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March 27th, 2009
11:39 PM ET

Are those glimmers real?

Timothy Geithner announced his plan for taking toxic assets off of the balance sheets of troubled banks.
Timothy Geithner announced his plan for taking toxic assets off of the balance sheets of troubled banks.

David Gergen | Bio
AC360° Contributor
CNN Senior Political Analyst

We have just come off the set taping the next CNN Money Summit to be shown Friday at 11 p.m. (and again on Saturday at 8 p.m.) As usual with Ali Velshi hosting, it was a spirited, often provocative conversation in which all of us learned something.

Clearly, as Ali explained, we are seeing glimmers of hope in the economy, and the country is breathing a sigh of relief. But is this the bottoming out that all of us have been looking for or is it a nice ledge that we are sliding across before we go over the edge again? I am not sure any of us could provide a confident answer on that question.

The stock market is up some 20% from its low earlier in March and housing starts are up nicely. Because both housing and investments are so critical to people's sense of well-being, these are very encouraging signs. Yet, as we shall see with the government's announcement on the Detroit auto industry - expected very soon - painful job losses are likely to continue for a while.

The scariest moment in the whole show came when Ali unveiled a graphic from the Congressional Budget Office predicting that the nation's unemployment rate won't return to pre-recession levels until 2013 - four whole years from now! Wow, that would be tough.

One question that I raised with the panelists is whether the glimmers of hope that we are seeing represent in any sense an "Obama effect." Several of the President's programs haven't had a chance to kick in very much yet - for example, that big stimulus package. But ever since the stimulus package was enacted, President Obama has shifted to a more optimistic tone about the economy and has been encouraging Americans to look toward a brighter future. Is that having some effect now upon home buyers and others who are trying to buy new durable goods for the future? The question brought an interesting response from the panel.

Now here is a second issue: the Tim Geithner plan for taking the toxic assets off of the balance sheets of troubled banks, so that credit will start flowing again, depends heavily upon enticing hedge funds, private equity firms and others to invest their money in those toxic assets. How will the government entice? By offering very sweet deals in which the government puts up most of the money for the purchases and limits the losses to the private investors. Private investors are now trying to decide whether to play or not. If they do, there is a chance that they could make double-digit profits - indeed, they could be making very big profits. Question: how do you feel about private investors making lots and lots of money if they decide to play? What if we wake up one day and find that a private firm, enticed by the government, has made hundreds of millions of dollars from these toxic assets? Do you think they should be able to keep it?

This is a really important question with real-world consequences. This is exactly the question that many of the private investors are asking themselves. If you think, well, we offered them a bargain, they took it and put their money at risk, now we should honor it - if that is what you think, they may decide to invest. But if you think, well, that just seems unfair for private investors to make a lot of money with government help and at a time when so many are hurting - if that is what you think, there is a real possibility they will decide not to play. That's why it is important to think through this issue up front.

So, as a member of the Money Summit panel, I would love to hear what you think.


Filed under: Barack Obama • David Gergen • Economy • Raw Politics
soundoff (486 Responses)
  1. Tom Gwin, Alabama.

    Correction. In reggart to my comments just submitted, remove last phrase, please. It is incorrect. "Cheap seats first" should close my paragraph. Sorry....and thanks.

    March 27, 2009 at 2:40 pm |
  2. Jack

    Does a population have informed consent when that population is not taught the inner workings of its monetary system,and then is drawn, all unknowing, into economic adventures?
    - from The Trial of Trials

    March 27, 2009 at 2:40 pm |
  3. Jeff , Douglass, KS

    David,
    It's great to be able to communicate with you. Your balanced comments always carry much more weight than the "food fight "people.
    I know that credit default swaps are the trillions and trillions of dollars that constitute a lot of the toxic assets. The credit default swaps would have more value if the risk of the underlying mortgage would improve – yes?
    So, if investors are the first to take a chance, they are assuming a lot of trust in the system, and deserve to make extra profit when it works out.
    But secondly, we need to make sure that there is a good plan to refi or modify or in other ways save all the mortgages possible. In that way, the mortar and brick mortgages that I think were good all the time can be seen as the assets they are.
    The swaps won't be so scary once we know the foundation is good. The whole collapse was just Wall Street selling so much "bull" that they even scared themselves. We've corrected – solidify the base of the investments, tighten up some regulations, and let's get back to business.

    March 27, 2009 at 2:40 pm |
  4. Beth from TN

    We can't keep putting a bad stigma on profits. All companies need to make profits. If they agree to help the US economy out now by taking a risk and investing in these toxic assets then they should get whatever comes of it in the future.

    March 27, 2009 at 2:39 pm |
  5. Linda in Los Angeles

    If somone invests money and gets a return, they should be allowed to keep it. That being said, I have been against bail-outs from the outset. I am against people like the President trying to "stimulate" the people into a another long term spending spree to keep this sinking ship afloat. People should not purchase what they can not afford to pay cash for. When growing up, the only things we did not pay cash for was a house, car and large appliances (we had a revolving charge at Sears). Many of the good paying jobs have shifted overseas, while the cost of living in the states has gone through the ceiling. The president can not fix all the problems – there is not enough money: there are too many people and not enough resources (for instance, adequate/affordable healthcare for all etc). Unfortunately, democracy/entreprenuership/freedom has come to mean an individualistic view with an eye to accumulating wealth, instead of putting people before yourself and your quest for monetary success tinged with greed. That change is bringing this country down. Stimulus pkgs will only put off the inevitable. We need to go back to putting people first and living within our means, beginning with big business and big govt. My idea of investing is investing oneself in family and in the company you work for. That is the way is was 50 yrs ago and it worked rather well.

    March 27, 2009 at 2:39 pm |
  6. Shawn, Boston MA

    David, you raise some interesting points and have made great observations. Your notion that we may have only hit a ledge, rather than the bottom, is something that has troubled me all week. Paul Krugman also touches on these points today in his piece in the NY Times.

    My question is this: If the root of the economic collapse was American overspending and debt, then how do we return to a consumer-based economy and expect that everything will be OK? Further more, when the real estate bubble burst we shed approximately 30% of the housing value nationally, on average. Just as the unemployment numbers will remain high for the next several years, so will the housing market take years to recover to pre-2007 numbers.

    All things considered, where are Americans supposed to access the free cash or credit to start spending again? The money simply does not exist.

    So to answer your general question, I believe we have hit a ledge that is an outgrowth of President Obama's positive remarks, as well as the result of investors/consumers taking advantage of what appears to be fire sale deals. Lets see where we're at in July.

    March 27, 2009 at 2:39 pm |
  7. bob stavis

    Can't really grasp the concept of making chicken salad from chickens–t. If the loans had merit, they wouldn't be "toxic". (Now a banking term)
    This must be at least partially true, else the loans to investors wouldn't be necessary. Haven't heard anything at all about rates of delinquency, total non-payment, properties headed for foreclosure, etc. Seems to me the talk of enormous profits may be premature.

    March 27, 2009 at 2:39 pm |
  8. Monroe

    Until the jobs situation turns around, mainstreet USA will not consider the recession over. You can talk about the Stock Market, durable goods, productivity or whatever, but the bottom line is jobs. Its all about the Jobs Jobs Jobs.

    March 27, 2009 at 2:38 pm |
  9. hilton

    Many of these hedge funds and others that might respond are the very people that got us into this mess to begin with. Risk...my foot!You know they only partner with lots of sweetners. Not only will they be positioned to make obscene amounts of money with the public financing a large portion of this but at the present tax rate they get a huge break there also. And this is supposed to represent change? Come on, the only way to deal with this is to create a toxic bank owned by the taxpayers and as the economy gets better the assets can be sold and the profits returned to the people...which is where they belong

    March 27, 2009 at 2:37 pm |
  10. Marc T

    David,

    We MUST, no matter what, do business with integrity... even if that means setting aside our emotions for a while. We saw emotions take over with the AIG bonuses and we came close to not honoring contracts and using taxation inappropriately. We also saw the "blame game" attack people that had made decisions that, upon cooler reflection, weren't so horrible after all.

    So I am saying that a deal is a deal. If we are asking private investors to risk their money, they must suffer the consequences AND reap the rewards, no matter what they end up being. All we can do is try to price the toxic assets as close to what the market will bare as possible (not easy, and no second guessing allowed!), put them up for sale, and live with the outcome.

    My question is this: IF they end up reaping good returns, wouldn't it be likely that WE will be seeing our real estate market recovering as well? Or are these disconnected?

    March 27, 2009 at 2:36 pm |
  11. Deborah in Grain Valley, MO

    I'd like to know what the assembled experts have to say about President Obama's refusal to even discuss the option of legalizing, regulating, and taxing cannabis. Given our national expenditure to keep it illegal (law enforcement resources, court and prison costs, etc.) and the potential tens of billions in tax revenue which would be generated, I would think our President of Change would entertain a healthy discussion on the topic. What do you think?

    March 27, 2009 at 2:36 pm |
  12. Bill in California

    IN ALL my adult life, I have yet to find where Government has interceded or launched programs that have had a long term positive effect on the nation's well being. Government is no longer our agent, but our taskmaster and as an individual in 'The Land of the Free" I no longer feel so free.

    March 27, 2009 at 2:36 pm |
  13. Tom Gwin, Alabama.

    I suggest dividing the private investors' slots into percentages of return on capital. Specifically, and for example, the first 25% of outside participants get the full return possible on their contribution nased on the current government deal. The 2nd 25% get to invest, but their max returns are 10% less than group one. After that, the max returns are 20% less than group one, etc. In other words, the longer the hedge funds or private investors or whomevwer wait to put their money up, the less the government will participate. First come, first serve........as greed is a fine management tool in America.
    Being a retired airline Captain, I saw how successfully the airlines increase revenue by selling a few cheap seats first...opposite of what I propose. TG

    March 27, 2009 at 2:36 pm |
  14. Sean from Chicago

    I am optimistic that recovery has started but there still needs to be a couple high speed bumps to the banking and airlines sector. Overall why am I positive? Technology and knowledge have evolved and this gives hope to believe that our recessions / depressions can be contained and reversed in a much quicker manner than any time in history.

    On a downward note, we still have a mountain of debt to deal with and spending coupled redistribution of wealth is not the answer. Hopefully Mr. Obama will come clean with the country and tell them that it is just not the wealthy class that will be taxed.

    March 27, 2009 at 2:36 pm |
  15. Roze

    I have no background in economics. It has seemed to me for a very long time that this bust was inevitable. "More" is finite in the system we have been using. I think we need a new paradigm for capitalism. It seems to have been confused with "consumerism". We have not used our weath or our brains very effectively. A shift in the right direction would include a human rights shift where all people are valued, not only those who make a lot of money. We have gone out on a limb and need to get back to the trunk of the tree.

    March 27, 2009 at 2:35 pm |
  16. gorn by any other name

    Arthur,
    I would like to see a better description of the 5000 IBM jobs going to India. You describe them as high skilled. I've searched related articles online and have not found any definitive description, so it's hard to know for sure. However, I doubt these are high level engineering and design jobs – more likely second tier remote IT support for global clients. Such skills are essentially commodities and so much more prone to overseas leeching than other types of skilled and professional work. Designing the next generation technologies – computers, energy, medical, etc. – cannot be efficiently outsourced to India, China, or elsewhere. Once the technologies become established and easily replicated, they are prone to outsourcing. Thus, the goal should be to continually invest in next generation development. I believe that is the intent Obama's vision – certainly that is implicit in what he has said.

    Bottom line, unless we are willing to be a nation that is paid to work competitively on back-end manufacturing and support, then we need to continually invest in front-end R&D and all the labor that revolves around that. In a global economy, we can never afford to sit back and relax if we also want to sustain high standards of living.

    March 27, 2009 at 2:34 pm |
  17. David in SD

    I think the programs will be effective, given enough time, and that Obama's actions and way of communicating have increased consumer/borrower confidence. The government should calibrate the "deal" with private funding sources to entice participation without providing more incentive that is needed. Once the deal is struck, it should, of course, be honored. However, the tax treatment of profits whould be carefully managed so that, at the least, capital gains taxes are paid.

    March 27, 2009 at 2:33 pm |
  18. Rob M upstate NY

    oh, and I've been laid off 4 out of the last 6 months

    March 27, 2009 at 2:33 pm |
  19. Carl Cliche, Seneca, SC

    Personally, I believe that the equivalent of an ETF that is available to the public investor should be made available. This was suggested on FBN this am. It's a brilliant idea that would allow the investor/taxpayer to benefit as well as opposed to only the pre-selected well-healed insiders such as Goldman, etc.

    Why should the taxpayer always bear the burden. This is an opportunity for the taxpayer to benefit. Remember that "toxic assets" are there only because of an accounting rule that is designed for the upside having blown-up on the down side. The profits will be huge as the up-side begins and the mark to market will yield huge paper profits just as these "toxic assets" have yielded paper loses on the down side.

    March 27, 2009 at 2:33 pm |
  20. Nancy

    I think that once people digest all of the news out there the market will react in an appropriate way.

    The Geitner plan has private investors and the public buying the bad debt. What private investor is willing to lose money? Also once the bad debt is off the books and five years down the road or so when the company that originally held the bad debt is profitable and back to their old ways, the American taxpayer is going to be left with this bad debt.

    With regards to AIG, Citibank, GM and other companies that are "too big" to fail. I thinking keeping them around is causing future generations significant problems, ruining our economy and ultimately just postponing the inevitable. Can we afford to keep them around?

    The Great Depression was no picnic but neither is this recession/depression. At least if you got it all over with you could have a point to begin to fix things. Now we are just in limbo waiting for the next shoe to drop!

    All these plans that are coming out are too rosie with their projects. We need to keep it real!

    March 27, 2009 at 2:33 pm |
  21. Howard Jackson

    Risk vs. reward, that is what it is all about in the investment world, including real estate. Not too long ago residential real estate was the 'least" risky in the risk spectrum of real estate.

    Normally, homes were bought with 10%-20% down. Just a few short years ago, 150% mortgages were routinely give, some less aggressive, but all had "teaser" rates, which induced people to buying a house they couldn't afford, for they could not do it under normal circumstances. The problem arose when pools of these "subprime" loans were packaged, along with supposed "insurance" called CDS – collateral default swaps – which were marketed as insurance but really weren't. The credit rating agencies, added fuel to the fire by giving them good ratings, when in reality, the underlying mortgages were very risky.

    These were gobbled up by major investors, small investors with their 401-k, governments etc.

    With all these " additional" buyers, who normally couldn't buy a home, entering the market, guess what happened to housing prices. Starting in 2005, mid year, we, as real estate appraisers, could not justify economically the rapidly rising prices.

    Then in 2006, large portfolios of these sub prime mortgages couldn't be sold into the secondary market, and everything backed up. The rest is history.

    I think President Obama's administration did an excellent job in addressing and dealing with a catastrophic, economic situation. Was it perfect in all aspects, probably not. But it is doing the job effectively by any economic measure.

    The high unemployment is regrettable, but will be short lived. Let us hope that Wall Street, while it does much good, is more constrained in the future to selling to the masses of investors, highly risky investments which are disguised as low risk investments.

    March 27, 2009 at 2:32 pm |
  22. Rob M upstate NY

    My uneducated gut feeling is the bottom has been reached. Every dollar I can scrounge for the past two weeks (not alot) has gone into stock market with local companies I can't see completely failing. So far, I've gotten 70% gains. I think that's pretty good for never buying or paying attention to stocks before. Who knows how long that'll last but I'm pretty optimistic recovery is in action.

    March 27, 2009 at 2:31 pm |
  23. Bob

    What is required is to break the cycle of despair. This whole situation started with a cry of "fire" which everyone believed, not only our decision makers,but the public at large.The result was predictable. To break the cycle requires a belief things are getting better..Obama believes this thus his more positive tone. If the public believes these recent signs are the beginnings of something better it will feed on itself. Unfortunately he had to walk the line, for political reasons not to build up expectations whose failure would have political consequences. Obviously the steps taken to entice homebuyers has had its effect. What is needed is much more optomistic talk. It should be self fulfilling

    March 27, 2009 at 2:30 pm |
  24. Mark Howard

    First off, I do not think these 'toxic' assets are a toxic as many believe. The issue has been the difficulty to price the asset and the requirement to mark to market. I do not have a problem with 'private' investors gaining from acquiring the assets. While not clearly defined I expect the beneficiaries will include retirement and pension funds. So this gain may tickle down to many who have an interest in those funds. Finally, why not open up this risk/reward investment opportunity to individuals? Maybe start a Treasury sponsored program similar to savings bonds?

    March 27, 2009 at 2:30 pm |
  25. Jeff

    Private investors will make money one way or the other, by participating in this program now, or waiting until things really tank then buying the same assets even cheaper without government involvement. The real issues are (1) are the rest of us better off with this program than by letting the meltdown run its course and (2) is the government savvy enough to negotiate the best bargains possible in exchange for its sponsorship of the program? Not clear on either point, but I'm inclined to give the Obama team the benefit of the doubt.

    March 27, 2009 at 2:28 pm |
  26. Mike

    If private investors make a lot of money on this deal, then the assets really weren't so toxic after all and questions such as these will be asked:

    1) Why did we have to fund private investors with public dollars to buy them?

    2) Why couldn't regulations just be changed to allow banks to reflect a more reasonable valuation?

    In other words, if they make a ton of money it will look like our government botched it (again).

    March 27, 2009 at 2:27 pm |
  27. Larry C.

    In response to the article's title – are those glimmers real? – I believe they are, they may be small compared to what we need to get fully turned around and engaged in a full recovery, but that's how the recovery will start. Small steps ontop of small steps, build consumer confidence and that will be what leads the recovery. Take confidence in the small steps and the "glimmers", they will help all of us build the economy back into robust shape.

    March 27, 2009 at 2:26 pm |
  28. Gene Sullivan

    I think Mike from Syracuse had it right, its very pscyhological, if those in authority tell people its better they think it is for the most part, in their minds, remembering that people who could not afford it believed the line the could afford hosues during the sub-prime rage. So people are belivers but are more skeptical then before. It will take time and a slow steady uptick in things to change thinking completely..

    We have started the uptrends but it is not a linear line, some days will be up some will down, look for trends, no daily or even weekly ups and downs, but a quarter at time gives you an idea of a real trend, so stay tuned, be interesting how the G20meeting will affect all the discussion on this and whether we still are the leaders of the ecomonic if not free world!

    March 27, 2009 at 2:26 pm |
  29. Mags

    Jobs are being outsourced for financial reasons. When a company can send engineering or development work to other countries (like India, Russia etc.) where the workers are as skilled or more skilled than workers in the US, they save money. If you take a developer in the US and say you pay them $90,000 year. A person of the same qualifications, skills etc. in India will cost the company approx. $30,000 year. So US workers, government, and society are all drivers for jobs going overseas since US workers demand X number of dollars, prices are high for housing, food, clothing and personal items etc.

    I think that President Obama's inexperience is shinning and shining very brightly in everyones face since he has been sworn in. Although I did not vote for President Obama, I don't want to see him fail as some would. This country needs for him to succeed and to succeed now but not at the cost of our freedoms and our own choices.

    March 27, 2009 at 2:26 pm |
  30. John M in Denver

    A progressively increasing tax rate on profits that kicks in above a reasonable rate of return could take of most concerns about excessive profits from this tax payer subsidized program.

    March 27, 2009 at 2:26 pm |
  31. Eric Meyer

    Thanks for that David,

    I've always enjoyed your analysis of things. Certainly, some of this is the Obama effect, however, obviously the overwhelming pessimism has helped contribute to the decline in the market.

    I do believe that President Obama will inspire confidence in the market at a time when it is very much needed.

    Time will tell whether this is the start of the recovery or the "shelf" that you mention.

    March 27, 2009 at 2:26 pm |
  32. Scott, St. Charles, MO

    To your last point this country has a long history of people risking things in hopes of a bigger payout down the road. From the Revolutionary War Soldier Land Grants, to people who bought War Bonds that could have turn out worthless. I really don't see as big of an issue in this because those that are willing to purchase these assets know full well the risks. Unlike what was being down with the CDO's the risks takers deserve the rewards.

    March 27, 2009 at 2:26 pm |
  33. Tony

    What were going through right now is like, God forbid, a near terminal illness. If we dont do anything the illness will kill us. But what we need to do to kill the illness brings us near to death and in the end we might die from a heart attack....in other words choose your poison.

    Obama's role as leader, Captain of the ship, if you will, is to remain calm during the storm, to encourage the troops to hold the line while the enemy charges, etc. He should remain ebullient and defiant, against the economic whirlwind, we are facing. He should not give us investing advice, as he did a couple of weeks ago, as in when he thought it was a good time to invest. Overall yes, but he's not our chief executive stock broker.

    Private investors, and firms, who wish to participate in the toxic asset plan should reap the rewards if they turn out profitably, certainly. Are we prepared as a nation to foresake a risk for reward? I hope not. However, the Gov should not set the terms before hand then apply these terms universally to each toxic asset transaction. The terms should be negotiated separately for each deal with hopefully, switched on people at the Gov, getting the best terms for the People on each deal. Maybe the first deals limit the downside to the private investors, but as deals get done, hopefully, interst grows and the People get better terms.

    Tony

    March 27, 2009 at 2:26 pm |
  34. Dev Lopper

    Thanks John Thomas!

    A tax on new homes – BRILLIANT! Those are not real people that build them anyway are they. No wonder this nation is in the trouble it's in. Education is the way out. And tax the uneducated 50%.

    March 27, 2009 at 2:25 pm |
  35. William DeMuth

    If the solution is another sweet heart deal for the ubber rich, I will be outside the Whitehouse with a mob calling for Obama’s head.
    If we were permitted to buy these assets ourselves in small quantities with our pillaged 401-k,s my attitude might be different.
    I see our situation as similar to the Romans of antiquity, and if we fail to find more amenable solutions our empire shall also self destruct.

    March 27, 2009 at 2:25 pm |
  36. soosie

    I like the idea of a tax after a certain profit level has been reached. This would assure me that the investors will receive a fair ROI but that part of that profit will go back to the government to pay down the original debt.

    It's great to see in black and white that Obama's plans haven't started working yet. I'm already tired of people complaining about what he is doing and how it's working, when it hasn't had a chance to work yet. I think he does radiate hope and that's not a bad thing for all of us right now.

    March 27, 2009 at 2:25 pm |
  37. Randy

    "The Bush Disaster", huh?

    Ever hear of Barney Frank?

    Chris Dodd?

    Maxine Waters?

    Probably not.....have another sip of Kool-Aid

    March 27, 2009 at 2:24 pm |
  38. Pat Heck

    I would love to see an analyst who represents the Obama position respond to Mr. Gergen's analysis.

    What troubles me most about everything that's happened since January 20, 2009, is the dearth of voices from Democrats and Obama supporters, and an almost total takeover of commentary from the right. Such a situation did NOT occur during the Bush Adminstration and the 12-year Republican Congressional majority. Indeed - voices of Democrats were muted or non-existent, since they were the "minority" party.

    With so many Republicans openly and publically hoping for Obama's policies to fail, don't you think the Main Stream Media might, at least give EQUAL time to the MAJORITY party in this country? I'm waiting to see if anyone responds to this.

    And, indeed, psychology is critical. Perhaps, Mr. Gergen, you may recall all those Republicans who kept proclaiming that the economy was "basically sound." Indeed, if my recollection serves me, President Bush and Sen. McCain stated that "the fundamentals of the economy are basically sound," when the financial world was already well into collapse mode.

    Now, however, with a Democratic administration and Congress, all we hear are Republicans predicting the worst. I hope those conservatives who truly love their country above their party and ideology, reconsider this strategy.

    March 27, 2009 at 2:24 pm |
  39. karen

    I don't get it. When things are going bad- everyone jumps in to harp on the bad- day in-day out. When things are going good-we are reticient to show signs of happiness. Do you not realize the psychological impact you media people have? I think if we did things like "we're in this together, so let's pitch in and help turn things around" moments rather than doom and gloom we'd be a lot better off. As for the profits- we nned to get our thinking straight. If we are not nationalizing the banks than we better hope the private sector makes big profits. We are either looking for a capitalistic solution or not. Stop trying to walk the po[pulous line and pick a side.

    March 27, 2009 at 2:23 pm |
  40. Matt kelly

    By "private investors" do you mean banks, and companies like AIG or do you mean mom and pop on Main Street? That's the difference here and it's a biggie...as I'm hearing it, I don't beleive the program is open to the everyday consumer, which again, means the big guys wins and the little guy gets screwed.

    As to the uptick in the economy, it has a great deal to do with Obama and attitude. Let's face it, America needs a cheerleader to "sell" the idea of "America" to the rest of the world and to inspire confidence to the people at home. The uptick indicates his tone is working–I know I for one feel much better with him at the helm and communicating every step of the way–it makes me feel like I have a vested interest in the success of his policies. And make no mistake, I do, as does the rest of the country, and the world.

    March 27, 2009 at 2:23 pm |
  41. David - Tulsa

    David Gergen,
    Thank you for your insight and comments, as well as those who have responded here. I would absolutely agree that there is am Obama affect, likewise as we look back on history we can see there are similiar affects by preceeding Presidents.
    I am encourged to think that the private sector will be involved as soon as practical even as the government is balancing "toxic assests" versus "toxic debts". If there can be a measure of upfront sercuity for those investors, which I believe will be needed as an enticement, then making a profit is good.
    The problem is that throughout this abyssmal display of "investing" is the only profits were in the form of bonuses. Had there been real profits, we would not even be here bantering about this. The likes of Lehman Brothers, Bear Stearns and others would not have went down the drain and the likes of Citi Bank, AIG and others would not have needed bailed out the Obscene Tune of Trillions.
    I would hope that real profits can be achieved, that would mean real tax revenue even with the present tax code. I can only hope that the Obama affect becomes far more real as a solution and that this trama for many can begin the long road of healing.

    March 27, 2009 at 2:22 pm |
  42. Jim Graves

    David, as I understand the Geithner plan for taking the toxic assets off of the balance sheets of troubled banks, the opportunity for gain to the investors will be shared by the government. I suspect that the waterfall of future sales (liquidations) of the pools will follow a pattern seen in most commercial real estate deals, i.e., first the government guaranteed portion of the purchase will be paid back at par plus any carried interest and then the remainder will be split pro rata – the investor's and the government's equity. This will provide for competitive bidding – the tax payers will be compensated for success pro rata with the investors. It is a good approach to clean up this mess with profit for all being the motivator (of course the original holder, the banks, will take a haircut when they sell the toxic assets at a loss, which is only fair).

    March 27, 2009 at 2:22 pm |
  43. Jilli

    Consumer spending is up for the second month in a row – that's certainly good news. Is it permanent? No telling right now, but it's definitely a good sign. Consumers appear to be feeling more confident.

    March 27, 2009 at 2:22 pm |
  44. NYC REPUB

    Also please help people understand the price of inaction..... there is a rage among many americans that believe that if we did nothing, no gov't, intervention, that we would still get through this recession.....let them know the theoretic difference between H.Hoover, and FDR..... though gov. spending won't resolve everything, it is a temporary filler for the lack of consumer dollars in the economy right now......Mr. Gergen, and the money summit, please stress this to those who don't understand...

    March 27, 2009 at 2:22 pm |
  45. Joseph L. Graham

    Had not the howl risen, the AIG bonuses would have been upheld in court and paid, as will the profits that may accrue to private investors in toxic assets. The bank stress test will reveal the banks that will be forced to sell assets into the new program and so provide a pricing mechanism dictated by the government. The assets are primarily backed by U.S. real estate; thus we will be financing the sale of our territory on excellent terms to whom? Sovereign wealth funds would have multiple incentives, not the least of which would be the expansion of controlled domain. Sovereign wealth funds will be impervious to howling.

    March 27, 2009 at 2:21 pm |
  46. josh

    How about all you who bought more house than you can afford start paying your mortgage again. Then the banks do better; then those same banks who screwed around and made all those risky loans and then sold all those esoteric, nonexistent "financial products" that you risky homeowners are now causing to tank can stop jacking up MY credit card interest rates...on cards that I've always paid! I guess they realized I am a reliable source of income, and that others were NOT.
    Thanks a lot.

    March 27, 2009 at 2:21 pm |
  47. Joe Abramski

    Housing and all the associated set costs, like Real Estate taxes and Insurance needs to be affordable for more people. Banks should use these when they calculate the 31% thresholds for mortgage payments vs net income.

    March 27, 2009 at 2:19 pm |
  48. Bill Ferris

    Let's review... Pre-2008, financial institutions reap huge rewards on ill conceived and dubious investments. 2008, 2009, the government covers the fantastic losses of many of these same financial institutions, on these very same investments. 2009, financial institutions use government provided bailout dollars to provide bonuses and parties to the dim wits who created this mess. Flashing forward to 2010, these same dim wits will be buying up, at discount prices, these same dubious investments, and reaping huge profits in the process.

    So what do I think ? I think safety nets and entitlement programs for the wealthy are an abomination.

    March 27, 2009 at 2:19 pm |
  49. Sam

    Dr. Gergen,

    I wanted to respond on 2 fronts to your request for comments:

    The first, expectations appear to be a huge consideration in the economy at this time: it has stifled consumer and business spending, leaving only government action and international activity as a hope. International activity is not to be expected because the entire world is suffering through the U.S. caused (financial meltdown). This leave government action. Optimism led by the Obama administration supported by concrete actions should help and apparently is. Government spending is absolutely necessary and the Stimulus and proposed budget serve this purpose. Also, to avoid government interfering with private investment (when it finally occurs), appears to be reduced as the stimulus will not go on ad infinitum.

    Second (and last), the conditions in the financial sector (lending to consumers/businesses) will likely improve when demand increases, and the fear of consumers/businesses unable to make payments declines. Given these considerations I am hopeful. However, I have been following Paul Krugman's writings in the NYT and I highly respect his thoughts. I hope he is, at least, partially wrong.

    Thanks for giving me the opportunity to express my opinion.

    Sam

    March 27, 2009 at 2:18 pm |
  50. Dan F

    We need to separate out the happenings of the recent past from waht's ahead, othewise we'll cut our noses off. We must have ways to draw private money back into the invesment world, by hopefully offering enough motivation [economic and otherwise] to do the trick, without going overboard. Since the downside of offering too little is worse than the alternative, we probably have little choice.

    The greatest danger is if folks see that the very entities that got us into this mess, and are being bailed out, turn out to be the ones who handsomely gain from the Treasuyry's actions to draw them in. I can easily see the public screaming for their heads if that happens. I don't know how one protects for that, but it exists.

    March 27, 2009 at 2:17 pm |
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