- The Washington Times - Thursday, February 12, 2009

WASHINGTON (AP) — That bomb of a bailout intro could make things tougher later on for the administration.

President Barack Obama and his top financial officials will be picking up the pieces and filling in the blanks in the sprawling bailout overhaul package in the coming days. And lawmakers and market professionals suggested Wednesday that the bad early reviews from Wall Street and Capitol Hill could complicate winning public and market confidence along the way.

Obama had said that his new treasury secretary, Timothy Geithner, would deliver “clear and specific” steps to revive the nation’s financial system. “He’s going to be terrific,” Obama bragged to reporters. But Geithner’s performance was a flop.

Bert Ely, a longtime banking analyst, said the administration should have sought more feedback from knowledgeable investment professionals before unfurling the plan.

“I think everybody is really scratching their heads and asking what happened? And now they’ve really put themselves behind the eight ball. The expectations are even higher, and they’ve got to start fleshing this out,” Ely said.

Rep. Scott Garrett, R-N.J., a member of the House Financial Services Committee, said the rocky start didn’t bode well for future announcements. “The next time we actually start seeing the details, let’s say tomorrow or two weeks from now, people will say, `Yeah, well, maybe that’s it, or maybe there’ll be another one.”’

Lack of concrete details, unduly high expectations, a shaky performance by Geithner and overall economic angst led to the thumbs down on Wall Street and Capitol Hill, lawmakers, traders, economists and analysts suggested.

“The devil is in the details,” Jamie Dimon, chief executive of JP Morgan Chase & Co., told a House hearing. Dimon was just one of several Wall Street CEOs who sounded less than clear about the latest effort to prop up the nation’s troubled banks.

Standing his ground, Geithner defended the shortage of specifics on Wednesday during another round of congressional hearings.

“I did not want to compound the mistakes of the past 12 months by rushing out a plan,” he said. “I will live with that disappointment because it is better than the alternative.”

His detractors counter that the Obama team has been working on economic recovery issues since early in the presidential transition, and that Geithner himself had helped draft the original bailout plan last fall as president of the New York Federal Reserve.

At first glance, the plan described by Geithner sounded ambitious and forceful, a wide-ranging rescue that could send $2 trillion coursing through the nation’s weakened financial system. It included a fresh round of capital injections into banks, an expansion of a Federal Reserve lending program, a public-private effort to relieve banks of bad loans and the promise of $50 billion for homeowners facing foreclosure.

But on closer inspection, many of the proposals were modifications or continuations of the rescue effort launched last year by Geithner’s predecessor, Henry Paulson.

“The feeling yesterday was deja vu,” said Quincy Krosby, chief investment strategist for The Hartford Financial Services Group Inc.

The more novel initiatives in the plan lacked detail, especially the proposal for a public-private partnership to buy bad mortgage loans and other toxic assets that are clogging bank balance sheets.

“Everybody thought there was going to be an actual plan everyone could jump on,” said Lynn Tilton, whose private equity firm, New York-based Patriarch Partners, specializes in rebuilding distressed companies. “But then we didn’t get details.”

Geithner “was so bad, I actually felt sorry for him,” she added.

Many were rattled that much of the “new” lending in the plan would come from the Fed’s singular ability to create money with potential inflation consequences later.

The Dow Jones industrials plunged 382 points Tuesday to the lowest level since Nov. 20.

Obama suggested Wall Street was “hoping for an easy out on this thing, and there is no easy out.” White House spokesman Robert Gibbs said Wednesday Geithner’s plan was “not designed to take care of the market for one day.”

The Dow finished up 51 points on Wednesday after the announcement of a tentative $790 billion agreement on Capitol Hill on the other prong of the administration’s economic recovery plan, a stimulus mix of public-works spending and tax cuts that Obama contends will create or save some 3.5 million jobs.

Together, the stimulus plan in Congress and the financial rescue plan being overseen by Treasury and the Fed could end up marshaling nearly $3 trillion toward revitalizing the economy, and the enormity of the task is contributing to anxiety among policymakers, corporate America and individual investors and consumers.

“We’re really operating in uncharted waters. The stimulus package and the financial-institutions rescue package are really crap shoots. We really don’t have any sense of how they’re going to work out,” said Ross Baker, a Rutgers University politics professor. “We’re really talking about remaking the American economy and the banking system.”

Administration officials acknowledged Wednesday that they did not manage expectations well, suggesting hopes may have been raised too high by news reports that the plan would include features it did not, including creation of a so-called government “bad bank” to vacuum toxic assets off bank balance sheets in hopes of eventually reselling them.

“I have no doubt that what some people read in the newspaper charged their excitement and expectations up about something that wasn’t ultimately in a plan,” Gibbs said.

Many banking professionals complain that the Geithner plan lacks a reliable way for valuing the illiquid mortgage-backed securities that the administration wants private investors to buy in a still-unspecified partnership with the government.

The administration says markets would determine the price, but no benchmarks are offered. For months, banks have struggled with this very issue, just how to value the troubled assets on their books.

The plan also proposes what Geithner called a “stress test” for the nation’s largest banks, those with $100 billion or more in assets, to determine whether they can make loans on their own or need further government aid. But it gives few specifics. And it proposes $50 billion to prevent foreclosures, although leaves it up to Obama to announce details a few weeks from now.

“The market was clearly disappointed that there weren’t more details surrounding the private-public partnership,” said Michael Sheldon, chief market strategist at RDM Financial Group. “Patience is something that investors don’t have a lot of right now. The longer we go on without more concrete news on this plan, the more fragile the markets might get.”

Associated Press Writers Matt Apuzzo, Christopher S. Rugaber, Martin Crutsinger and Jennifer Loven in Washington and Madlen Read and Tim Paradis in New York contributed to this report.

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