When three top aides to Treasury Secretary Tim Geithner were sent to brief members of the Senate Banking Committee staff on Monday at 6:30 p.m. E.T., they walked into a hostile environment. The GOP was in the middle of losing a hard-fought battle over the near $800 billion economic stimulus bill, while Democrats were being bombarded by complaints about the party's support for it. The last thing any of the staffers wanted to hear were details of a new multibillion-dollar program to try and stabilize the housing, credit and financial markets.
As it turned out, they didn't hear much. The Treasury aides unveiled a broad outline of the six-part plan, but there were few hard numbers or details mentioned. There would be up to $80 billion to stimulate new lending to households and businesses and as much as $100 billion for foreclosure prevention, the aides said. But when it came to the business of bolstering banks, they provided no ballpark figures. As for the still notional public-private fund that Treasury hopes will buy up the toxic mortgage-backed assets that have crippled the financial and credit markets, it was unclear how much would be needed to leverage up to $1 trillion of proposed buying power. And the idea of subjecting the nation's biggest banks to a "stress test" to determine their solvency raised more questions than it answered. (Read "How to Know When the Economy Is Turning Up.")
The Hill staffers say this is all eerily familiar. Last fall, then Treasury Secretary Henry Paulson convinced Congress to give him $700 billion in two installments to tackle the financial crisis, but he ended up altering dramatically his initial vague plans to purchase the bad assets as the crisis unfolded. "Everyone walked out of the room with the impression that Geithner hadn't learned anything from the experience with Paulson," says one senior GOP aide who was in the meeting.
After a surprisingly vague speech laying out the basics of the plan at Treasury earlier in the day, Geithner was humble but blunt in front of the Banking Committee on Tuesday afternoon. He gave the Senators their due, beginning almost every answer with deference to the questioner. He said that while he wasn't asking for anything yet, he could be and soon. "I'm not standing here before you today to ask you to authorize more resources," he told Senator Richard Shelby of Alabama. "I want to be candid, though, that I think this is going to be an expensive problem for the nation, and it's going to require substantial resources." Shelby chastised Geithner for having a half-baked plan, and the ever-combative Senator Jim Bunning of Kentucky attacked him for lack of specificity. (See the worst business deals of 2008.)
Treasury aides were equally at pains to be deferential. A senior Treasury official, speaking after Geithner unveiled the plan, said, "Both President Obama and Secretary Geithner understand very, very well and have got the message very, very clearly from the United States Congress they have to show that this is going to be managed better [than Paulson's program], that it's going to have more transparency, stronger conditions, and that a better case is going to have to be made to the American public that the money is having an impact on lending."
One audience that immediately voiced its disapproval of the plan was Wall Street, which ended the day down close to 5%. To many traders, the announcement was too vague; some felt it didn't go far enough, that by refusing to effectively nationalize the worst banks, Treasury was only going to prolong the pain. The details were so sketchy, in fact, that some observers wondered why the Administration made the announcement now. Treasury officials contend they need to move the plan ahead fast. "The markets wouldn't wait, and we felt it was important to give them an idea of where we are headed," explained one senior Treasury official. "Today, it wasn't that they didn't get details, it was they didn't hear what they thought they'd hear, which was a huge taxpayer subsidy to buy up their bad assets. That's not going to happen, so we wanted to get it out now."
But for all the grousing on the Hill and Wall Street, and all the deference paid by Administration officials, Geithner and Treasury have reason to feel confident about the politics of this new bailout. For one thing, Geithner can start his program using the remaining money from the second installment of the Paulson plan as he said, he doesn't need to ask for new funds yet. More important, the President has soaring approval ratings despite growing public disaffection with Washington's response to the crisis.
Geithner is not taking that asset for granted, and he included public-confidence-building measures in his bailout. Part of the plan as unveiled is dedicated to public reassurance, trumpeting a "new era of transparency, accountability, monitoring and conditions." Treasury says it will require new conditions from firms that receive government assistance, including showing how they are expanding lending; mitigating foreclosures and restricting dividends, stock repurchases and acquisitions; limiting top executives' compensation to $500,000 unless stockholders vote otherwise; prohibiting political interference by lobbyists; and posting contracts and investment information on the Web.
Ultimately, though, not even increased transparency and accountability or Obama's political capital will deliver new money for Geithner's bailout unless the initial program pays some dividends. "It's gonna depend entirely on the specificity of the plan such that he can sell it," says the senior GOP staffer who attended the Monday briefing. "And for the Dems, it's going to matter a lot if it's working."