Investors want more details of the current proposed Treasury bank-rescue plan and the negative market reaction to it was natural, Chris Whalen of Institutional Risk Analytics told Moneynews.com.
Treasury Secretary Tim Geithner’s plan needs to give a time-frame and set goals in “very specific terms,” Whalen said. “I think people want to hear specifics and are dying for finality,” he said.
Geithner might have been better off if he hadn’t have given the speech at all, Whalen said. “I think everyone’s expectations had been more advanced.”
Markets tanked after Geithner’s speech last week and remain down, last trading in the Dow 7,600 range.
Investors are ready to hear specific steps and will respond more positively to that. “It’s not that complicated,” Whalen said.
The largest problem facing Treasury and the markets is that they are trying to “put Humpty Dumpty back together again and that may not be possible,” Whalen said.
The Treasury would be better off if it communicated the plan in “bite-sized pieces” right now. In general, Treasury has said it would spent $500 billion in buying up failed mortgage-backed assets and another $1 trillion to back new lending.
Whalen agreed that the solution is for Treasury to start with the toxic or mortgage-backed assets. Treasury should bid for the assets, while the FDIC can restructure and sell the loans back to the banking industry, Whalen said.
Geithner did not talk about bondholders being subsidized, Whalen pointed out.
As for the stimulus plan, the bill has several flaws and is “symbolic and misguided,” he said. A stimulus does not help the economy unless cash is placed into the hands of investors or taxes are cut, Whalen said.
President Barack Obama is poised to sign stimulus legislation today, a bill which Republicans argue does neither of these things in a convincing way, despite its massive cost.
Nevertheless, there is hope, Whalen said.
“We can rebuild this economy,” Whalen said. “We have a much better situation in the U.S.” compared to the mess in Europe.
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