Last week Selise, Hugh and I watched the 3 1/2 long Geithner hearing until the bitter end, waiting for him to say something of substance and perplexed that he would be dispatched during a time of economic crisis to deliver such a muddled message. Now we know why — there was no plan.
Geithner contradicted himself so many times it was hard to keep track. First he said that they would create a market for toxic assets through a mixture of public and private funds which would set their value, and that this would occur after the banks themselves had been stress tested. But then he said that stress tests couldn’t be done without valuing the assets first, but both could technically be done at the same time. Then he said that stress testing had already begun. Later in the week administration sources were leaking to Ambinder that this was part of some three dimensional chess game where the stress tests would indicate to Congress that the banks who failed needed to be nationalized because otherwise Congress wouldn’t have the political appetite for it, but since Geithner had asserted that the Fed did not need to go to Congress for the $2.5 trillion they would use to bail the banks out but could simply spend the money they deemed necessary, everyone was left scratching their heads about how this all added up.
Geithner indicated that his goal was to "stabilize the core of our financial system," but the new chair of the SEC, Mary Schapiro, says that there are no plans to look into the conflicts of interest running through the US ratings agencies. Having issuers of securities paying the people who are rating their creditworthiness is one of the fundamental causes of the current crisis, and it’s hard to imagine that it will be possible to have any kind of stability or true market confidence until it’s addressed.
Then of course there is the "garbage in, garbage out" activity of the current stress tests themselves.
Krugman says that it’s hard to imagine that things would have gone so badly if the usual Larry Summers suspects hadn’t been talking to themselves, and there actually had been a "team of rivals" that included people such as himself, Roubini, Stiglitz, etc. — where different ideas and perspectives were entertained. As someone who was arguing at the time that the President should be able to choose his own advisors, I also recognized the merit of the arguments put forward by those who said the risk of having no progressives on the Economic team could mean that just these kinds of mistakes could happen.
I think we’re safely in "the best and the brightest" territory, in the true sense that Halberstam meant it.