Treasury Secretary Timothy Geithner – who hasn’t had many winning days in his short tenure on Pennsylvania Avenue – scored a big political victory Monday, as Wall Street traders breathed new life into his career with a stock market rally of more than 300 points.
The morning began with Geithner briefing reporters on his new bank bailout proposal, which would use $75 billion to $100 billion in taxpayer dollars, plus money from private investors, to generate $500 billion to buy so-called toxic assets from troubled banks. That amount could increase to $1 trillion over time.
For the day at least, the debate in Washington shifted from whether Geithner should keep his job to an argument over the merits of his proposal. “They have a second chance right now and it’s good that they’re seizing it,” said one Wall Street executive. “The fact that anybody would be willing to participate in this program is a real testament to Geithner.”
Here’s how the key constituencies reacted to Geithner.
Geithner’s plan got an early and important endorsement from The Financial Services Roundtable, a trade group for the nation’s largest financial institutions. The group said the plan will help fix a value on the damaged securities, give flexibility to potential buyers and provide enough government-backed financing to make the plan work.
“Combined with other on-going efforts, the plan will help strengthen the economy,” the Roundtable said in a statement immediately after Geithner’s announcement.
And Richard Baker, CEO of the hedge-fund trade group the Managed Funds Association, welcomed Geithner’s proposal. “We share his commitment to promote efforts that will stabilize our financial markets and strengthen our nation’s economy,” Baker said.
Of course, not everybody on Wall Street was thrilled with the proposal. Lynn Tilton is the CEO of Patriarch Partners, a $6 billion private equity fund that has done several deals to buy toxic assets off bank balance sheets, is skeptical that the idea will work. She argues that the plan doesn’t give the potential sellers of the toxic assets enough incentive to take part. They will be reluctant to sell if it looks like someone else will make a windfall from their misfortune, she believes.
‘This should have been set up so the banks can share in the upside,” Tilton said. “This is very enticing for the private sector buyers, and taxpayers’ concerns are quelled, but they’ve left out the third part, which is getting these guys to sell.”
On the Hill, meanwhile, the reaction was predictably split, with Republicans offering withering criticism, and Democrats largely holding firm in support.
Senate Majority Leader Harry Reid (D-Nev.) said in a statement that he backs the plan, though in less than fulsome terms. “Like any investment, this plan carries the potential for both risk and reward,” Reid said. “But above all, we must act – one risk we will not take is standing on the sidelines and doing nothing while a bad situation gets worse.”
House Minority Whip Eric Cantor (R-Va.) argued that the plan provides little incentive for private investors to participate unless they’re given a significant subsidy – money that will come at taxpayer expense.
“In its current form, Secretary Geithner’s plan is a shell game that hides the true cost of the program from the taxpayers that will be asked to pay for it. Six months after Congress debated the first TARP, it is inexcusable that taxpayers still have not been told their true exposure,” Cantor said in a statement.
THE “CHATTERING CLASS”
Many pundits were initially skeptical, but seemed persuaded by the market rally that he plan was already having a positive effect.
Time magazine economics columnist Justin Fox called Geithner’s proposal “logical but not sufficient,” writing that his first concern was that “it’s too complicated and might not work.”
On CNBC.com, BMO Financial Group Global Finance Strategist Andrew Busch wrote, “It’s complicated, it has a lot of moving parts, it attempts to involve the private sector, and no one is sure whether banks will sell these assets to create the program. Other than that, the markets are loving it early.”
And in POLITICO’s Arena, Peterson Institute economist Gary Clyde Hufbauer raved over the plan: “Hooray for team Obama! … The team showed a friendly face to Wall Street and ignored advice to nationalize the financial sector. Can’t do better than that.”
Geithner was partially boosted by savvy stagecraft at Treasury. He spoke without television cameras present, and attracted a group of policy-wonk reporters who seemed far more interested in the details of the plan than they were in the cable news chatter over Geithner’s woes. As a result, Geithner was not asked a single question about the controversy surrounding his handling of the AIG bonus mess, or the speculation over his future in the Obama cabinet.
The absence of television crews seems to have helped Geithner, who has been criticized for his sometimes-awkward on-camera delivery. Sipping from a tall bottle of water as he spoke to a packed room of reporters, Geithner did not seem to be a man whose job is on the line. Although the White House has been forced to issue repeated statements of support for Geithner, the Treasury Secretary appeared confident, spoke without a prepared script, and fielded detailed technical questions.
Lisa Lerer contributed to this article.