and especially the Treasury speech: "But Geithner delivered none of the promised thunder. The all-important asset piece of the plan was "conceptually hollow," moans a financial executive. The old adage is that the Street abhors uncertainty. Geithner served a three-course meal of the stuff." Those twin errors are fixed and have given everyone doubts about the credibility of the Obama financial team. However it is what happens next that will tell the tale, and it may have already done at the G-7 meeting in Rome starting Saturday 14 (above). Geithner was challenged by the other ministers to comment upon the "Buy American" mandate in the stimulus package just passed by the Democrats, and his response, as characterized in the Wall Street Journal, looks to be obfuscation and repetition of the concern (my ital):
The comments come as some countries, including Germany, have expressed concern about protectionist tendencies following a "Buy American" provision in the U.S. government's $787 billion economic stimulus package that requires that purchases for infrastructure spending come from the U.S. Mr. Geithner said the stimulus plan will create a foundation for an economic recovery. The French government's plan to lend auto makers €6 billion in exchange for a pledge not to cut jobs has also raised concerns about a slide towards economic nationalism.
The ministers can only have shaken their heads in despair. Can Geithner answer a question straight? Does he have more than goals? The "Buy American" mandate is an attack on G-7 trade. Is Geithner reading the reports from the WTO? Joe Sternberg, Asia Wall Street Journal, told me last eve in San Francisco, Friday 13, that a Shanghai paper is stating boldly that the Americans are looking to raise tariffs. In Seoul, Joe was told by savvy Korean officials, "What are they doing in Congress? Don't they know what Smoot Hawley did?" If this alarm is commonplace in East Asia, then it is a panic in Europe. And Geithner's response is to explain nothing. Jim McTague states correctly that what markets despise, and run from, is uncertainty. Tim Geithner is Mr. Uncertainty.
Methinks the pretty lad, so instrumental in decisions made by the discredited Bush economic team, really isn't ready for prime time. The street is not impressed with him after all its eagerness for "continuity" and stability in policy. On top of that, his tax problems poisoned the waters for Daschle, whom Obama was counting on to dazzle us with footwork on health care, setting back (thankfully) the administration's overweening plans to beggar us all for the benefit of a few. Geithner is already too expensive in terms of costs to the administration in return for no advantages. The clock is ticking on him . . .
The damage being done by Mr. Geithner at the Rome G7 conference is rapidly extending beyond the strictly economic or financial realm to become, ultimately, political. By repeating his lame Treasury speech performance before the reps of the most world's powerful industrial nations and traditional American political allies-cum-chief-business-competitors, Geithner offers not American can-do leadership but can't-do confusion, negativity, and uncertainty. This is hardly helping President Obama achieve his oft-stated foreign policy goal of "restoring America's standing in the world," for if we forfeit our position of world economic leadership we forfeit the most important source of our power and prestige in all policy areas.
Moreover, Geithner's manifest incapacity is similarly damaging to Obama's domestic political position. As this alleged Indispensable Man continues to screw up bigtime, Obama would find it very difficult to simply ask Geithner to resign. This would not be merely embarrassing, it would call into further question Obama's own competence as a manager and recruiter of top-level executive talent, public confidence in which has already been undermined by the Daschle, Gregg, Kellefer, and Richardson resignations/withdrawals, especially happening is so rapid a succession.
More on the Bank Plan: On his blog, Brad DeLong has a series of short, insightful notes on the new financial rescue plan. “1. Called the Geithner Plan, not the Obama Plan–distancing of the president from the proposal. 2. Reinforced by Axelrod leaks to Labaton and Andrews painting Geithner as the Wall Street loving holdover–and this the person to take the blame if things go south. 3. This is not new money–this is only the second half of the TARP from last fall: $350B. 4. It is an attempt to leverage the TARP money–via the Fed and the private sector–as much as possible. 5. As the Fed takes on tail risk and buys up risky assets, the supply of assets the private sector must hold declines and their prices will rise. 6.As public and private money flows into the banks, their risk tolerance will grow and they will bid up risky asset prices as well. 7. The net effect might be that fears that banks are insolvent or will become illiquid will ebb. 8. And the financial crisis and the Bush depression will come to an end. 9. But Geithner said this is not the end–that if the TARP money is expended and if banks still fail their stress tests, then what… 10. This plan does not foreclose a resort to the Swedish model, it is instead an attempt to use the TARP money to escape the necessity for adopting the Swedish model.” Separately, Journal economics editor, David Wessel, speaks about the credit crisis and the bank plan on NPR. Finally, the Treasury has released some more details about the plan.
Thanks to Calculated Risk: this form the NYT: The Cockroach Test for Mortgages:
From the NY Times: Laid-Off Foreigners Flee as Dubai Spirals Down
With Dubai’s economy in free fall, newspapers have reported that more than 3,000 cars sit abandoned in the parking lot at the Dubai Airport, left by fleeing, debt-ridden foreigners (who could in fact be imprisoned if they failed to pay their bills).
...
No one knows how bad things have become, though it is clear that tens of thousands have left, real estate prices have crashed and scores of Dubai’s major construction projects have been suspended or canceled. But with the government unwilling to provide data, rumors are bound to flourish, damaging confidence and further undermining the economy.
Instead of moving toward greater transparency, the emirates seem to be moving in the other direction. A new draft media law would make it a crime to damage the country’s reputation or economy, punishable by fines of up to 1 million dirhams (about $272,000). Some say it is already having a chilling effect on reporting about the crisis.
...
[M]any expatriates here talk about Dubai as though it were a con game all along. Lurid rumors spread quickly: the Palm Jumeira, an artificial island that is one of this city’s trademark developments, is said to be sinking, and when you turn the faucets in the hotels built atop it, only cockroaches come out.
More form a comment on the great CR: Geithner, answer you messages:
Kona writes:
The two best days of owning a yacht are the day you buy it and the day you sell it:
Captain Repo
When boat owners fall behind on loan payments, 'recovery agents' can snatch the floating collateral.
http://www.newsweek.com/id/184752
This kind of fits the jet set nature of the beast:
The boat's owners have fallen behind on their payments, so the lender has called National Liquidators, the nation's largest boat-repossession firm, to seize this floating collateral. It can be dicey work. "Everyone owns a gun around here," Lamel says nervously as the towboat pulls alongside the target. At 4:29 p.m. his team boards the target. "Hurry—cut the lines if you have to," Lamel shouts as the team's captain jimmies the cabin door. Every second counts when you're doing a "snatch-and-grab"—especially when there's a long list of boats waiting to be recovered.
Kona | Homepage | 02.14.09 - 2:06 pm | #
Mr B- Listened to podcast from the radio stations website earlier.
Please let us know when you are going to be on, if different from regular schedule.
TYVM!
Geithner's performance at G7 was confusing to all those who still hold out hope for capitalism to save us and look up to America for guidance. It signals to the world that Obama has made a ‘mistake’ in appointing him; that he is the ‘wrong’ man for the job. Or is he?
Could it be that he is precisely the right ‘tax cheat’ to steer the hearse over to the graveyard of the ‘failed policies of the past’? It is 'change', after all, that that America wanted. By dressing Geithner up in court jester's clothes and sending him out there with the eggheads, Obama has taken the carefully calculated risk to signal that America no longer intends to play by the old rules; that all those who have heretofore looked to America for fiscal inspiration are now out of a job.
We're well into post-capitalism (as of yet undefined but) bordering on socialism or some sort of barter system - in short, "change" (as of yet undefined); utopian sharing of planetary resources; ‘money for nothing’; hunting and gathering - you name it.
The other day, Henrietta Hughes got a home to live in just for the asking. Is that the Obama Tao? “Ask and ye shall find”? - We don't know. He hasn't let us in on it yet. But, then, what’s in a phrase? We’re in uncharted waters here. Columbus too was mistaken when he identified first landfall as ‘India’.
Peter- spot on sir more & more I am beginning to sense Geitner is meant to be a dog and pony show out in the center ring.
The change mantra, the failed policies, all this goes back to the systematic escalation of the fear factor... and Geitner is just the ingredient needed for that elixir... If you want to produce a ever widening river of tumult you don't send out a Moses you send out your the guy with a tire around his neck
From John Mauldin this week -- it is not good news --- Maybe this is why Geithner is not saying anything:
European Bank Losses Dwarf Those in the US
In a few paragraphs I am going to put up a chart from Nouriel Roubini's RGE Monitor on the size of US bank losses, and in a few pages I'll comment on the Geithner "plan" for rescuing US banks. We have indeed dug ourselves a very deep hole here in the US.
But European banks may be in far worse shape. Bruno Waterfield of the London Daily Telegraph reports to have seen an eyes-only document prepared by the European Commission for the finance ministers of the various EU member countries. The problem revealed in the report is an estimated write-down by European banks in the range of 16 trillion pounds, or about $25 trillion dollars! The concern is that bailing out the various national banks for such an unbelievable amount would push the cost of government borrowing to much higher levels than we see today.
As my kids would say, "Really, Dad, you think so?" Europe is somewhat larger than the US, so think what my gold-bug friends would say if the US decided to borrow $25 trillion to bail out US banks. The dollar would be crucified! The euro is going to get a lot weaker if bank problems are even half of what the report says they are. The British pound sterling is already off almost 30% and, depending on what the real damage is to their banking system, it could get worse.
Waterfield reports, "National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors -- particularly those who lend money to European governments -- have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.
"The Commission figure is significant because of the role EU officials will play in devising rules to evaluate 'toxic' bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries."
Part of the problem is that European banks were far more highly leveraged than US banks. Some banks were reportedly leveraged 50:1. And they lent money to Eastern European projects and businesses which are now facing severe financial strain and plummeting local currencies.
Let that number rattle around in your head for a moment: $25 trillion. Even $5 trillion would be daunting. But the problem is that Europe does not have a central bank that can step in and selectively save banks from one country without taking on all euro zone member-country banks. Yet, as noted above, some countries may not have the wherewithal to save their own banks. It is reported that some Austrian banks are hoping that Germany will step in and help them. Given Germany's problems, they may have a long wait.
Now, let's look at what Nouriel Roubini (www.RGEmonitor.com and professor at NYU) estimates for US banks losses. He puts the figure at some $1.7-1.8 trillion out of a total of about $3 trillion (I think) in total financial system losses. And Nouriel's base assumptions are not all that bearish, given what we know: a 5% GDP contraction and 9% unemployment, with housing prices down another 20%. All those estimates are quite plausible.
Mr. Batchelor,
Today I learned about L.A. Chiropractor Scott Mintz and is insane idea that the People of America should bail him out of his 4-home financial woes. I blogged about it here.
This got me wondering: What is the breakdown of people facing imminent foreclosure of their homes? For example:
1. Low income home - Cost 2. Mid income home - Cost: $150K - $400K
3. Higher income home
4. Multiple homes
The impression I get is that many would like to have us believe that most people fall into the 1st category but now I wonder. Such a breakdown would be EXTREMELY interesting for all to see!