The Obama administration needs to get their shit together on the banking problem. They leaked details of the toxic-asset plan to the New York Times and let it be known that more details will be forthcoming as soon as Monday. But they got no thanks for it from the left. The plans (at least the parts divulged by The Times) have been blasted by Paul Krugman (once), Paul Krugman (twice), James Galbraith, Calculated Risk, Yves Smith, Loretta Kane, European Tribune, Ian Welsh, Dean Baker, and Atrios, for starters.
The general criticism is the same. Secretary Geithner is erroneously building his plan on the assumption that the toxic assets currently have a fire-sale value that will rise when the panic subsides. But, the criticism argues, the housing bubble has burst for good and current market values reflect not a panic but a basically accurate assessment of their real long-term value.
If housing prices don’t rise or, worse, continue to decline, the toxic assets will remain toxic or become more so. And if this is true then Geithner’s assumptions are wrong and his plan will result in a massive and permanent loss of taxpayer dollars.
At this point the focal point of criticism diverges. Some emphasize that Geithner’s plan will restore banks but not lending. Others emphasize that the plan will allow rich hedge-fund investors to gamble with the public’s money (they can win, but they can’t lose). Others think the plan might work but at unacceptable risk to the taxpayers. Others just want to nationalize the banks, fire all the executives, and deal with the fallout…come what may.
The immediate problem is that the Obama administration is allowing this debate to go on on these terms (with incomplete information) a full two-days before they are prepared to roll out their plan and their justifications for the plan. As far as I can tell, there was a leak to the New York Times but no outreach to the blogosphere (or Krugman) to tell their side of the story. That leaves them open to blistering and predictable attack from the Left at the very moment the Congress is seized with populist furor and the Republicans are looking for every opening to attack.
Regardless of the merits of the plan, this is not a good situation. My advice to the White House is to spend Saturday night and all day Sunday reaching out to their critics and explaining their side of the story. As Sonny Corleone said in The Godfather, come Monday, “…I want somebody good – and I mean very good – to plant that gun. I don’t want my brother coming out of that toilet with just his dick in his hands, alright?”
Because, right now, that looks like about all Geithner will have.
