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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. paofpa

    Which debt is better: public or private? If it's public it's just moved. If you keep it private, it will be reduced by bankruptcy. The primary goal is to reduce debt not transfer it.
    There are enough sound banks to keep the financial system afloat and it will be stronger.
    Note: if is public, there is a chance of it being inflated away.

    March 27, 2009 at 5:45 pm |
  2. Lysh

    Isn't it possible to find a balance? Make the deal enticing enough to make companies want to invest, but If companies make an obscene profit, then tax it at a higher rate.

    March 27, 2009 at 5:43 pm |
  3. Bob

    The whole problem is that we are human, and we all make mistakes. The current situation is mainly related to mistakes made by: bankers, builders, government and irresponsible consumers who took out more than they could pay back. It will only be corrected by working hard, something that is probably good for all of us. This 'correction' in debt levels was needed, but I certaintly feel sorry for the thousands let go by their companies because of things out of their control.

    Don't be fooled, the world is not about to end, they are certain people who always have and always will profit from these 'recessions'. I have already started buying.

    March 27, 2009 at 5:40 pm |
  4. Chris

    I hate to hop into a thread twice, but I wanted to simplify my observations about gas prices. Some may blow it off, but I still peg it as the straw that broke the camel's back and it isn't gone.

    Lets say all of these financial games and tricks everyone is talking about actually works (of which I still believe the most important is consumer confidence – not dishing out money and wondering who we give it to and who or what to regulate).

    What happens when a foreign country or investors drive up fuel prices again? We are going to be right back in the recession. I think people are overlooking the cause and jumping ahead to the immediate results. Do you think anything will change when those who can barely afford their mortgages (good or bad) allocate more of their income to gas? Their will just be more bank failures regardless of policy. Has everyone forgotten what it was like 18 months ago and we did not know what we would do if gas prices stayed high or went any higher?

    March 27, 2009 at 5:39 pm |
  5. Eric Kirk

    I have no problem with private investors making a lot of money out of a crisis, so long as they shoulder a reasonable amount of the risk. Otherwise I'd rather have the government make the money. I'm tired of socializing all the risks and privatizing the profits. Maybe the private investors can be offered various deals – bigger payoffs for the assumption of risk, smaller payoffs where the government assumes all the risk.

    March 27, 2009 at 5:38 pm |
  6. Marilyn Cavell

    I hope President Obama uses his excellent communication skills and political capital to sell his plan for getting rid of the toxic assets. The toxic assets have to go for the financial markets to recover. If the plan is to entice investors to take risk and buy the toxic assets, we all need to be supportive (beyond our tax dollars) and pray for success. Some investors will lose money. We can't be resentful of those who make money. Fairness left the barn a long time ago. We need to look forward.

    March 27, 2009 at 5:37 pm |
  7. Larry

    We are going to follow the Venezuelan Model with Co-Presidents Obama & Chavez; better habla espagnol real soon.

    March 27, 2009 at 5:34 pm |
  8. Susan

    Very very little of the fraud, corruption, recklessness, and abuse of power that got us into this mess – both on the part of the government and on the part of Wall Street – has been addressed.

    Some indicators may have paused in their downward spirals, and indeed may even show some recovery for many months, but I remain skeptical this isn't anything more than the eye of a hurricane. Despite steep declines, housing remains unaffordable in many places. America no longer produces very much – and most of whatever is produced has been moved overseas. Any recovery based on shuffling financial paper around or printing money is a false recovery.

    March 27, 2009 at 5:33 pm |
  9. Dorothy Hufford

    I always appreciate your thoughtful comments. Here's mine.

    I don't think we have a choice. If you want private investors to play, they must be able to keep the profits for risking their capital. However, I think the problem goes much deeper. Our country is motivated by greed. Our form of capitalism promotes it. We seem to have no sense of the common good and I find most people are out for themselves regardless of their economic standing.

    You might argue that we are also a nation of givers, however we usually make sure we have our share first. And a good share it is when you consider the resources of the rest of the world.

    I believe we need some better balance to our capitalist system. Mr. Bush ran on the promise in 2004 of giving everyone a piece of the American Dream –he meant home ownership. The American Dream should not be of amassing vast amounts of "treasures on earth" but rather "how do we make this world a better place for everyone". Some folks in our country–the richest in the world–live like 3rd and 4th world refugees.

    Somehow I think all this economic "mumbo jumbo" still misses the root cause. I'd like someone to address that!!

    March 27, 2009 at 5:32 pm |
  10. john kell

    I am so tired of the sense of entitlement combined with a persecution complex that everyone seems to have today. Why can't we just let people be successful and be happy for them. The government has always helped people in the US; poor, rich, and middle class. Only recently have we decided to envy the success of each other. We need to get a life and chill out.

    March 27, 2009 at 5:31 pm |
  11. RichMd

    The underlying emotions of the economy are fear and greed.

    As housing numbers start to improve and mortgage interest rates improve, more people are seeing that this is a great opportunity to buy a new home. (remember 10% unemployment, means that 90% are employed and can buy).

    I see the fear gradually subsiding soon (6 to 12 months) to be replaced by greed as housing prices first stabilize and then start to increase.

    The same will be true of the stock market.

    March 27, 2009 at 5:27 pm |
  12. ED STRAKER

    IBM is shipping 4000 American jobs to India. Mr. Gergen, have you actually gone to IBM's career website and looked at all the IBM job openings in India? Most no one qualify for. In fact, they state they don't discriminate age or race, but the job requires a "he" or requires an "age".

    When Obama and the Administration creates executive orders that private companies cannot do this. They have to stop job openings posted by managers where they state they have no intentions to hire anyone, so all the openings require 15 years experience in 30 different three letter acronyms, certifications, or other that anyone can learn in 15 minutes, but really no one qualifies for where the process to get the job takes a year, or the requirement is for a Ph.D candidate.

    You should know Dr. Gergen, the job opening is for you, while you go on CNN doing the job required for a GED.

    Thanks.

    March 27, 2009 at 5:26 pm |
  13. Michael

    Until the Obama admin shifts away from penalizing innovation and profit motive there will be no real recovery or help from investors. Penalizing Companies with higher taxes for profits or bonus after the fact do nothing to build confidence in the private sector.

    The perceived glimmers of hope are just that Hopes. There is nothing solid in any of the numbers. Geithner does not have a clue and is not the treasury leader we need at this critical time. He is an amateur at best. The President is killing the future recovery with excessive spending and building huge deficits. All will stall the recovery at some point when the money runs out and private industry is unwilling to accept the baton.

    March 27, 2009 at 5:16 pm |
  14. Mike

    Every investor knows the government can and will change its position whenever it thinks it will make more money. So as an investor, in todays climate, I want as little to do with the fed as humanly possible.

    March 27, 2009 at 5:14 pm |
  15. Ken Centreville, VA

    A 20% move in the S&P looks like more than a "glimmer". I think historians will call it the "I HOPE HE FAILS Rally". It will be one of many things from the 1Q 2009, that historians will be able to look back and laugh at.

    It's an economy beginning to succeed in spite of the acrimony from the "No Party".

    It's funny, looking back to the Reagan Admin. After 2 years in office, they were still saying: "give us a chance, these things take time, we inherited a big mess". . .

    March 27, 2009 at 5:13 pm |
  16. busted and disgusted

    A 50% tax on new construction sounds like a way to get 50% unemployment rates to me. That should help the economy, John Thomas!

    March 27, 2009 at 5:12 pm |
  17. Jeff of Peoria

    It's over. Get a gun and start buying canned foods.

    March 27, 2009 at 5:11 pm |
  18. Eric

    I've read a lot of these comments and like many of them. The investors should be allowed to keep the profits but only after the tax payers contributions have been made whole. Since these profits will be taxed I'd consider that the tax payers profit or cut.

    I also think there should be a way for ordinary people to invest in these if possible with the same risk levels wealthy investment firms are being given. This is an equal opportunity country after all. You can't give a sweatheart deal the the rich using tax payers dollars without offering the same to the taxpayers themselves. I suppose we could invest in the firms that invest in these products too.

    My only concern is- doesn't this somehow perpetuate the problem since the real value of these assets is tied to mortgages? The interest paid on mortgages is what fuels the profitibility and worth of these assets correct? What happens if the housing market continues to falter. Doesn't that pull the rug out from under this plan??

    March 27, 2009 at 5:02 pm |
  19. Cynic

    The government is so concerned about the paper trading and risk taking Insurance firms and Banks having deep pockets but what they are just flat missing is who cares if banks can lend? Toxic Assets or not. 70% of the economy is consumption and consumers are tapped out. Done. With the purging of their retirement from an entirely corrupt Securities Market, to not only the loss of equity in their home value but likely the draining of their checking account to try to hang on to their piece of the American dream to 40% Credit Card rates on over $11,000 in outstanding revolving credit, to higher Energy, Food, etc. etc. costs – the list goes on and on. And what happened just this week? a continued drop in wages. The US consumer is tapped out. Over borrowed and under capitalized.

    The Cheerleaders of the economy and stock market are only biased for keeping the drunken stupor of the last decade going. Wake up and smell the coffee, the exportation of our jobs and bingeing on credit has come home to roost. 2009, 2010 and 2011 will be a continued implosion of the backbone of the US economy – the consumer. slowly drowning in debt and unable to come up for air that one last time. No matter how many corporate bailouts there are.

    March 27, 2009 at 5:01 pm |
  20. David Smith

    So, I've got a little cash in my 401K. I'd like it to earn a reasonable return. I'm willing to take some risks. Where can I go to buy some of these toxic assets?

    March 27, 2009 at 5:01 pm |
  21. Andrew Boyle

    One issue that hasn't been brought up much deals with credit cards and the amount of debt that Americans have built up. There should be laws placed on credit card companies that no high school aged children can receive cards and all people ages 19-24 should only be allowed 1 card with a $500 limit. All other non-business owners should be allowed 2 cards with a $500 limit on each card. Business owners could have 2 cards with a $5,000 limit on each.

    There are too many people in this country that do not understand the dangers of credit cards or have the will power to use them properly. Having lower limits and fewer cards would teach the average person financial responsibility and a PAY AS YOU GO mentality that the government has mentioned, but failed to follow themselves. If these laws were enacted I feel that in five years the average citizen would be in better financial shape, fewer companies would be taken advantage of and we would possibly see a rise in the middle class due to having saved more money and not charging items they cannot afford or have the intention of paying off.

    Set a deadline for these laws and warn citizens that anyone caught charging thousands of dollars before the laws take place that they will be prosecuted to the full extent of the law. Even with all of the packages that the President has and will enact, Americans must deal with their own "credit crunch."

    Some people may see this as too drastic, but drastic times calls for drastic measures.

    March 27, 2009 at 5:01 pm |
  22. John L (MN)

    If nothing else, this recession has pointed out how much the world depends on US consumers spending to fuel the world's economy.

    The "recession" may very well be at the bottom and is rebounding. There is much to be said for the "Theory of Expectation"; if people think the recession is ending, it may lossen up their wallets and they may start to spend, thus companies will have to start producing products again, their suppliers will have to start supplying their customers, etc...starting a chain event of prosperity.

    Problem is, I view this less as a recession, more like a “correction”. As more and more jobs are sent offshore, from manufacturing to high tech, as pay scales for every job are now measured against foreign competition (even on shore with H1B's, illegal's, etc) the US standard of living will decrease. I feel that this recession is a precursor for a type of deflation, or revaluation of housing, labor, etc that will take some time to level out. I do not think we will ever return to our 2007 levels of employment and the US's role as lead consumer in the world is soon ending. Sorry to sound so dark, but I think we need to look beyond next quarter or next year and whether to fund "toxic assets" to what our reality is. It is that short sightedness that has gotten us into this mess we may not be able to get out of.

    March 27, 2009 at 5:00 pm |
  23. Thurston Bell

    The question of Public perception of profits by partnership with the government is really the issue. It is the question, and the private partners might find themselves in an AIG situation should they make out handsomely under the umbrella of government protection.

    What is really simple is this reality that lays beneith the question:

    'Will the Public Stand for this?'

    I think we should not, for many investors holding the allegedly toxic asset have already been paid by THE PEOPLE, through AIG Credit Default swaps.

    How many times must people be paid 100 cents on the dollar by the American people before they will stop throwing our Countrymen-women-and-Children into the streets?

    This is the root of the unerlying question of the commentary, and when the masses figure out that the Banks and Investors have been paid some percentage of the debt already, paid 100% by a credit default swap, paid 100% in a bailout, paid something by claiming the loss on a tax return, they will demand that any note that has ever had a CDS attached to it and paid, even when in a bundled security, is legally extinguished. They will no longer countence this game of government backed raping and pillaging of the American People and future generations.

    Since the same is true of CDS on Credit Card Bonds, the people need to realize the Cards and houses might be paid off already.

    How long will THE PEOPLE just take this load of garbage while the property and money is given to the friends of COngress just like Robert Mugabe gave everything to his friends?

    March 27, 2009 at 4:59 pm |
  24. Sam Wolf

    You have no money to spend but want to buy a lottery ticket and ask me for a few bucks. I loan you $10 and say you need to split 50-50 if you win. You say sure, of course. You buy a few tickets and one of them hits big with a prize in the millions.

    What is your obligation to me? Do you simply return my $10 investment with maybe a few bucks thrown in (say $25)? Do you split 50-50? Do you give me most of your winnings (because I am most in need) and keep a small portion for yourself? Or do you say, too bad, winners keepers, losers weepers?

    We know from human experience that most will keep all the winnings, some will give up some token amount, few will split evenly and hardly anyone would give most of it away.

    The private investors want an ironclad guarantee that no one will take their winnings from them. This is the only sticking point that may cause them to hesitate for a nanosecond or two. Their buddy Geithner will make that guarantee come true for them.

    Is it fair? Of course not.

    Barack Obama does not seem so interested in fairness choosing to believe instead in the Reagan fairy tale of "trickle down economics". So while those poor, poor private investors continue to gain riches at taxpayer expense, the rest of us peons will need to pray that one of them has a hole in his pocket so we can scramble madly after the loose pennies, nickels and dimes that we might get...

    Disclaimer: I used to be a core Obama supporter. Not any more.

    March 27, 2009 at 4:58 pm |
  25. Sheryl in CA

    I think if they are willing to risk their money, they should reap the benefits – if there are benefits. Sure the government may mitigate the risks, but the risks are not totally removable. This is exactly what free market and free enterprise is all about.

    March 27, 2009 at 4:54 pm |
  26. Eric Hall

    I just love how people who have no clue how economics work are saying everything is a bad idea.

    Can we at least give these people who studied this all their lives a chance to make it work???

    Most of the advances we have today were from people who were told "it's not going to work" but did it anyway.

    Just let them have their shot at this.

    March 27, 2009 at 4:52 pm |
  27. ray from MD

    What ever happened to risk/reward. If the govt is going to limit the loss, then they should also limit the gains.

    March 27, 2009 at 4:50 pm |
  28. wlu

    I really don't understand much about economics but understand simple questions like:
    Is there food on my table now? barely.
    Have I lost my job? No, still holding on.
    Am I hopeful that the President's policies will help me in the long run? Yes, in the long run.
    Am I scard about the economic situation? Absolutely.
    Have I become more tight with my money since all this started? Yes.
    Have I cut down on my needs? Obviously.

    March 27, 2009 at 4:49 pm |
  29. Lesley Anne

    I think it is real. There is something to be said about speculation, good and bad. Look what happened last year when oil prices spiked on speculation and then went down when demand dropped. We didn't have to drill a single well to accomplish that. I also believe that people are changing the way the live and companies as well in the last few months at least. Another ticker headline on CNN talks about upscale restaurants offering deals, more news is that unemployed people are starting their own businesses, and there have been reports of companies bringing back people who were laid off after receiving stimulus money and being able to retool. There are many other stories like these and after a while the cumulative effect will be a better recovery because we will have created new avenues of wealth. I think the bigger picture is Obama's far reaching agenda that is fueling this uptick. As far as toxic assets, I think that news has to be coupled with the other news that the treasury secretary is calling for regulation over nonbank entities. With new regulatory oversight, it should help eliminate some of the problems we have been subjected to recently. Even the Repubs' plan offers incentives to mortgage lenders, so while I agree with bloggers who say let them keep their profits, I think that a fairer profit-sharing plan could be a better fit for the taxpayers.

    March 27, 2009 at 4:49 pm |
  30. Giles

    Housing debt in 1994 was about $4 trillion. Based on inflation and population growth, assuming the same percent of people "should" own houses, and with mortgages at the same percent of the house's value, that would imply total mortgage debt of somewhere just under $8 trillion. Mortgage debt in the 4th quarter of 2008 was about $14 trillion.

    Housing has come down drastically, to more realistic levels. So, in effect, we need to pay back about $6 trillion (my estimate of the final stimulus package). So, whether it goes to banks, people owning houses, extra government spending, it doesn't really matter. We still owe a lot of money.

    With housing seeming to get close to the bottom, we may be okay, but we're not going up for a while. At an extra $1 trillion a year from the gov't, that still takes us 6 years to get out of this mess...

    March 27, 2009 at 4:49 pm |
  31. Robert

    "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?"

    Are you serious? Let's reverse the question, if private investors take that gamble, and lose, do you think we as taxpayers, or the government should have to pay them back?

    This is ridiculous, if they're willing to take the risk, then they are certainly deserved the reward! Bear in mind, these "private investors" could be you and I if we're willing to stake our cash there.

    March 27, 2009 at 4:49 pm |
  32. Randy

    It's always darkest just before it goes completely black.

    March 27, 2009 at 4:48 pm |
  33. Mike Dallas, TX

    John Thomas....a 50% tax on new construction home building is a horrible idea!!!!! Let me explain why.

    First, new home building did not cause the housing crisis. Market conditions set the market prices, and those conditions were inflated by speculation and now they are deflating to everyone's dismay. These "toxic assets" were caused by unregulated lending practices and irresponsible home buyer purchases. In other words, the loans should not have been made by banks nor should they have been signed by borrowers.

    By heavily taxing new construction, you are forcing more speculation by investors, since they will be the only buyers in the market with enough capital for down payments to obtain loans now that 100% financing and interest only loans are a thing of the past. And if you heavily tax new construction you run the risk of people buying truly "toxic" older homes that are infested with mold, are energy "inefficient", and financially unattainable if the home prices go up like you are saying. Remember, incomes are also going down in this economy. In fact the only group your theory helps is the current homeowner who irresponsibly signed up for a risky loan in the first place. You want to inflate prices so they don't lose on their gamble. However, in the process, you are now removing jobs from electricians, plumbers, carpenters, roofers, landscapers, and on and on, because home builders will not build homes at that tax rate.

    Although I do not agree with all of President Obama's politics, on housing he seems to be on the right track. Our housing recovery will be based on stronger regulations and verifications of applicants ability to pay back loans. It will also come from emerging groups of new buyers such as 1st time buyers. I only wish the President would not exclude investors from his recovery platform as they can keep a tradesman working until new construction comes back. Most investors also increase the condition of the home so they can re-sell or rent the property. This is free enterprise and IS a good thing.

    We, as a country and even as a world economy, need to learn from this lesson of price inflation, and never repeat it again. Out of The Great Depression came the current ability to escape a similiar economic fatality for our country. That was a hard lesson learned. Over-indulgence is now our lesson to learn from.

    This is the way I see things.

    March 27, 2009 at 4:47 pm |
  34. JL, California

    Recessions have a rhythm to them: the stock markets will crash first, which scares people, who stop spending money. Because they're spending less, businesses make less money. After a few months of that, they have to lay people off. So, it tends to be: stocks fall – consumer spending dries up – unemployment goes up. The whole process can take many months. You'll notice that the big unemployment numbers did NOT happen in December 2007, when this recession started; they only happened at the very end of 2008 and beginning of 2009. Unemployment always lags behind the other indicators.

    Recovery has a rhythm, too. The stock market will start to go back up, if slowly and not in a perfectly straight line. People will start to breathe a sigh of relief, and slowly but surely, they'll start to spend more money. Business gets better and after a few months of that, businesses will feel comfortable to start hiring – first temp workers, then more and more full-time employees.

    We're at the beginning of that recovery cycle now. It will take a while; it's not an overnight thing. But by all historical standards, and barring any unforeseen tragedies, this looks like the beginnings of the end.

    March 27, 2009 at 4:47 pm |
  35. j

    What is this a huge problem that no one can understand, or what! Its like the blind leading the blind get real..

    CHANGE is something people can believe in.

    Lets get real! The change we are seeing is like the changing socks at the end of the day. They stink either way.

    March 27, 2009 at 4:44 pm |
  36. J

    Selling these so called toxic assets to private investors is not going to solve the problem. Since the government is backing a portion of the cost as well as providing loans (which investors don't have to pay back if the investment goes belly up) then they are going to take bigger risk as they only need to have say 1 or 5 pay off to make a profit.

    This is just going to delay the problem and put the burden on tax-payers.

    March 27, 2009 at 4:43 pm |
  37. Burt in CO

    My beef with the concept is that it's STILL "heads I win, tails you lose". Privatizing profits while socializing losses. It's patently un-American. Choices have consequences. We have to let that play out; instead we're trying to interrupt it or soften the blow. The markets have to reach a natural equilibrium.

    March 27, 2009 at 4:43 pm |
  38. Sean K

    As I understand it, if there are profits, the profits are split 50/50 with the government getting half and the investor getting half.

    Seems like it would be fine to me.

    I just don't like the downside risk for the government.

    March 27, 2009 at 4:41 pm |
  39. Adam

    Geithner's plan is a good one. The private firm and taxpayer each foot roughly 6% of the cost of these assets. The gov't then issues a loan to the private firm for the remaining 88%. This loan will be paid back at a low interest rate to the gov't and the firm will be rewarded for its productivity in converting the bad asset. This program is very strong because it relies on people who know how to handle assets such as these. Their risk is limited thanks to the taxpayers and loan program (insured by the FDIC) and gives the private firm very little to lose, while offering a very large incentive to be productive.

    Fantastic plan Mr. Geithner, reflected in wall street's 500pt bump the day this plan was announced.

    As far as the stimulus bill goes: it needs time. A large portion of that bill was investment. Which is a good thing. We saw with Mr. Bush's stimulus that simply injecting cash ($600 checks) into the economy resulted in very little stimulus. Unfortunately people want to see solutions now, and do not realize that it takes time for the multiplier effect to be seen.

    Obama gets about a 7.7/10 for his handling of this economy in this tough time.

    March 27, 2009 at 4:40 pm |
  40. Jack

    Mr. Gergen, please provide some people qualified to address the strengths/weaknesses of Mr. Geithner's plan – which is no different in substance than the abandoned plan already paraded out by Hank Paulson. The reason we are doing this as stated by numerous involved parties is the "fix the banks" and "get credit flowing again" – there is a problem with this premise though. The asset values must be allowed to decline! Removing these "bad assets" from the banks just allows bad businesses to survive their mistakes without bankruptcy, and there shoudl be some real debate on why they are receiving such an astounding protection. The American people need to understand why an investor will buy this crippled paper and how the price will be set for investors. To my understanding, if based on market, then the banks wouldn't sell it, because they'd still have to take the exact same mark-to-market loss that they are concealing presently. If below market (as an investor might desire), it is the same problem for the banks. If above market, the only reason the private investor/hedge fund participates is because the taxpayer bails them out via guarantee. There is absolutely no substance to these planned transactions except to transfer the systemic risks accumulated in the banking system to the US taxpayer with a handful of insiders and their wealthy clients receiving a guaranteed profit. How does removing these assets from the banking system without overpaying for them fix the banking/asset value crisis? It simply doesn't. This isn't capitalism.

    March 27, 2009 at 4:40 pm |
  41. Mike

    Welcome to the new world order of the federal government meddling in every part of your life. Would any of the posters here agree that the federal government should be able to come in and deduct more from their wage when they decide that you make too much money (oh wait, they're about to do that anyway)? It makes zero sense to try to entice private investment in this toxic asset plan and then tax them once you feel like those private investors have made enough money. You can't change the rules after the contract has been signed – or can you?

    I've never been more regretful of all the decisions I've made – getting a good engineering education, working diligently to pay off school loans, and making responsible choices regarding marriage, buying a house, and having my beautiful daughter. This adminstration wants to penalize folks in my position and bail out all the junkies who can't run their own lives responsibly. Then again, that's the liberal left for you.

    March 27, 2009 at 4:39 pm |
  42. vincent deluca

    Geithner's plan is doomed to fail.It is these very same toxic assets that set off the unraveling of the economy that he is asking us to invest in again. Why in the world any rational person would buy these useless deriviatives is beyond me. However, with the government doing about all it can to encourage this throwing away of good money after bad money we can be sure that those of the same ilk that invested in these worthless instruments in the first place will be the only ones to take up Geithner's offer. It is nothing but a gamble. You can be sure that the likes of Warren Buffet won't ask to be dealt a hand in this game.This viewpoint is expressed by the most recent Nobel winner of economics Paul Krugman. Why President Obama isn't consulting with Krugman is mystifying.

    March 27, 2009 at 4:38 pm |
  43. Tom

    I think we're finally seeing a light at the end of the tunnel – but will still be in the tunnel for a long time yet.

    March 27, 2009 at 4:36 pm |
  44. Yvonne

    The idea of instant gratification continuing to cloud our perceptions is misleading. Just because the stocks went up at the start of the week doesn't mean that we are out of the woods and should return to excessive consumption of resources without considering the risks – it is no longer business as usual. Stocks can go up however much anyone wishes them to – but they reflect on what is happening on Wall Street – which, dare I say, is separate from Main Street. The heart of this economy is Main Street. Let us face it, Wall Street wouldn't be, minus Main Street. I strongly believe that there is a paradigm shift not just in political and economic fronts, but even in social aspects. The stocks may recover, but I believe where we go from here points in the direction of a more "green" and conscious populace. The truth is – society as a whole is headed in the direction of more rustication and less sophistication. Yes, it is rustication, but it will be complimented by the wonderful technology that exists today. I doubt that people will blindly buy houses and spend without much thinking. Main Street is learning its lessons. Is Wall Street?

    March 27, 2009 at 4:36 pm |
  45. m j from MI

    why wouldn't the hedge funds and the few wealthy investors want to jump in and buy up the toxic assets for pennies on the dollar, since the government is backing most of the risk? they were the ones largely responsible for the whole fall in the housing market in the first place. it stands to reason that they are waiting for the right moment to pounce back in on the bundled mortgages and make all the money back AGAIN, while homeowners lost their shirts. the only problem is they'll actually have to get their hands dirty by actually working to restore all the foreclosed homes and actually touch an asset rather than just sell creatively packaging paper assets, which is wy too easy and convenient. shame on the hedge funds for what they've done to the housing market.

    March 27, 2009 at 4:36 pm |
  46. Mike-IL

    "should they be allowed to keep the double-digit profits?'

    Do we in this country have such an aversion to people making money that we penalize people who take the most risk from making the most profit?

    That shouldn't even be a part of the equation. If the private sector takes some of the risk of these 'toxic assets', they should take all the profits.

    March 27, 2009 at 4:35 pm |
  47. Brian

    Mr. Gergen,
    It seems to me that if the government (read-taxpayers) limit downside risk for the private sector's investment in these "assets" and apparently supplying funding at an extremely favorable rate, then shouldn't we be entitled to participate in the benefit of any windfall profit that may occur? If we're downside partners, we should also be upside partners.

    March 27, 2009 at 4:35 pm |
  48. Paul

    Regarding the housing situation, two points:

    1. Housing is really just another 'possession' (although for most all of us, the most significant one). Unfortunately, housing values do NOT always appreciate, and as with any other purchase, you get what you pay for; in the case of a house, location, location, location is the key number one aspect that creates and contributes to the value of such an investment– IF you look at buying a house as an investment. Some locations (areas of the country, states, counties, cities, and neighborhoods) are more valuable locations than others– and always have been.

    2. The housing market/evaluation basis has been WAY out-of-whack for many years in this country– it's time for a reality check and 'adjustment'– just like what's taking place in our overall economy right now. The 'standard of living' in this country is WAY too large in comparison to the rest of the world, and we don't have a 'right' to expect such a position!

    March 27, 2009 at 4:34 pm |
  49. Paolo

    There is NO accountability or assignment of responsibility by Washington. What is being considered is to beg the scoundrels responsible for creating this fiscal debacle to now bail themselves out with taxpayer money and make [potentially huge] additional profits. The executives continue to run the fiscal machine and blame the system because it showed they were up to no good.

    We need Draconian measures but they will not be undertaken by our spineless self-serving politicians. There is ever decreasing trust in our form of two- party government and there will be long-term Hell to pay. Perhaps a revolution at the ballot box?

    Noted economists and other knowledgeable people have said to nationalize the banks. Instead we are rewarding the “bad guys” by giving our financial institutions more money so they can continue their detrimental [to the country] behavior.

    March 27, 2009 at 4:33 pm |
  50. Joe

    GERGEN!!!!! Where did decide to put your Obama+Gergs 4ever tattoo? I think first of all that today's American media is trying way to hard to brainwash it's consumers rather than delivering the news. The question that you pose is an oversimplification. I don't see home values magically jumping back up to their pre-crash values any time soon. The values were grossly inflated.

    March 27, 2009 at 4:32 pm |
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