Wall Street Slams Plan With Sell-Off
Wednesday, February 11, 2009
Treasury Secretary Timothy F. Geithner vowed yesterday to bring the "full force" of the U.S. government to battle the financial crisis, assembling an unprecedented coalition of agencies and mustering federal resources on a scale rarely seen except at wartime. But the lack of detail in his plan dismayed lawmakers and investors, triggering a steep sell-off on Wall Street.
Treasury officials said they would commit $1.5 trillion in public and private funds, just for starters -- with the possibility of more than $2 trillion -- to aid banks, unfreeze consumer credit markets and stem the soaring foreclosure rate.
How Geithner would accomplish some of those tasks remained unclear yesterday. The Treasury Department provided only the most general descriptions of how struggling homeowners and small businesses would be helped. And officials said they have yet to design a program that is a core part of the plan: A public-private initiative that would encourage investors to buy up the toxic assets now weighing down the books of banks and threatening to overwhelm the firms with losses.
Cleansing the financial system of these assets, which are backed by failing mortgages and other troubled loans, has vexed officials since Congress approved the $700 billion rescue package in October. But financial analysts said Geithner, who took a strong hand in casting the new plan, appeared to have no better grasp on a solution than his predecessor, Henry M. Paulson Jr.
"What they did is over-promise and under-deliver," said Thomas Barrack, chief executive of Colony Capital, a private investment firm in Los Angeles. "They said there was going to be a plan, so everybody expected a plan. And there was nothing."
Minutes after the plan was made public, stock markets plummeted. The Dow Jones industrial average ended the day down 4.6 percent. The Standard and Poor's 500-stock index, a broader measure, fell 4.9 percent.
Lawrence H. Summers, director of the National Economic Council, said the reaction by the stock markets should not be a black mark on the administration's rescue plan.
"You cannot judge policy by market responses. It's the wrong objective. It's the wrong measure," Summers said in an interview. "The president has made it clear that the focus of our economic policies is on financial and economic performance over time, not day-to-day fluctuations in markets."
In unveiling his plan, Geithner did not ask Congress for more than the roughly $320 billion that remains in the Treasury's initial rescue package for the financial system, known as the Troubled Assets Relief Program, or TARP. For now, the balance of the money to fund the new effort, called the Financial Stability Plan, would come from the Federal Reserve and other government agencies, as well as private-sector contributions.
But in a hearing before the Senate Banking Committee, Geithner indicated that such a request may be on its way.
"I'm not standing here before you today to ask you to authorize more resources," he said. "I want to be candid, though, that I think this is going to be an expensive problem for the nation, and it's going to require substantial resources."
Geithner announced a multipronged strategy that attempts to address the problems of the traditional banking sector, the credit markets that provide financing to banks, as well as homeowners and small businesses.