Andrew Ross Sorkin asks a good question, and some Wall Streeters answered.
“We have only two things to say about Tim Geithner, who we do not know: A.I.G. and Lehman Brothers,” said Christopher Whalen of Institutional Risk Analytics. “Throw in the Bear Stearns/Maiden Lane fiasco for good measure,” he said.
“All of these ‘rescues’ are a disaster for the taxpayer, for the financial markets and also for the Federal Reserve System as an organization. Geithner, in our view, deserves retirement, not promotion.”
And perhaps the biggest bungle of them all:
It was Mr. Geithner, not Mr. Paulson, for example, who put together the original rescue plan for the American International Group.
AIG could probably have been saved with a bridge loan. But the government took 80% of the company. AIG set the precedent for wiping out equity shareholders and put other financial firms on the precipice and put a target on their back for short-seller snipers. In combination with a series of other errors — clearly not all Geithner’s fault or doing — this move helped undo Wall Street and continues to wreak havoc among insurance companies.
It does appear that we are finally getting some much needed action on mortgage rates. Instead of focusing on “foreclosures,” the Treasury should have told Fannie and Freddie to lower their commitment rate, which would have automatically brought down mortgage rates, which have not followed the 10-year Treasury down. Lower mortgage rates could help restart turnover in the housing market and thus relieve much of the worst-case uncertainty in the MBS and larger credit markets. With the 10-year close to 3%, we could get 30-year mortgage rates into the mid-4s. Let’s hope, after lots of bumbling and fumbling, they’re finally moving in this direction.
