The plan without a plan, Geithner sends the market south
February 10, 2009 by admin
The government rolled out a new plan to fix the banking industry on Tuesday and the stock market responded with a dramatic sell off, a clear signal that concerns remain in fixing the struggling banking industry. The long anticipated bad bank and program to remove toxic debts from banks balance sheets appears to have a more questions than answers.
Secretary Geithner rolled out more details on his program that is planning to rely heavily on support from the private sector and hedge funds. The government appears to be taking the role of an insurance company under the new proposal. They are attempting to allow the markets to determine the end value of bank assets. Banks that choose to attempt to sell assets through the new program will be required to undergo a financial “stress test”, but this appears to be a major area of contention with investors.
The new proposal carries some key provisions to try and improve lending for commercial and personal loans. Consumers and small business will be a key focus in trying to spur spending and jump start the economy. A key measure that was mentioned at today’s news conference was a program specifically designed to help home owners and reduce home foreclosures. Details on the foreclosure relief program will be crucial in fixing the economy and slowing down the rate of home owners who have fallen behind on their home mortgages. It is believed that the government is not likely to move forward with subsidizing low mortgage rates and favors the idea of reducing the principle balance of mortgages.