Geithner: Will He Disappoint? Excerpts from Upcoming Speech

The focus in the financial markets this morning is on US Treasury Secretary Timothy Geithner. He is set to unveil the Obama Administration’s Financial Rescue Plan and the TARP portion of the plan is being rebranded as the Financial Stability Plan and the big question is “Will the rescue plan be enough to turn around the US economy or will the critics crush any optimism?”

Currencies are trading lower ahead of Geithner’s 11am ET speech because there is talk that a bad bank will not be apart of the plan. Excerpts from his upcoming speech have already been released and so far, there is nothing to get incredibly excited about. If Geithner is not completely confident about the Treasury’s plan, traders could plow right back into the US dollar on the fear that the US government is rolling the dice once again.

Expect a cocktail of initiatives that may include a bad bank that buys up the toxic debt or at least some sort of asset guarantee, more oversight, a plan on how to use the remainder of the TARP funds, expansion of the Term Asset Backed Securities Loan Facility to help private investors and direct assistance for homeowners facing foreclosure. One of the big questions will be how the toxic assets will be priced. If they are sold at market values, banks may have to report significant losses, which would erode their balance sheets even further.

Here is a reformatted version of excerpts from Geithner’s speech courtesy of Bloomberg News:

Wire: BLOOMBERG News (BN) Date: 2009-02-10 13:44:56
Geithner’s Feb. 10 Speech on Financial Recovery (Text Excerpts)

Feb. 10 (Bloomberg) — The following is a reformatted
version of excerpts of prepared remarks for Treasury Secretary
Timothy Geithner’s speech on the financial-recovery program
today. Geithner is scheduled to speak at 11 a.m. in Washington.

As President Obama said in his inaugural address, our
economic strength is derived from “the doers, the makers of
things.”
The innovators who create and expand enterprises.
The workers who provide life to companies and, with their
earnings, support families and invest in their future… This is
what drives economic growth.
The financial system is central to this process,
transforming the earnings and savings of American workers into
the loans that finance a first home, a new car or a college
education, the credit necessary to build a company around a new
idea.
Without credit, economies cannot grow, and right now,
critical parts of our financial system are damaged.

Instead of catalyzing recovery, the financial system is
working against recovery, and that’s the dangerous dynamic we
need to change.
It is essential for every American to understand that the
battle for economic recovery must be fought on two fronts. We
have to both jumpstart job creation and private investment, and
we must get credit flowing again to businesses and families.
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Currencies Soar on Reports that Obama Picks Timothy Geithner as Treasury Secretary

On a day when the market had nothing to be happy about, the leak of President-elect Barack Obama’s Cabinet announcements have erased one major uncertainty for the financial markets, helping equities and currencies recover. The NY Times reports that Hillary Clinton has accepted the post of Secretary of State and NBC reports that Timothy Geithner will be named Treasury Secretary.

When compared to the vast experience of Lawrence Summers and Paul Volcker, Geithner is definitely the more spirited choice. In order to command the same respect that Summers and Volcker may have instantly received from Wall Street, Geithner will have to hit the ground running at an unusual pace to reassure investors. The benefit of choosing Geithner is that he has been intimately involved with the current financial crisis from Day 1. There will be continuity and no need for any major transitions.

In order for the financial markets to hold onto their gains, Geithner will have to work with Paulson and Bernanke immediately to figure out the best ways of using the second half of the $700B bailout package.

Here is more information on Geithner:

Timothy Geithner has been serving as the President and Chief Executive Officer of the Federal Reserve Bank of New York since 2003. Up until the latest financial crisis, he has been relatively unknown especially when compared to Summers and Volcker. However he has been instrumental in helping Hank Paulson resolve the current financial crisis by first brokering the JPMorgan Chase acquisition of Bear Stearns. Since then he has called for overhauling the regulation in the financial industry, been intimately involved in the government’s decision to let Lehman Brothers fail and played a key role in the dispute between Citigroup and Wells Fargo over Wachovia.

Geithner is also a protégé of Lawrence Summers and has been involved in the bailouts of Brazil, Mexico, Indonesia, South Korea and Thailand in the 1990s as the Undersecretary of the Treasury. He has less far less enemies than Summers and works well with both Republicans and Democrats. Geithner is credited with warning Wall Street Banks in 2006 and 2007 to figure out what would happen to their portfolios if one their main competitors failed. He was worried about the smoke and mirrors that complex credit derivatives can have on balance sheets. Geithner’s only shortfall is that he has worked too closely with Paulson in resolving the current financial crisis which has both strong supporters and critics.

This is an incredible opportunity for Geithner because the challenge that lies ahead is one that will cement a reputation for decades to come and we wish him good luck!