“The problems we face today cannot be solved by the minds that created them” Albert Einstein
Obama hasn’t even been sworn in yet, and already the Wall Street cheerleaders are celebrating his first great triumph. According the pundits, the stock market staged a surprise 494 point rally on Friday because–get this–it was announced that Timothy Geithner would be appointed Obama’s Treasury Secretary.
What nonsense. The sudden turn-around in stocks had a lot more to do with short-covering than anything else, but don’t let that get in the way of a good story. Even so, the last minute surge on the NYSE couldn’t stop another week-long bloodbath that ended with the Dow and S&P 500 tumbling another 5 percent. That’s not to say that Geithner is not bright and talented guy. He is; and so is his White House counterpart, Lawrence Summers. But the media hype is way overdone. Geithner doesn’t drive the markets and he isn’t “change you can believe in”. In fact, he’s a protege of Henry Kissinger, a member of the Council on Foreign Relations, and has the same political pedigree as his predecessor, Henry Paulson. They’re both part of the ruling fraternity and their views of the world are nearly identical. There’s no doubt that Geithner will be more competent and effective than Paulson but, then again, who wouldn’t be? Paulson may be the biggest flop at Treasury since Andrew Mellon steered the country onto the reef during the Great Depression. The recent flap over the Troubled Assets Relief Program (TARP) just proves the point. After convincing Congress to pass a $700 billion bailout plan–by invoking the specter of economic Armageddon and martial law–the former G-Sax chairman proceeded to set up a program for buying back mortgage-backed securities (MBS) and other junk paper from his banking buddies. Paulson argued that removing the crappy loans would help the banks get back on their feet and start lending again. Of course, no one could really figure out how the process was going to be executed, but maybe that’s just nit-picking. Fortunately, Paulson never got a chance carry out his plan. He was torpedoed by the stock market which plunged seven days in a row losing nearly 20 percent of its value until Paulson threw in the towel and did what 200 economists had suggested from the very beginning—buy preferred shares in the banks so they could rev-up their credit engines again.