Timothy Geithner's speech laying out the Treasury's plan for bailout 3.0 struck us as devoid of key details that might have settled some of the uncertainty and confusion surrounding the Obama administration's approach.
That's how it struck Simon Johnson, the former chief economist for the IMF, too.
Johnson told TPMmuckraker that the Treasury Secretary's speech laid out some important principles, especially in regard to the need for transparency and accountability. And he said that Geithner's willingness, in contrast to his predecessor, Henry Paulson, to criticize bankers and policy-makers -- implicitly himself -- was also welcome.
But then, said Johnson, the speech went into "Paulson-land," as Geithner said he would take input from the public on the public-private investment fund the Treasury is considering creating.
That lack of specificity, said Johnson, isn't helping restore confidence, pointing to a sharp drop in the market today, especially in the financial sector. "The market is responding to vagueness," said Johnson. "This is not a plan. In the annals of plan-announcing, this is very vague."
The "stress test" that Geithner discussed today, said Johnson, is a promising idea, but again wasn't fully enough fleshed out to know whether it'll be effective. The proposal, used effectively by Sweden in the early 90s, would require banks to lay their cards on the table, allowing the government to make a rough -- and conservative -- valuation of their assets. That would then allow the government to take over those banks that are truly insolvent, rather than continue to try to prop up failing institutions and suffer a "death by a thousand paper cuts."
Johnson had harsh words for the administration's plan, announced late last week, to modestly limit executive compensation. He called it "a joke," and said Geithner had lost credibility because of it. "No one in the markets is buying those [limits] as meaningful."
Geithner will testify before Senate committees this afternoon and tomorrow morning. So we'll see how many more details we get then. But it looks like this is all still a work in progress.