[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2009/POLITICS/03/27/pm.geithner.treasury/art.geithner.afp.gi.jpg caption="Timothy Geithner announced his plan for taking toxic assets off of the balance sheets of troubled banks."]
David Gergen | Bio
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.
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