Simmer Down, Wall Street

Simmer Down Wall Street. No one really knows what’s going to happen. Well, maybe there are, and hopefully those that know are the ones that helped put together the Financial Stability Plan (FSB) that was released Tuesday morning by Treasury Secretary Geithner. But it is kind of scary to think that the morning a plan to help stabilize our free-falling economy was released, the stock market shed 300 points. Economists are saying that the plan lacked too many specific details and that is why it sparked a drop in confidence in the markets. And confidence, it seems, is not in the vocabulary of anyone in the financial world these days. Paranoia might be a better term.

But in such times of financial paranoia, there can be a tendency to become paralyzed by indecision, unsure of what to do or how to approach the situation. This is exactly the time when our leaders need to take charge to make things happen, and I was impressed by President Obama’s speech on Monday to address the need to pass the FSP immediately. “The plan is not perfect. No plan is. I can’t tell you for sure that everything in this plan will work exactly as we hope, but I can tell you with complete confidence that a failure to act will only deepen this crisis as well as the pain felt by millions of Americans,”. We have never experienced a situation like this in the history of our country and as unemployment continues to rise, there is not enough time for a plan of this importance to get hung up on Capital Hill in a partisan battle of wills. Just look at the State of California to see what happens when two political parties can’t agree on anything. And despite the lack of confidence that Wall Street showed initially in response to the FSP, there were those who felt that despite the lack of details currently in the plan, it might just be exactly what we are all praying it will be. In Tuesday’s Wall Street Journal the following economists commented on the plan:

The “comprehensive” financial rescue plan – Financial Stability Plan – released by Treasury Secretary Geithner this morning is still missing significant detail, including an implementation date. There are far too many missing details to make this a satisfying announcement. Nonetheless – at first blush and without the benefit of key detail – the plan does appear to address the key problems of the financial markets at this point in time. -Ward McCarthy, Stone & McCarthy

It’s really not clear what the plan means; there’s an interpretation that makes it not too bad, but it’s not clear if that’s the right interpretation. The plan deserves praise for what isn’t in it, at least as far as I can tell. There doesn’t seem to be provision for mass purchases of toxic waste at premium prices; there also doesn’t seem to be a massive “ring-fencing” guarantee against private losses on bad assets. In that sense the plan is better than what the last few weeks of leaks led us to expect… So what is the plan? I really don’t know, at least based on what we’ve seen today. But maybe, maybe, it’s a Trojan horse that smuggles the right policy into place. -Paul Krugman, Princeton University

The size and breadth of the package show that the government recognizes the scale of the problem and suggests that it will be prepared to do more if necessary. And the terms of the new cash injections appear to have a greater chance of boosting lending than those seen in other economies. Overall, while the FSP may not be perfect, it is likely to have a beneficial impact on the financial system and increase the chances that the US economy sees a decent economic recovery in 2010. -Paul Dales, Capital Economics

I’ve said it once, I’ll say it again: I’m no expert. So if these people are telling me that this plan, though lacking some specifics, looks like it will address the problems that need addressing, then I’m 100% for it. In the mean time, someone please tell Wall Street to RELAX. The FSP is designed to help, so please refrain from causing the further diminishment of our retirement accounts simply because it lacks a few details. Thanks.

By Andrew Brentan

14 thoughts on “Simmer Down, Wall Street”

  1. Definitely, better late than never. let’s see how far it goes. All we can all do now is to sit back and watch…

  2. Cary real estate

    This is what’s really wrong with our economy these days. The “perception of wealth”and “estimated value”.
    Wall Street’s core purpose is to say “this is worth ____ dollars because we say so”. Nothing has stopped them from driving up the “perceived value” for their own interests.
    Last summer’s spike in the price of crude oil was an abject display of how the perception becomes the reality. The excuses they had for the rise in a barrel of oil have all suddenly disappeared. The “perception” has been lowered back to where it was years ago, but the supply and process never changed. The same process has occurred in the housing markets. Prices rose sharply based on the “perceptions” of the market, but the process and costs of building homes increased a fraction by comparison. The demand stayed the same, but the cost was inflated, and like oil, no one is asking why home values are dropping.

    Regards,
    Michael McLaughlin, Cary real estate

  3. I think a big part of the market scare comes from the fact that they said they are going to “monetize” the payment of the plan. In other words, they are going to print the money. Nobody wants to lend us the money for this. Nobody wants to by bonds to pay for this. We have to print the money. Other countries are starting to trust our currency less. This hasn’t really taken a toll yet. But, you can’t print this kind of money without causing inflation. Inflation scares investors.

  4. I completely agree with Cary. The perception of value for self interest is a major problem. How far will this stimulus package go? I really don’t know. I have always said that throwing money at the problem will not work in a situation this large and complex. My guess is it will have a minimum effect as home prices are still overinflated and equity is shrinking. Let’s hope I’m wrong.

  5. Hey! Nice blog. First time I visit here and have great time to read all the post. Thanks for the sharing your knowledge.

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  7. Calypso Resort Towers

    I agree no one really know what will happened. This time is pretty tough time, just hoping that the economy pick up again a little bit, since the stimulus bill was passed. Also, i hope the new government have a new plan for long term stability of the economy.

    Regards, Jim,Calypso Resort Towers

  8. Bedroom Furniture Guy

    Let hope things get cleaned up soon hey. Some very useful information and points that I hadn’t even considered here. Thanks

  9. Maybe the gov’t should reduce spending and cut back on rescure plans and let the economy settle. It seems that all these rescue and stimulus plans are having a negative impact on our market lately. Just today, the DOW fell 250 points to a 12 year low.

  10. I do agree , no one really know what will happened to our present economy. Let us just wish and pray that everything will bounced back in coming months. What is good about it right now, is that the present President, is doing all he can to make a quick solutions to prevent the total collapse and long term solutions. Let us all see and wait. Cheers, Michael McLaughlin, Cary real estate

  11. Its nice blog… At Wall Street showed initially in response to the FSP, there were those who felt that despite the lack of details currently in the plan.. The perception process has occurred in the housing markets…

  12. While the market’s first reaction was disappointment, Geithner’s plan largely ensures that there will be no further failures of major US financial institutions, unless the economic situation becomes dramatically worse. If this ultimately boosts confidence in the financial system, it could produce a small economic recovery in late 2009.

    Cheers, Samuel(The guy Searching for Panama property)

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