The World's Greatest Economic Minds
Fifty Little Hoovers

Brief Notes on the Geithner Financial Rescue Plan

  1. Called the Geithner Plan, not the Obama Plan--distancing of the president from the proposal.

  2. Reinforced by Axelrod leaks to Labaton and Andrews painting Geithner as the Wall Street loving holdover--and this the person to take the blame if things go south.

  3. This is not new money--this is only the second half of the TARP from last fall: $350B.

  4. It is an attempt to leverage the TARP money--via the Fed and the private sector--as much as possible.

  5. As the Fed takes on tail risk and buys up risky assets, the supply of assets the private sector must hold declines and their prices will rise.

  6. As public and private money flows into the banks, their risk tolerance will grow and they will bid up risky asset prices as well.

  7. The net effect might be that fears that banks are insolvent or will become illiquid will ebb.

  8. And the financial crisis and the Bush depression will come to an end.

  9. But Geithner said this is not the end--that if the TARP money is expended and if banks still fail their stress tests, then what...

  10. This plan does not foreclose a resort to the Swedish model, it is instead an attempt to use the TARP money to escape the necessity for adopting the Swedish model.