Geithner unveils sweeping overhaul of U.S. financial system

And the market continues to plunge further with every indecisive syllable Geithner utters...

Best month on US stock markets since 1974, so that is interesting use of the word "plunge" by USNinJapan2. I didn't know things can plunge up.

In other news economists are saying they end is in sight and the market is at or near a bottom. But what do they know?

The one's going to take some debate....

Worst.

Administration.

Ever.

USNinJapan2: "And the market continues to plunge further with every indecisive syllable Geithner utters..."

And yet this week the markets rose... so what exactly does 'plunge' mean?

teleprompter, nope, it's still too early to take that title away from the Bush/Cheney Administration and give it to the Obama's.

Committee Chairman Barney Frank, D-Mass, and many Democrats on the panel backed the proposals, while Republicans assailed them as too far-reaching." How many politicians in one party publically go out of their way to go against the big guys in their party? Barney and Dodd should go the way of Bush. Geithner should to. Are you telling me he didn't see anything coming yet can tell you why everything is happening and has a fix. If you really look into things, you'll see his name on many of our current problems.

Private analysts also questioned whether Geithner’s plan would succeed in safeguarding the financial system." Of course it will succeed. You see, you now going to hve door guards with all the keys. They are already pushing out non-government watch dogs.

“We’re not in this mess because we need new rules,” said Bill Fleckenstein, a Seattle-based hedge fund manager who accurately predicted the housing bubble." Bingo! If either of the repubs or Dems, like Dodd and Frank, ever cared to listen to those of u who clearly tell people what is going on and call on for investigation to particulars they would be out of work or in jail.

“We need to enforce the rules we already have,” he said." No, Aday and others here say its our way or the high way. The new lib is clearly not open to new or alternatives and they are deaf to the old ways.

“What we had was a complete breakdown by all our regulators. They simply didn’t do their jobs.” Frank, Dodd, come on dude, you can tell us.

And Fleckenstein said he didn’t think requiring big hedge funds to register with the government would prevent devastating frauds like Bernard Madoff’s Ponzi scheme." Well, you'll never be able to stop those. Like trying to make the perfect lock that can't be broken

I see some people are still passing around the koolaid. What has tangibly improved over the weekend? Nothing but better than expected reports and a promise of yet another bailout. Thus, what we are seeing in the markets is irrational behavior that has no bearing upon the economy's fundamentals.

"Looking For a Bottom, by Tim Duy: Given the length and depth of the current recession, it is natural for analysts to start looking for a bottom. In such an environment, bad news will be ignored while the seemingly good news is overblown. For example, the most recent initial unemployment claims report indicates that labor markets continue to deteriorate; we have yet to see a turning point consistent with improved conditions. Likewise, the durable goods report was heralded as a positive sign, but the jump in this volatile series needs to be taken in context of the severe drop the previous month. [...]

That said, things will eventually get less worse, if only because some sectors, such as new residential housing, will hit a bottom. And that bottom is not likely to be zero, and, I suspect, that bottom will be late this year or, at worst, early next year. That should not, however, be confused with an optimistic outlook, as the durability and strength of the eventual recovery is in doubt. I am confident that the economy will not spiral downward endlessly; I am more worried that the we will be left at a suboptimal equilibrium chiefly characterized by low growth and persistently high unemployment." "Looking For a Bottom", Tim Duy

"A paper on the state of the world’s public finances issued by the IMF in the run-up to the G20 meetings takes a stab at identifying and measuring the fiscal implications of the crisis for both rich and developing countries. Its conclusions are sobering. For rich G20 countries, fiscal balances will worsen by 6% of GDP between 2007 and 2009. Government debt will come off worse. Between 2007 and 2009, the debt-to-GDP ratio of rich countries is projected to rise by 14.5 percentage points. In the medium term, the outlook is even more worrying. Government debt for the average rich country will be more than 100% of GDP by 2014 compared with 70% in 2000 and 40% in 1980.

A great deal of uncertainty surrounds these estimates because so much depends on guesswork. Economic recovery, for example, could be slower than the IMF’s current projections: growth forecasts were revised down several times in 2008. Governments may also have to shoulder more burdens—private pension plans, which have been hammered by the crisis, may require government support. And the eventual cost of financial-sector bailouts will depend on how quickly and at what level prices stabilise of the assets governments have taken on. Past experience suggests that there is enormous scope for variation. Sweden had a recovery rate of 94% five years after its crisis in 1991; Japan had recovered only 1% of assets in the five years after its troubles of 1997.

The IMF points out that debt levels, while high, are not unprecedented by historical standards. But the worry is that primary fiscal balances in four-fifths of the rich countries studied by the IMF will be too high even in 2012 to allow debt to be stabilised, or brought down to 60% of GDP (which is the IMF benchmark for debt levels), even though revenues will recover as countries emerge from the crisis. What this implies is that, over time, fiscal deficits will have to be trimmed. And therein lies the rub.

Most rich countries have rapidly ageing populations. Unless entitlement systems are reformed (by reducing benefits) or tax bases broadened, fiscal deficits will rise still further. Some of the IMF’s ideas about how to do this will seem unpalatable: it argues that health systems, for example, will have to become less generous. But rich countries were always going to have to come to terms with the fiscal consequences of demographic pressures on existing welfare systems sooner or later. The crisis will bring this problem more urgently to the fore."

"One crunch after the other", TheEconomist.com

"Tim Geithner has finally revealed his plan to fix the banking system and economy. Paul Krugman, James Galbraith, and others have already trashed it.

[We spoke with noted economist Galbraith this morning. In the accompanying segment, he calls the Treasury Secretary’s plan “extremely dangerous.”]

Why?

In short, because the plan is yet another massive, ineffective gift to banks and Wall Street. Taxpayers, of course, will take the hit Why does Tim Geithner keep repackaging the same trash-asset-removal plan that he has been trying to get approved since last fall?

In our opinion, because Tim Geithner formed his view of this crisis last fall, while sitting across the table from his constituents at the New York Fed: The CEOs of the big Wall Street firms. He views the crisis the same way Wall Street does--as a temporary liquidity problem--and his plans to fix it are designed with the best interests of Wall Street in mind.

If Geithner's plan to fix the banks would also fix the economy, this would be tolerable. But no smart economist we know of thinks that it will.

We think Geithner is suffering from five fundamental misconceptions about what is wrong with the economy. Here they are:

The trouble with the economy is that the banks aren't lending. The reality: The economy is in trouble because American consumers and businesses took on way too much debt and are now collapsing under the weight of it. As consumers retrench, companies that sell to them are retrenching, thus exacerbating the problem. The banks, meanwhile, are lending. They just aren't lending as much as they used to. Also the shadow banking system (securitization markets), which actually provided more funding to the economy than the banks, has collapsed.

The banks aren't lending because their balance sheets are loaded with "bad assets" that the market has temporarily mispriced. The reality: The banks aren't lending (much) because they have decided to stop making loans to people and companies who can't pay them back. And because the banks are scared that future writedowns on their old loans will lead to future losses that will wipe out their equity.

Bad assets are "bad" because the market doesn't understand how much they are really worth. The reality: The bad assets are bad because they are worth less than the banks say they are. House prices have dropped by nearly 30% nationwide. That has created something in the neighborhood of $5+ trillion of losses in residential real estate alone (off a peak market value of housing about $20+ trillion). The banks don't want to take their share of those losses because doing so will wipe them out. So they, and Geithner, are doing everything they can to pawn the losses off on the taxpayer.

Once we get the "bad assets" off bank balance sheets, the banks will start lending again. The reality: The banks will remain cautious about lending, because the housing market and economy are still deteriorating. So they'll sit there and say they are lending while waiting for the economy to bottom.

Once the banks start lending, the economy will recover. The reality: American consumers still have debt coming out of their ears, and they'll be working it off for years. House prices are still falling. Retirement savings have been crushed. Americans need to increase their savings rate from today's 5% (a vast improvement from the 0% rate of two years ago) to the 10% long-term average. Consumers don't have room to take on more debt, even if the banks are willing to give it to them.

The two charts below from Ned Davis illustrate the real problem: An explosion of debt relative to GDP. The first is Nonfinancial Debt To GDP. The second is Total Debt To GDP.

In Geithner's plan, this debt won't disappear. It will just be passed from banks to taxpayers, where it will sit until the government finally admits that a major portion of it will never be paid back."

"Part I: Geithner's Plan "Extremely Dangerous," Economist Galbraith Says", The Business Insider

"The “Plunge Protection Team,” was smiling for the cameras after Wall Street stocks staged a 7% rally on March 23rd, after Geithner detailed his strategy to purge toxic assets from bank balance sheets. The S&P-500 Index and the Dow Jones Industrials posted their biggest one-day percentage gains since late October. The banking sector index posted its best one-day gain since 1993, driven higher by a 26% gain in Bank of America, a 25% advance in JP-Morgan and a 20% gain in Citigroup. Geithner could breathe a sigh of relief that the stock market didn’t replay the events of Feb. 10th, when his vague outline for subsidizing the banks was trashed.

This time around, Geithner was much more explicit, in detailing how taxpayer money would be placed at the disposal of Wall Street. By subsidizing private investors, who will bid against one another in auctions for toxic assets, supervised by JP-Morgan, the government can claim that the free-market is setting the prices. Neither the mainstream media nor the vast majority of the American public will realize or care how the Ponzi scheme works. All that matters is the values of investors’ 201-k’s.

How should investors react to the latest 20% recovery in the S&P-500 Index from its lowest levels set just two weeks ago? There have been several powerful rallies over the course of this 17-month old bear market, such as last October, when the Dow Industrials mounted a 1900-point rally in 48-hours, and a second 1,500-point rally after France, Germany, Italy, Spain, Holland, Austria and the United States joined forces to launch a $4-trillion bank bail-out, the biggest in history, with guarantees and fresh capital in a “shock and awe” blitz to halt the market meltdown.

Both rallies and many others since then were nothing more than Bull-traps. Stunning one-day rallies of 500-points or more in the Dow Industrials tend to be the signature of bear market rallies, in which the PPT engineers vicious short squeezes. Typically, it’s an ominous sign when a powerful 500-point+ rally simply stalls out the next day, then fizzles-out, and begins to turn lower. It means the retail investor hasn’t been duped by Wall Street pros, - who are anxious to book a quick profit."

"Can the Treasury's Ponzi Scheme Lift the Stock Market?", Gary Dorsch

Best month on US stock markets since 1974, so that is interesting use of the word "plunge" by USNinJapan2. I didn't know things can plunge up.

Ha, things have been catatrophic to say the least lately, yet you have chosen to ignore all that and focus on the last few weeks as if the previous 4 months hadn't happened. Things could hardly have gotten worse. Percentage-wise, perhaps things have been great in the period of time you conveniently chose but overall the stock market is still a shell of its former self.

DOW up 174 pts.

Private analyst... I'm a private analyst also.

I heard from some of our best conservative talk show host describe Obama's new ideas right there with Adolf Hitler's taking over Germany.

But we've got another 3 years 9 months at least for the economy to take a turn around.

Now to these regulations. We've seen how the last 8 years has gone. Unpresidented bonuses for failure, corporations making their own rules, unregulated indulgence to stealing from the rightful owners of proceeds like stockholders and investors and consumers.

I hope that they clamp down on Wall Street and Stock Market Street and Investors Street. < :-)

Hey stereoman, I didn't ignore anything. The guy blamed Geithner for the fact that the "market continues to plunge". Of course the market plunged before and it is likely going to plunge again, but it's not plunging now. Either he didn't know that or he is just another guy who doesn't let reality get in the way of his opinions.

GJDailleult - "I didn't know things can plunge up."

Even the impossible is possible when you're a Rush Limbaugh Republican. :-)

I think Rush Limbaugh's Republicans are just jealous they are no longer in power and therefore can no longer bury their grandchildren and the U.S. in debt any further than the catastrophic extent they already have. :-)

Sushisake3:"I think Rush Limbaugh's Republicans are just jealous they are no longer in power and therefore can no longer bury their grandchildren and the U.S. in debt any further than the catastrophic extent they already have. :-)"

Bang on, my old friend, and more excellent posting from you!The metafore of burial is an excellent one, and it MUST hurt the rightists here. Just one thing, compadre, you don't need to capitalise the name of the talkshow host whose now the leader of the republican party.

It's really just too funny watching the few remaining righties here shoot themselves in their feet as they blindly follow their hero rush down the same hole that bush went down, which is fine since,well, we don't need them.

Geithner is a brilliant pick and his selection again show's Obama's utter brilliance.It's just too shameful that SOME Americans don't understand Obama is SAVING them from financial ruin, but hey,said Americans were never famous for their logic. They need to turn of the rush and pick up Obama's speeches, which are fabulous and astounding.

bush's tax cuts were doomed from the get-go, but as the stocks market shot up an astounding 174 points yesterday it is OBVIOUS that Obama's Stimulus Plan is working.

I admit that there is criticism from China and some other countries but the bottom line is it just reminds everyone how much The US was REALLY hated when bush was in office.

Well,anyways, things with the dwindling rightists just remain the same the more they change, and I am literally on the floor laughing, and my arse is coming off:)

GJD

...he is just another guy who doesn't let reality get in the way of his opinions.

How truly ironic coming from you and the rest of the BHO fan club. Guess you've never watched the DJI "plunge" realtime as your buddy Geithner is being grilled on CNN. It might also help your SA if you tried looking past the last three weeks...

"The US Treasury secretary talks about permanent action and we, at our spring council, were quite alarmed at that . . . The US is repeating mistakes from the 1930s, such as wide-ranging stimuluses, protectionist tendencies and appeals, the Buy American campaign, and so on," he told a European parliament session in Strasbourg. "All these steps, their combination and their permanency, are the road to hell."

http://www.ft.com/cms/s/0/bd7e8f80-19a6-11de-9d34-0000779fd2ac.html

It's so mush better to see the DOW going up instead of going down. I thought when it hit 7500 that was it, then it dropped down to what 6800?

It's at 7800 right now. I'm glad for any up-turn. And a 1000 pts is great. Down some this morning, but it's going up.

Houses are selling.

Got to be positive. Barack Obama is doing what he said he would. < :-)

USNinJ2 - hehe, you're the guy who said things were going down when they were going up. But don't worry, they were down again Friday, so I guess that makes you happy now. And my SA don't need any help, I can look beyond the last three weeks and I think the worst hasn't even started yet. The USA is toast, and it doesn't matter who is in charge.

What should be considered is that the shoe has yet to drop for the commercial credit market. I hope that some folks have plenty of hope stockpiled.