Economist Provides Criticism of Treasury

¶ … Economist provides criticism of Treasury Secretary Timothy Geithner's description of the Obama administration's proposed financial bail-out. The article pointed out the largest inconsistency between Geithner's theories about a bailout and the actual bailout proposed by Geithner. Geithner stated that he believed that any financial bail-out should be comprehensive, but according to the author, the bail-out bill was not sufficiently detailed to be considered a comprehensive plan. The author clearly disagrees with the plan outlined by the government, and makes compelling arguments about the weaknesses he perceives.

The article went on to explain the four main planks of the new bail-out bill. First, the article explains that banks will have to prove solvency, and, if unable to do so, will be able to access contingent equity in order to preserve their lending power. Next, the article explains the Obama administration's public-private approach to tackling the problem of bad or troubling debts clogging up balance-sheets, which involves seeking private purchasers for these debts. The administration's goal is that, with private firms determining the prices for these debts, they should not be misvalued, but the author is concerned that the plan is not sufficiently defined to ensure that type of free-market self-regulation. The author found the third component of Obama's plan to be the most promising, because it involved quintupling the size of the Federal Reserve's program to finance purchases of securities backed by car, credit card and student loans, and expand that program beyond consumer credit to commercial mortgage-linked mortgages. The author noted that this was an important step to help ease the problems created by the collapse of non-bank funding.