Plans, Plans, Plans

Treasury Secretary Timothy Geithner presents his new plan for revivifying the financial sector at the Wall Street Journal:

The funds established under this program will have three essential design features. First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors. Second, the Public-Private Investment Program will ensure that private-sector participants share the risks alongside the taxpayer, and that the taxpayer shares in the profits from these investments. These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.

Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.

Paul Krugman, presumably hoping for nationalization, is in despair:

If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the “cash for trash” plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.

This is more than disappointing. In fact, it fills me with a sense of despair.

After all, we’ve just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn’t do anything, and anyway it was someone else’s fault. Meanwhile, the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.

And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.

It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.

And Mark Thoma presents what is to my mind the best explanation of the various plans that have been proposed. Read the whole thing.

At this point I think the best advice (on a somewhat different subject but appropriate nonetheless) has been offered by James Hamilton:

I think the best strategy is for the Fed to lay all its cards on the table face up, telling everybody exactly what it is hoping to achieve and how it is going to do it.

To translate that from the Fed into what the Treasury’s trying to do, I think that Secretary Geithner and President Obama need to lay out, clearly and specifically, what their objectives are, giving some guidelines for what they plan to do and what they will not do. So, for example, I think that President Obama needs to pledge to veto any bill coming from the Congress which taxes away the “excess profits” that investors which is hardly the word for them realize from this or any other of Treasury’s plans. To do otherwise will negate anything they’re trying to achieve with any plan.

What’s needed now is a sense of confidence, of stability. Sticking to a bad plan may be better than appearing to flounder while searching for a better one.