Tuesday, 10 February 2009

It's the new MEGA Financial Stability Plan*

Tim Geithner, US Treasury Secretary, has today announced a staggering package for financial recovery that will run into the trillions. The package is designed to both cut out the cancer of toxic waste while simultaneously applying electric shock treatment to the patient. It is major, sustained, and will continue until it works.

Toxic assets will be bought by both public money and placed in a Financial Stability Trust and by public-private money and held by private investors. A further shot in the arm will be applied with a massive capital injection with a requirement that banks in receipt of the capital will have to demonstrate that it will increase lending. Loans of all manner of description will be supported through measures to rekindle securitisation: car, student, small business, commercial mortgages, and others will be supported.

A housing recovery plan will also be announced in the next few weeks. Re-regulation of markets is also to follow with the US Government ready to propose changes to the global regulatory regime at London's G20 meeting in early April.

This package of measures in enormous. It is unimaginably enormous. It is most definitely 'everything it takes.'

Any bank in receipt of federal support will have the cash bonuses- rightly- of its staff limited. All the action under the Financial Stability Plan will be placed on a new website www.financialstability.gov as part of the Obama administration's transparency commitment.

Geithner is learning the lessons of the Great Depression and the Japanese economic crisis of the 1990s: act early, act decisively, act big, and act long. This is the main event and it's very big indeed. Expect further developments this side of the Atlantic.

The Dow Jones? Plunged by almost 4%.

*Warning: you may need a whiskey before reading this.

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