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Marketplace Scratch Pad

Not a good sign

Scott Jagow Feb 10, 2009

The Treasury’s bank bailout plan part Deux is out, and Wall Street isn’t impressed. The Dow fell 250-300 points after Treasury Secretary Tim Geithner laid out the rescue path. You can read more about it here (Bloomberg) or here (WSJ). We had a lively discussion about it at the Marketplace morning meeting.

So, on this evening’s radio program, we’ll be looking at several issues. One is – where is all this money, both public and private, going to come from? This plan isn’t going to cost $350 billion. It’s going to cost waaaay more than that. How about two TRILLION. That may be what it takes to buy up the mortgage-related assets eating a hole in bank books. And just who in the financial industry has the capital to pitch in for the public/private fund to buy these things? No wonder the Dow plummeted after this announcement.

Another aspect we’re looking at is the “stress test.” Geithner used that term specifically. Banks will get a checkup to see if they are a. relatively healthy b. have moderate issues or c. need CPR immediately. We’re gonna look at this tonight as well, but there’s a lot of skepticism around here about this. Are they really going to give a bank a failing grade? Doesn’t that mean the government will have to bail them out? Or, if there are too many banks with failing grades, then what happens to the banking system?

Finally, we’re looking deeper into the transparency issue. There’s this new website, www.financialstability.gov where the Treasury will be posting the contracts with banks that are getting money. But how much will banks be required to reveal about how they’re spending it? My feeling is – they ought to be required to tell us EVERYTHING. It’s OUR money. But there’ s no way that’s going to happen. The government seems willing to be complicit in the protectionist practices of the banking industry. The banks don’t want to reveal their weaknesses, obviously, for competitive reasons. But don’t you think it’s a little late for that? I think we have a pretty good idea by now that the banks are in a vulnerable position. So, I’m a little skeptical about how much the public will really learn about what’s going on with this money, and on this evening’s program, we’ll have more about that as well.

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