Wall Street Rejects Accountability?

The damned near 400 point loss today was in large part due to fear about the banking systems.  Those stocks including Bank of America and Citigroup lost 15-20% of their assets.  Virtually all newspapers and television stations reported the plunge was the fault of the treasury secretary Tim Geithner's new TARP plan.  I never buy into these theories...the media try to assign meaning to these numbers all the time but in the end, they are just theories.

But in this case, it seems that everything makes a whole lot of sense.  The Secretary spoke at 11AM and the sell off began at 11:21AM hitting banks the hardest.  The banks in the worst shape like Bank of America had a lot to gain from this speech because they need the TARP funds.  Fortunately for the taxpayer, but unfortunately for our market, the new administration and Senate/House Dems are pushing for massive regulation.

It all started when Claire McCaskill said what everybody was thinking..."these people are idiots".  She inspired Pres. Obama's $500K salary cap.  Then Republican Senator Olympia Snowe (ME) and Democratic Senator Ron Wyden (OR) announced a bipartisan amendment crafted by the two moderates (who have worked together like this before) that would recall all bonuses of $100,000 or more to the treasury within 120 days of the bill's signing into law or a 35% excise tax would go into effect.  The TARP law is vauge and not only allows Obama to apply the cap to future loans but also allows Snowe and Wyden to apply their amendment to past loans.

Geithner's first mistake of the day was using a very scary number...$2 trillion.  People on Wall Street are very fond of Tim Geithner so when he says that the banks are in bad enough shape to require that amount of money in additional bailouts, a lot of investors are going to get the Hell out of banks and quick to avoid calamity.  Geithner should have layed out a specific plan for the $350B stimulus and not looked ahead, at least not out loud.

The other complaint was Geithner was too vauge.  That is simply not true.  He outlined specific pillars that I believe will work.  First, he wants to continue the current flow of public funds to banks in need of capital.  But with executive pay compensation, full public disclosure and other "strings".  He's going to have a new website, economicstability.gov, that will outline specific use of dollars.

The bottom line is, this sell-off had nothing to do with the plan's vaugeness.  This had to do with the fact that there is a direct correlation between income and conservativeness.  So the people who own stakes in these banks do not like these liberal policies.  Geithner in his introduction repeatedly echoed Olympia Snowe, Ron Wyden, Barack Obama and Claire McCaskill while discussing executive greed and regulations thereof.

I encourage you to watch the full address...part one is on the top, part two is on the bottom.  Think about who the audience is...I think that it's average people.  He even said that this program is not for the banks who caused this problem, it's for the people and businesses who need them.