The US Treasury Secretary Timothy Geithner, who has faced several criticisms before and after taking office in January 2009, has
recently unveiled a new plan to get rid of the troubled assets clogging banks'
balance sheets. His `bad bank' concept, first of his plans framed on the lines
of the Swedish experience, was rejected because the government had to pump
in a lot of taxpayers' money for bank bailouts. Since the American banking
system flourished for years in the hands of the private players, Larry
Summers, Obama's White House economic adviser, ruled out his second
plan—nationalization of banks.
In the midst of criticisms, Geithner's latest plan—known as
the Public-Private Partnership Investment Program (PPIP)—calls for
working in unison with the private sector to help pump capital into banks and
restart consumer and small-business lending. As the government cannot
fix the financial crisis alone, the best way to get through this is to work with
the markets, says Geithner. Also, he feels that the risk would be equally
shared between the government and private sector if they worked together.
Some analysts view that the new plan is certainly a lot meatier than the
earlier two, and both equity and debt market investors welcomed the plan. The
Dow Jones Industrial Average (DJIA) rose by almost 500 points and the
treasury yields fell by 50 basis points on the day of announcement. The
credit-derivative spreads also narrowed, signaling
a lower risk of bank defaults. Keeping the merits aside, a few analysts
are also skeptical as to how effectively the plan would work.
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