Explaining Why the Geithner Plan Was So Vague

Neil Irwin and Binyamin Appelbaum have a story explaining why Tim Geithner had so few details to offer when he unveiled his plan (or “plan”) for financial system rescue. Mike Tomasky calls it the sort of piece “that proves that newspapers do still have value after all”.

According to several sources involved in the deliberations, Geithner had come to the conclusion that the strategies he and his team had spent weeks working on were too expensive, too complex and too risky for taxpayers.

They needed an alternative and found it in a previously considered initiative to pair private investments and public loans to try to buy the risky assets and take them off the books of banks. There was one problem: They didn’t have enough time to work out many details or consult with others before the plan was supposed to be unveiled. […]

Meanwhile, the sources said, Obama’s senior economic advisers were hobbled in crafting the plan by a shortage of personnel. To date, the president has not nominated any assistant secretaries or undersecretaries at the Treasury, and the handful of mid-level staffers who have started work were still finding their offices and getting their building passes and Blackberries.

Moreover, the department made a strategic decision to limit input from the financial industry and other outsiders, aiming to prevent leaks and avoid a perception they were designing the plan for the benefit of big banks. But that also meant they were unable to vet their plan with the companies involved or set realistic expectations of what would be announced.

This all sounds reasonable enough, though obviously if they were facing these problems they should have delayed making a big “announcement” about it.


The other thing, however, is that one thread underlying a lot of the commentary on what happened has been the idea that we can tell the plan was bad because it led to stock market declines. That’s an exceedingly poor measure of the merits of a plan. Not only do day-to-day fluctuations in the stock market simply not tell you very much, insofar as they do tell you something about an announcement like this they’re heavily influenced by perceptions of how favorable a plan is to the interests of those who current own stocks in the affected companies. But what’s good for shareholders of Bank of America and what’s good for the United States of America are different things.