With the economic system of the United States and perhaps the world on the line, President Barack Obama and embattled Treasury Secretary Timothy Geithner had to sell a reluctant and skeptical Wall Street that their bank recovery plan had the right answers.
Based on Monday’s rally in the stock market, it appears they may have made the sale.
The jury is still out on whether or not the plan and accompanying rally are sustainable but the initial reaction gives the administration some hope after a prolonged public flogging on the AIG bonus debacle and other missteps by the young administration.
For Geithner, this became a "do or die" moment. Failure Monday would have meant his job. For Obama, it became a critical test on his administration’s ability to produce something with positive results.
The next test comes when the hoopla dies down and Wall Street, Congress and the American people get a peek at the fine print. And, of course, the plan depends on the willingness of private investors to take a chance on the "toxic assets" that currently overwhelm the American banking system.
That’s when we find out if the plan is substance or smoke and mirrors. Stay tuned. This could be an E-ticket ride.
This time President Obama directed some of the stagecraft. This time Treasury Secretary Timothy F. Geithner fleshed out the substance of their long-anticipated program to remove banks’ toxic assets and revive the financial system. And this time the reaction was widely positive, giving the embattled Mr. Geithner a critically needed boost.
Mr. Geithner had a lot on the line in Monday’s announcement, despite Mr. Obama’s repeated insistence that his job was safe. The Treasury secretary’s highly publicized unveiling six weeks ago of his plan’s “framework” had been panned for lacking details, hobbling Mr. Geithner as he was trying to build credibility with the financial markets and clout in Washington.
He suffered further political harm last week for not stepping in sooner to block the taxpayer-supported American International Group’s payment of employee bonuses, and the fallout from that episode — including a House vote to impose punitive taxes on the recipients of the bonuses — threatened to scare off the same investors he needed for his plan to work.
Much still needs to be done to execute the plan. It drew criticism in some quarters for not being aggressive enough in addressing the bad assets weighing down the financial system, and from Republicans on Capitol Hill for leaving taxpayers too much at risk.
But the first-day verdict on the Dow Jones average went in the right direction for Mr. Geithner this time, up nearly 7 percent and 500 points, in contrast to the precipitous slide after Mr. Geithner’s first effort, when his inability to explain in any detail how the program would work left Wall Street jittery about whether the administration had a workable plan.
A Treasury spokeswoman insisted the only difference was that Mr. Geithner had the time to complete details so complicated that they amount to creating a new financial system with global reach. But beyond the substance, the administration also had a more careful plan in place to introduce the proposal, because neither Mr. Geithner nor Mr. Obama could afford another negative review.
“Did we do things differently? It’s self-evident that we did,” Rahm Emanuel, the White House chief of staff, said in an interview.