Showtime For Timmy and His Bank Rescue Plan

StockJockey’s take on "Groundhog Bailout Day" – starting anew with more of the same.

Showtime For Timmy and His Bank Rescue Plan

Courtesy of StockJockey at 1440 Wall Street

We are only a few hours away from Tim Geithner’s delayed plan to save the world and the banking system. Stock index futures began to soften around 4:20 PM Monday after it a source was quoted as saying “They have to have enough to calm the markets, but there might not be as many details as previously thought.”

Martin Wolf of the Financial Times is not sure they have figured out "what the underlying problem is." and merely have tried to eliminate the "tail risk" from a total meltdown. And it appears we will merely get a half baked plan from Treasury Secretary Geithner, followed by a flawed stimulus package..

Frequent Geithner critic Chris Whalen sums up his view in a just published Bloomberg article:

“We have got to fix the financial system — if we do not deal with this, we will not get anything else done,” Christopher Whalen, managing director of Institutional Risk Analytics, a financial-services research company in Torrance, California, said in a Bloomberg Television interview. “If banks cannot move mortgages off their books, then we have a problem. We will see credit availability much lower” than in past generations. Bloomberg

But, alas, Geithner will likely unveil half measures at noon on Tuesday. Will the “aggregator bank” do the trick?

The aggregator bank may end up working like an auction house, with the government orchestrating sales, said Stuart Eizenstat, a partner at the law firm Covington & Burling and a former deputy Treasury secretary in the Clinton administration. Banks would bring distressed assets for investors to bid on, with federal protection for buyers against future losses.

“The government will in effect put a floor under those assets,” Eizenstat said. “If the value goes up, the investor gets the benefit. If the value goes down, the government picks up that, but it’s much less of an immediate expenditure than you would have if you purchased them.” Guarantees may also play a role for investments banks intend to hold to maturity, he said.

The New York Times has their own take on the plan; the article points out the relationship Geithner has with the bankers that were largely responsible for getting us in the mess.

And it does not appear he is forcing anyone to take their medicine:

Geithner fought off the rest of Team Obama who wanted to severely curtail compensation and “TARPed banks” and hopefully avoid a repeat of the looting taxpayers took in AIG’s scheme to pay fat retention packages to derivative traders/employees.

This is just more of the same – it appears the Dow will open down close to 80 points, although that is subject to change. With UBS announcing a huge loss and looking to layoff additional bankers, and the Russians looking to welch on $400 billion of loans, we are looking at another messy day.

The beat goes on; buying weakness and selling strength continue to offer the only chance you have to eke out a living as Groundhog Bailout Day starts anew.

With Geithner lacking the intestinal fortitude to lay down the law, you can bet we will continue to stagger around like a punch drunk prizefighter past his prime.
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A rare appearance by FT legend Martin Wolf.

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Nationalize them? Do it in one ruthless sweep.

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They are changing the name because “Son of TARP” does not sound good from a PR standpoint. Here is what Geithner’s plan might look like, including the private capital angle.

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Geithner’s Bank Rescue May Determine Effectiveness of Stimulus
Bloomberg

Geithner Said to Have Prevailed on the Bailout
New York Times