I suspect we have at least a few people here who work in finance. So, what is your opinion
about what is being referred to as the Geithner plan.

The New York Times seemed to hate it. Though that may be because Paul Krugman does.

The WSJ was a little more favorable though not by much.


Geithner Plan

About the best I've heard is well it beats nothing.

I couldn't read all of it, as I'm so tired of all of these so-called expert know-it-alls. Some of the proposals I did read made sense. But at the end of the day, nothing will improve until "mark to market" accounting practices are edited with a future value component. Mark to market accounting was a device to prevent another great depression, which use to be along the lines of mark to hold values. The problem with mark to market, is that it can't hold when the pond get wavey. Some sort of compromise has to be made to value these assets on a longer-term holding period. Mark to market completely ignores the core fundamental element of the fincial world; the time value of money.

I've felt all along that this is not a liquidity crisis, but a balance sheet problem. So I am happy to see folks starting to talk about how to bundle up the bad assets in a more transparent manor, and create some kind of clearing house for them, like the RTC of the early 90's. We clear these bad assets off the books, and we'll start to see the tarp money start to flow out of the banks. But until then, all of that cash will just sit on the "asset" side of the balance sheets to offset the liability side being killed by so-called toxic assets, which are only toxic because mark-to-market accounting says they're worthless NOW. Like Obama said, this is a huge ship, not a speed boat. It can't turn on a dime. So, why have an accounting system that requires it to turn on a dime? There is the disconnect. Mark to market needs to be updated to accomodate the sheer size of the system.

"The problem with Socialism is that eventually you run out of other people's money."

Saw that one attributed to Margaret Thatcher the other day.

I agree with Krugman's basic premise, if all the troubled assets on the banks' books are really worthless, then the treasury's plan can't work. The government would just be overpaying for a small portion of all the worthless assets and we're really screwed for a LONG time.

However, if the problem is more like nc211 seems to think, a full blown panic compounded by mark-to-market, then this plan could work great. Smart, self-interested investors come in and, after doing their due diligence, determine that all the assets are hugely underpriced and bid them up to a more reasonable, though still depressed, fair market value.

The third possibility, the one I think is the most likely considering how the CDOs were put together, is that there is a mix of decent and totally worthless assets out there. If this is the case, then I think the plan can still help by establishing a market to get some additional liquidity into banks and raising the overly/artificially depressed mark-to-market prices.

A lot of commentators mention it in subtext, but don't make a big deal out of it: the real problem is lack of information. No one knows how much of the decline is real/long-term and how much is panic induced/temporary. It appears that the treasury is trying to leverage the expertise of the market to help sort through all the investments out there and determine what everything is worth.

I guess, to summarize:

quote:

it beats nothing

I don't think relaxing mark to market regulations is in the best interest of the economy. The current rules lend transparency and help keep everyone honest. The Japanese did not use Mark to Market and it caused them even worse problems.

The problems from what I've read of the Geithner plan is that it leaves us, the taxpayers holding the bag. We get very little on the upside and we take almost all the risk.