Taking Stock of Bonds
February 11, 2009
Talk Is Cheap
Two thousand nine hundred and fifty six.
That’s the word count of the text of Treasury Secretary Tim Geithner’s plan. Nearly 3,000 words that were supposed to offer investors a source of hope and a reason to calm down but instead sent stocks tumbling. President Obama seemed surprised that financial markets were unnerved by the Treasury chief’s remarks, telling “Nightline” that “Wall Street … is hoping for an easy out on this thing, and there is no easy out.”
Huh? Wall Street and investors gave up on an “easy out” some time ago, say, after Lehman was allowed to fail.
The Street was looking for something more substantive. For starters, the first half of the eagerly awaited statement from Treasury offered generalities, reminding us how Americans cannot readily find credit for home purchases or college tuition. We were reminded of the jobs lost, that investors and banks took risks they did not understand. Government regulators and rating agencies were slapped around and we were told about what happened in the US during the 1930s and in Japan in the 1990s.
There was also talk of distrust of company executives. Then a plug for a website - a government website with details about new requirements being imposed on banks and executives.
But, nowhere was there a sign of what exactly will be done to fix the financial system. In the later half of the speech there are more broad ideas but no specifics. There is a public-private investment fund which could have $500 billion to $1 trillion to help “private markets working again.” And there’s a $1 trillion plan to support consumer business and lending initiative, aimed at driving down borrowing costs.
While securitization has been given a bad name in the broader media, Treasury realizes it needs to get this important segment of the credit markets up and running. To aid securitization’s recovery a lending program will be built on the Fed’s term ABS loan facility – a program announced last November. Then there is talk of shoring up SBA lending and a “comprehensive housing program,” the specifics of which are vague.
People in the financial services world know things cannot and won’t be fixed overnight. But they need specifics so they can make business and investment decisions. Without that, you can’t finance – as Obama puts it – “the doers, the makers of things.”
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