Government’s Failure to Communicate
Sumit Shah submits:
Last week, Treasury Secretary Timothy Geithner finally released more details about the government’s plan to fix the credit markets. The plan, it seems, involves the creation of funds to buy troubled assets from banks that will be backed by public and private sector equity and financed by the public sector. These funds will be allowed to lever up so that the relevant bank assets will be purchased at prices well above what they are currently trading for in the markets.
Detractors immediately panned the plan, claiming that it was merely a subsidy to hedge funds and other Wall Street denizens who helped cause the crisis in the first place. Buying the troubled assets would do nothing to help spur bank lending, and Geithner, they argued, appeared to have been captured by Wall Street. In attacking the government’s plan, many of these detractors continued to indiscriminately throw out terms like “insolvency” and “toxic assets” to give the impression that the majority of the big commercial banks were doomed to either fail or become so-called “zombie banks.” These commentators also ably ridiculed Treasury for its pitiful attempt to rebrand the loans and asset-backed securities on the banks’ books as “legacy loans” and “legacy securities,” terms that sound like government doublespeak designed to confuse or deceive the public.
