Tuesday, February 10, 2009
On November 21, 2008, President-elect Obama announced that Timothy Geithner would be his Treasury Secretary. On that day, the Dow Jones rallied almost 500 points. I wrote a blog that day saying “Thank You Mr. Geithner,” in which I explained the reasons I believed that the market had rallied so sharply. Simply put, Mr. Geithner, in his role as President of the New York Fed, had been a part of everything that had taken place with regards to fixing the broken U.S. credit system. He was, thus, an experienced hand, and even though most of us did not know much about him, he had a solid pedigree and the obvious support of Ben Bernanke, the Chairman of the Federal Reserve. I didn’t say it then, but my thinking was that the troubles in the banks and the economy needed action right away and a completely new face in the position would delay action too long. Today Mr. Geithner introduced his long- awaited plan and the Dow Jones gave back most of the 500 points (-380) that it rose on the day of the announcement of his appointment. The reason is simple. Mr. Geithner’s plan was long on concepts but very short on details. He explained over and over in various television interviews and testimony before Congress that few of the details had been worked out. He was working on it, but little was set in stone. Today the stock markets were looking for clarity and details from a guy they thought had worked on the banking crisis as long as anyone and was ready to define his plan. When the markets heard more concepts and very few details, it expressed its great disappointment by selling off. His plan did deal with the big issues such as additional capital support for solvent banks, additional programs for freeing up lending to consumers, and a mechanism to create a public-private program to buy toxic loans from banks. Given his long involvement in this issue, he may, indeed, have in mind much more specific action than his announcement today included. To give him the benefit of the doubt, he may honestly be open to the ideas of others, and held back his specific thinking in order to encourage experts from all sides of the debate to contribute their ideas. However, the market clearly was looking for his leadership today, and didn’t get it. Secretary Geithner has the opportunity over the next days and weeks to demonstrate leadership and deliver a final plan in full detail that can reverse today’s market losses – and more. Let’s hope he does, and soon.