Tuesday, February 10, 2009

Bailout “Overhaul”: Geithner to Go Begging for Hedge Fund Support

I am trying to piece together the details of the bailout overhaul. Treasury Secretary Tim Geithner says it’s a new approach but I haven’t been able to find anything really new that is big enough that you wouldn’t just call it window dressing.

The biggest funding change involves $100 billion that would apparently be used to encourage hedge funds to send more money to banks, so that the banks can increase lending to consumers, businesses, and now, shopping malls. If this plan were 100 percent efficient, it should in theory be equivalent to shortening the financial squeeze by a week or two, but it is such a screwy plan we will be lucky if it shortens the recession by more than one day.

The separate “public-private partnership” to get hedge funds to buy more bank assets, and perhaps make loans directly to businesses, doesn’t look like it will do anything at all. Possibly it is just a way for the Treasury to take credit for some of the routine transactions that hedge funds do anyway. For this plan to work, though, investors would have to load trillions of dollars in new money into some of the more troubled hedge funds. It’s hard to imagine where that private funding would come from, and Geithner didn’t seem to have any suggestions or scenarios to offer. It sounds as if Geithner will go visit the hedge funds, hat in hand. Perhaps they will buy him lunch.

We don’t know yet what the home mortgage initiative will be, but with $50 billion to spend — that’s a lot less than a month of mortgage payments — it couldn’t be very big.

“Stress test” is the buzzword for the stricter rules for banks to qualify for bailout money, but these “rules” appear to require little more than a nod and a wink from banks, and banks that have already received bailout money are exempt from even that. No real change there.

Less than five months ago, Obama was in Congress and was one of the key figures pushing through the Wall Street bailout funding. And so it should not surprise anyone that for now, the Obama administration is planning to continue the same disastrous bailout initiatives, trying, fingers crossed, to do them a little bit better. No one should be waiting for these programs to rescue the economy. Perhaps we should consider ourselves fortunate that Obama is not asking Congress for another trillion dollars to give to Wall Street.