Quality info; thanks for everything.

John Mauldin released a new weekly newsletter that, like Nouriel Roubini, suggests that Geithner does ‘get it’ but is waiting until the right moment to reveal the full extent of the necessary policy response. Here’s what he says:

http://www.frontlinethoughts.com/printarticle.asp?id=mwo021309

The critics were quick to pan Treasury Secretary Tim Geithner’s bank bailout plan as being weak on details. Which was true. There wasn’t much substance in his speech. But let me offer a contrarian view. Geithner and the team around him may not be entirely tone deaf. They are very smart people and are surely in contact with major Wall Street figures, and would know that the lack of detail would disappoint.

Pretty much everyone knows the scene from A Few Good Men, where Jack Nicholson tells Tom Cruise, “You can’t handle the truth!” ( http://www.youtube.com/watch?v=8hGvQtumNAY)

What if the number that the Treasury and the Fed are looking at is a lot more than the remaining $350 billion in the TARP program? As in another $1 trillion more, or even the $1.5 trillion that Roubini says may be out there (and other independent analysts, like David Rosenberg of Merrill, say there may be another $2 trillion in losses). Can you imagine what the market reaction would have been if they had announced that this week? The Dow down 400 points would have seemed like a Sunday walk in the park. Congress would be screaming, and the chances for the stimulus package to pass would have materially diminished.

I don’t think we know the real extent of what it is going to cost to shore up the banking system. But the consensus among the financial leadership is that we have to fix the credit system no matter what the costs, or risk a repeat of the Great Depression. That is the essence of what Irving Fisher taught us some 75 years ago, when faced with a deflationary debt crisis.

So, let’s see where this leads us.

Thank you for your contribution there. It should put things into perspective for Americans and Brits. I think you highlight the lack of cultural awareness and defensiveness that the ‘cultural’ response demonstrates. I find Obama a willing internationalist, but surprisingly parochial in his world view (i.e. everything from a distinctly American historical lens)

I will look to expand on what you are saying in a future post regarding Sweden in particular. Do you have any knowledge regarding Finland and Norway because the experienced similar problems around the same time? Please feel free to add more commentary on Sweden as well.

@Ranger Turtle,

Rush Limbaugh? I am miles away from him politically. I support our President but must take an objective view as to the efficacy of his policy making. Do not take my criticisms as partisan cheap shots.

@hbl,

let’s hope this is indeed a trojan horse as Krugman suggests it could be. Roubini’s explanation makes a lot of sense especially in regards to what Swedish Lex says. I don’t think people realize how much hand-wringing went into the Swedish decision. These are not decisions taken easily, usually as a last resort. My hope is that we can avoid systemic risk before an effective long-term solution is found. And remember, just because we leave recession does not mean the problem is solved; Japan left recession three separate times during their lost decade.

BTW, banking regulators were descending on the major banks at the same time as their CEOs were being grilled in congress.

Read the NYT article: http://www.nytimes.com/2009/02/12/business/12stress.html

Obama views Swedish “culture” relating to markets different from that of the U.S., which is correct in some regards. However, the Swedish Government that ultimately was forced to nationalise banks was center-right and had been elected on a platform of privatisation and tax cuts. In parallel with reluctantly nationalising the banks, the Swedish Government carried out most of its electoral promises and hence privatised industries and openend closed sectors of the economy to competition. These moves were bold as they were done when the economy was in free fall.

To assert that the Swedish Government gladly nationalised the banks is false. On the contrary, it was ideological heresy for those who had to do it. Furthermore, the Ministers at the time put taxpayers’ interests first by ensuring that they would get their fair share of any up-side once the decision to nationalise had been taken.

Sweden is a small country that cannot afford the luxury of not being pragmatic. What about the U.S.?
— Swedish Lex