The argument over the Treasury Department’s use of new TARP funds and other stimuli focused a great deal on putting $500 billion into propping up banks and another $1 trillion into freeing up credit. Some media outlets put the total number closer to $2 trillion. The truth is there are so many moving parts in the programs that it is easy to see how even the most sophisticated observers might miss a detail.
The Treasury plans got a lot of incoming fire because they assume participation by the private sector in the process of buying assets from banks. Secretary Geithner made a very big mistake by not bringing one of these private investors to the press conference where he presented his plan. Either George Soros was not available or he turned the opportunity down.
Analysts are also upset because the presentation did not come with a Gantt chart showing the details and timing of each aspect of every program in the bailout. They are afraid that it is simply written on a cocktail napkin, which is exactly what Henry Paulson did with the diagram of how he intended to spend the $350 billion that he wanted to put into the banking system.
Paulson may not be remembered kindly by many who thought he told the Congress he would buy toxic assets from financial firms and then bought preferred shares in them instead. But, Paulson was in a race, which may have lasted only days if it had failed, to save the largest money center firms from collapsing.
Paulson’s lesson is that there is always more money. That is true at least in a panic when the Congress and Administration have convinced themselves, perhaps appropriately, that pushing huge amounts of capital into the economy is the only way to halt the recession.
What was not considered at any length in the Treasury presentation is how fast the money can be moved onto bank balance sheets and into facilities that can free up consumer and business spending. The phase used is always “immediately”, but that may be a long time depending on the flexibility of the bureaucracy that has to handle the funds.
Nearly everyone believes one thing and it is at the core of any consensus about keeping the economic system out of a depression. Time is more important than money, if the money is enough to make a good start. It would have been uncomfortable for Secretary Geithner to say out loud that he might well have to come back to Congress for more money. If the damage to credit markets gets worse, Congress will probably be cooperative even if it results in more fighting.
The only thing Geithner could have said that was almost certainly accurate is that he has a good plan, he is working on details which are hard to pin down because the crisis is spreading so quickly, and he will be back for more money once he understands where the problems are getting much worse. He is being asked to ride a bicycle in a hurricane. It may not be reasonable to ask how many times he might fall.
Douglas A. McIntyre