A Nice - Well Thought Out - Plan

WaPo has an article on how the just announced "Plan" from Geithner & Co. was changed at the last minute from what had been planned for weeks. They apparently realized late in the day that what they were planning on proposing was too expensive, too risky and too politically unacceptable. Wow, I thought that of the Plan they did announce, so I guess we got lucky. I am not feeling so lucky, but it is all relative.

http://krugman.blogs.nytimes.com/2009/02/17/the-geithner-delay/

Off to a bit of a rough start, but with any luck (okay - a lot of luck) they will figure it out on the run. Do they really have any other choice? Do we really have any other choice? Afraid not.

And obviously you cannot please all the people all the time. Just when half of us are complaining about spending too much on the Plan (and the structure of it), the other half are complaining it is not enough. Greenspan is in the latter half, so I feel much more secure in being in the first. Greenspan thinks we need to spend more on TARP as banks will not start lending until they feel comfortable with their capital. Guess what, they won't start lending until they feel comfortable that the crap on their books is stabilized, which is a long way off. They also will not start lending until they have a belief those they are lending to will be around to pay it off. This is not just about liquidty. It is also about trusting what is on someone else's books.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a1VL7sNIBt9g&refer=home

Overall, I still think the Plan is the wrong approach at the wrong time (or any time). You have heard me rant enough about that, however, so I will spare you this time. I will point to an excellent post by John Hempton at Bronte Capital. The good news is that he looks at the banks in the U.S. and under "most" definitions of insolvency considers them by-and-large solvent. The bad news is that they failed by some tests and, moreover, he does not like the Geithner Plan, or the lack of a plan therein. And if you live in the U.K. he does not look so favorably on their solvency. Now I am not sure he is properly considering what impact U.K. banks folding (being nationalized -or nationalised) will have on U.S. banks ,or what a spiraling down world economy will mean to them either, but he is giving this situation some nice studied thought. His plan on how to "stress test" the banks is creative. I like it. It will never be adopted, but I like it. He may be right that nationalizing banks is not a plan so much as a recognition that no plan is working. I do agree it should only be done with those that we determine are insolvent, by at least some means, but I think it needs to be done to some. Right now, no plan is working and constantly shifting plans is getting us nowhere.

http://brontecapital.blogspot.com/2009/02/bank-solvency-and-geithner-plan.html

What I also will point out is that it looks like doubts about the Plan, either based on its structure, its size, the news that it changed at the last minute or otherwise are not helping the markets. Indeed, not much was out there today to help the markets. In the U.S. they returned to a three month low and in Japan, well they seem to be at a roughly 25 year low on the Topix index. It could be worse and in Japan it is.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aWVkxlKnYCzQ&refer=home

http://www.bloomberg.com/apps/news?pid=20601087&sid=aEIKhsCHNmMA&refer=home

Some of the market depression is undoubtedly tied to mounting concerns over Eastern European banks. I noted some here on that the other day. Moody's announcing some possible ratings downgrades for banks with subsidiaries or units in certain suspect countries there cannot be helping.

I could go on about the GM and Chrysler plans, but there is a lot out there about these, so you do not need me to deliver more bad news on this. I noted recently that I believe the markets are about to break through price supports and reach a new trading range; I am still there and we are almost there.

Disclosures: None.