Foreclosure issues still a major hurdle
— -- It was the anticlimax of the new year.
After weeks of anticipation, U.S. Treasury Secretary Timothy Geithner on Tuesday outlined a plan to deliver as much as $2 trillion in public and private funds to the beleaguered financial system. But the plan landed with a thud on Wall Street, where stock markets dived as traders decided the proposal simply did not deliver the details and direction needed.
The reception was not much better on Capitol Hill, with lawmakers complaining that Geithner gave them too few specifics and failed to craft a promised companion plan to slow record home foreclosures, which President Obama has called critical to any economic recovery.
It was not an auspicious beginning for a program that administration officials have touted — along with the $838 billion economic stimulus bill passed Tuesday by the Senate — as crucial to restore battered confidence, repair the banking system and clear the way for credit to start coursing through the troubled economy.
"If we do not do enough now to solve this, then we're likely to suffer further loss of confidence in our financial management. And that will make it harder for us ... to try to solve theseproblems long term," Geithner told the Senate Banking Committee.
Most problematic for many analysts was that Geithner apparently failed to solve a problem that vexed the Bush administration — how to price trillions of dollars of "toxic assets" weighing down bank balance sheets. The new proposal calls for the government to partner with private investors to buy up as much as $1 trillion in assets but doesn't say exactly how.
"I don't call this a plan; it's a tease," said Bert Ely, principal at bank consultant Ely & Co. Ely said that among other things, he was nervous about how the government will handle the sales of assets. "The devil's in the details, but the details weren't there."
The administration's plan "is a huge step in the right direction, but the unanswered details could make or break the success of the program," says Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, which represents the nation's largest banks.
The administration may have hoped that the sheer scale of the plan would send a strong message that it is committed to doing whatever is necessary to pull the U.S. economy out of its worst crisis since the Great Depression. Geithner and Federal Reserve Chairman Ben Bernanke promised to work with lawmakers and businesses in coming days to flesh out the details.
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