Tim Geithner speaks, and this is how the markets react. For EC4024 students, when I say the market is turbulent, this is what I mean. Essentially, the market is saying "Oh Shit, we don't believe this guy", and the extent to which the majority of market participants feel this way is reflected in the precipitous slide you can see in the picture below, right after the arrow, courtesy of the always awesome jck.
Here's Geithner's plan, and here's a summary by Matt, one of jck's commenters:
Advocates use of a public-private solution as though the Fannie/Freddie debacle never happened.
Advocates use of “stress-testing” to measure bank soundness as though the failure of VaR never happened.
Advocates limiting the purchases to “safe” AAA securities as though the breakdown of rating agency risk models never happened.
Defines “accountability and transparency” as the volume of bank loans made, not their creditworthiness, as though the collapse of underwriting standards never happened.
Also very short on detail for something labeled a “fact” sheet.
Now, here's the pic:
Check out MYNSKY PONZI ECONOMY very topical with all this recession ; Hedge Borrowers; Speculative Borrowers; and Ponzi Borrowers.
The "hedge borrower" is one who borrows with the intent of making debt payments from cash flows from other investments; the "speculative borrower" who borrows based on the belief that the appreciation of the value of the assets (e.g. real estate) to refinance or pay-off their debt but who does not have sufficient resources to repay the original loan, otherwise; and the "Ponzi borrower" ) who relies on continually rolling over the principal into new investments
Cheers Oliver, check out my other course, EC6012, you'll find it heavily influency by Minsky and other Post Keynesians. Thanks for reading! Where do you see us now? Ponzi, Speculative, or Hedging?