Treasury Secretary Timothy Geithner is testifying right now before the Senate Banking Committee on the financial rescue re-modeling he unveiled this morning. Many senior senators are just now getting up to speed on the outlines of the new Treasury plan, but the emerging consensus among Democrats is cautious approval of Geithner’s goals (even as Republicans blast those goals as unclear).
“We’re in uncharted waters,” Chuck Schumer (NY), the third-ranked Senate Democrat, told me. “They’re trying their best.”
Schumer praised Geithner for adding “some degree of conditionality” to his dealings with individual troubled banks, contrasting the new Treasury Secretary with predecessor Hank Paulson, who “lurched from one plan for every bank to another plan for every bank.”
Schumer also said the Federal Reserve’s massive program of lending to spur the credit markets, known as TALF, was “the one successful part of the initial plan” and worth expanding under Geithner.
Meanwhile, senators as right-leaning as John Ensign (R-NV) and as left-leaning as Bernie Sanders (I-VT) have pushed the Fed today to be more transparent in disclosing which entities are receiving TALF loans. “I think it’s a good idea to … say to the Federal Reserve, ‘Let’s see what you are actually doing in the marketplace,'” Ensign told reporters today, “because the American people who are the ones who are on the hook.”
But let’s return to the Democrats for a moment.
Banking Committee Chairman Chris Dodd (D-CT) — who told me that Geithner would have “lost his audience” had he offered more specifics on the new rescue plan this morning — said “I like what I heard today” from the new Treasury chief.
Dodd compared the Obama administration’s responsiveness on housing aid to that of the Bush administration — a strangely low bar to set — before adding that “I still believe we’ve got to know more, and we will in the coming days.”
The most candid Democratic senator so far has been John Kerry (MA), who called for “more details” from Geithner’s team and acknowledged what few in Washington are willing to: the ongoing political will to promote fuzzy asset values that blur the true scope of our economic difficulties. Here’s Kerry’s statement.
The simple fact is we can’t keep spending money to sustain financial institutions that knowingly carry bad assets on their books. We are living in a pervasive asset bubble. Too many assets remain overpriced. This has been building for over a decade but it has the capacity to readjust or over adjust at any time. What we’ve been trying to do is defy the gravity of the marketplace – keeping assets artificially high. No one can defy gravity – at least not over the long term.
It’ll be tough medicine, politically unpalatable, and every taxpayer should continue to be enraged that a hole this deep was dug in the first place. Getting out of the hole won’t be easy, but it’s absolutely critical.
We need more details from Treasury on how exactly it plans to remove bad assets while protecting the taxpayer. We have ‘zombie banks’ that are weighed down because their liabilities exceed their assets. Without a precise mechanism for addressing toxic assets, it will be difficult to increase lending.
