Tuesday, February 10, 2009
(Cont'd from above)...

Jim (cont'd):    But anyway, much of what I heard today was too similar to what I heard before… which made me think of course it sounded just like the bad old days… because Geithner was running the big show, the horror show then under Bush… instead of the New York Fed… now he is running the same horror show under Obama… but rather than be spiteful like everyone else that has now joined the anti-Geithner camp… rather than pile on like some Johnny come lately leaping into the scrum after the whistle is blown… I am actually going to be constructive… because you know what… I heard beneath the morace, the Dow down 300 change… beneath the cagaphony of negative press… I actually heard some new ideas… which if taken two or three steps further may actually yield some surprisingly concrete and terrific results… what is the point of being negative about Geithner… I was the first guy to be negative for a year… what is the point of being negative about Geithner everyone else is negative too… nah, this time I am the enlightened Scrooge… I have seen the financial ghosts of the past, present and future… and now I want to help the elf Tiny Tim… and pay for the TARP operation.

First, about the big sell off… the markets having been pumped up by a now formally idyll Trist press that thrives on Geithner’s obvious leaks… and expecting some huge… something that would be ground breaking… or at the very least breaking with the past… could only go viciously down…. down 4.6%… a little extreme… no one could have equaled the height that he himself stoked… after today I bet Geithner sees the beauty of managing expectations…. while Geithner is no a hero that the press thinks… he is also not a villain like the market thinks… it is not as bad as it looks… I am not kidding… it is not as bad as it looks… he just didn’t go far enough… let’s go over the good kernels.

First, I like that Geithner recognizes that we need gigantic federally created credit facilities… for the private sector to start buying banks and bank assets… there isn’t any credit now… if Geithner could get a trillion dollars worth of financing to the private sector going… and he did pledge just that by the way which I love… then you are going to see some good banks created just to take over a lot of bad ones… you are going to see some assets bought… now if he could start up a government trading desk to match buyers and sellers… we could actually figure out what price these toxic assets are worth… and then give hedge funds financing to buy them…. Tim could you please set that up already… and no money involved… all agency not principle as they say on Wall Street.

I also really like the stress test idea… you got to have a stress test to find out who should get federal help and who should be shut down… we are keeping way to many ner-do-well banks alive… and are not creating enough strong banks to absorb the weak ones… Geithner has got that one right for certain… good job Tim… good job… gutsy and right…. even if the market despised it for being too draconian.

What is the next step he should take… he should have said that once the banks pass our tough stress test… and once they start selling bad assets to the trading desk… we will give them all the money they need… he kind of hinted at it…. all the money they need in the form of a net worth certificate… that allows them to take charge offs and dispose of toxic assets over time… selling them to the now federally funded private sector… he did say that we need to give banks trillions of dollars… but he did not say that we should get a note in return from these banks… that promises we will get paid back over time… Congress would have liked that… if they flunk our stress test and have no hope of paying things back then we are going to seize them… we are going to give them to other banks… take over the bad assets and put them in the FDIC for later sell to private parties… he could have stated that… it was an undercurrent.

Geithner also should have uttered these words… forbearance and time… forbearance and time… because no bank right now in this whole country would pass a real stress test… and it might take years to work out these problems… I think Geithner knows that the regulators should forbear… he knows that they should take a longer term view of the assets… and not mark them to some silly sort of illiquid market… like we do now… which is just killing almost everybody… Geithner was on point here too… but he spent too much time talking about the public private aspects…. not enough time talking about forbearance… certainly no time talking about house price depreciation… I don’t know, maybe he was scared to… he better not be scared next time…. forbearance and time…. forbearance and time… get those words down Geithner it will work for you… that is what we needed to hear… and by the way, do you think I dream this plan up… do you think that I pulled it out of some bodily orfice… no… this is the plan that the US used to deal with the Savings & Loan crisis 20 years ago… forbearance, patience, time, certificates of net worth, promises to pay, and at last seizures if you didn’t… it worked out then… it will work out now… maybe only the 63... maybe, today 64.… remembers it… but I am sure that Geithner could have looked it up in the history books… or maybe Googled it… he came close… but of course that only pays off in hand grenades and horse shoes… so we get the 382 point plunge.

See the great thing about the way that we dealt with the Savings & Loan crisis is not only that it worked… but it also had the added advantage of being a plan… now tomorrow we will wake up and realize…. what did we do… we threw out all the baby stocks with the bath water stocks… everything sold off today… the good with the bad… and when the smoke clears tomorrow… we will remember, thankfully… that the world revolves around not us…. but China… which is up 29% so far this year… so Tim is giving you a chance to buy any of the China derivative plays… or the recessions stocks at a discount… boy did they throw those out… he is also giving you a chance to buy the once accidentally high yielders that had once been taken up too far… and have now been taken apart.

Okay, so here is the bottom line…

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The Bottom Line!:     Everyone has given up on Geithner… even the guys that you and I both know kind of work for him so to speak… everyone… the markets verdict was swift and malevolent… the press and the puntance have turned on the man… and while I didn’t expect the guy who was in the room when Lehman went under… the under duckling who presided over the ad hoc, arbitrary, and capricious measures of the previous administration… I didn’t expect him into a swan… white or black… I do see hope though where the market clearly didn’t… I see Geithner trying to take bold steps… but over hyping and then under delivering… in short, people certainly tuned in tonight expecting me to throw him under the bus… if not push him into the third rail… I say let others do the transportation tossing… I want to do the fixing… Geithner can get there… want to give him another chance… after all, he is the only Treasury Secretary we got.

The market and the public may have given up on Geithner today… but I see hope where the market doesn’t and I want to help fix things let’s give Geithner the benefit of the doubt - he’s the only Treasury Secretary we’ve got...    What I am about is getting thru this period… forbearance, patience, time… all I am saying is give Geithner a chance…. holy cow, I said it… he is the only Treasury Secretary that we got… I am more John Lennon tonight than I am Vlad.



[verbatim recap]

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Jim went on after this segment to take questions from callers, and responded with his comments...

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Q:    I was just curious, last week you warned us, correctly, that the tech rally would be short lived. So I want to know is it over now? Should we now position more defensively, as you advised us last year, high yielders and that sort of thing?

Jim:    Remember, look… as we have been saying over and over again… nothing is absolutely changed… nothing… as the market goes higher we scale out… as they come back we begin to buy again… this has been our pattern every since we decided in the third week of September of 2008... that you should take money off of the table… and reiterated that again in the first week, and second weeks of October… saying that the market is no good for the foreseeable future… so every time it goes up we are going to be selling… every time it goes down we are going to start buying… and pick up the accidental yielders… this is no different… you hear these people saying it is going to 6000.. it is going to 12000... they are all wrong… it is doing nothing… when it goes up we sell… when it goes down we do a little buying… and we do it individual stock by stock… not even sector by sector.

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Q:    Why do you think Geithner was given such a free pass on his tax issue when he was confirmed? Because if it had been during a previous administration, it would have been a huge scandal, his nomination would have been sunk, he would have withdrawn his name, but this time he just goes straight thru with nary a comment, why do you think that is?

Jim:    Well, he is a much loved figure behind the scenes… he obviously must be an incredibly nice man.. he has manipulated the press beyond anything I have ever seen before in my life… he basically owns the New York Times… how about today when the New York Times says he was a big hero… I mean I love it… I mean the press is such a sucker for the guy… I mean, look I don’t get the calls so I have to deal with the facts… so I have to deal with reality and the facts… I deal with it empirically, rather than anecdotally… but it is absolutely true… remember, my lawyers told me that had I done what Geithner did, it wouldn’t be a question of confirmation it would be a question of indictment… but Geithner has got the free pass… except for today… and now everyone who loved him… hates him… I kind of like the guy… I am warming up to him.

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Q:    Let’s simplify this stimulus package. Why don’t we just cut individual federal income taxes to 10% or 15% with no deductions? Have the corporate rate tax at 20%? With no capital gains tax for two years, and then restore it to a maximum 15%?

Jim:    You had me until that capital gains tax… because you know the rich people have capital gains… you actually come in with the politics of a “Guaranteed Income” by Daniel Patrick Moyningham, which is what Nixon wanted… you are a closet Nixonian… here is the deal… I think that tax cuts… I don’t know… neither pro nor con there… I saw what the new tax level is… I mean, I owe more than I make with the new tax thing that Obama has come out with it…. that is a little daunting… but you know, I am not focused on the tax cuts… there is other guys… there is mustard seed guys, I like some of them you know… they are all about that…

[verbatim recap]

[end of segment]

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