Tuesday, February 10, 2009

So You Had A Bad Day.

President Obama and his top economic policy advisors must know that what we are dealing with here is a solvency crisis, not a liquidity crisis. How could they not know that? The five or six leading banking institutions (and a number of the leading non-banking institutions) are, by any reasonable definition, insolvent. That being the case, policies that specifically address the solvency crisis are not just advisable but essential to "re-starting" the financial system.

Treasury Secretary Geitner's sketchy presentation today tanked the markets, because beneath the oddly distant boilerplate, there was a disquieting sense that he wasn't being forthright. He knows it's a solvency crisis but he was addressing it as a liquidity crisis. At a time when everyone is saying "no more make believe," he was making believe.

Martin Wolf has a sober column on this very subject, which I urge you to read. Today was a day when you could feel New York City shudder. There wasn't anyone, anywhere, who thought Geitner's presentation moved the ball forward. It wasn't just a down day. It felt worse than that; a step closer to the ledge.