Tuesday, February 17, 2009

Timothy Gethner: Captain Regime Uncertainty

As Bill Anderson points out, Robert Higgs in 1997 wrote one of the best and most important papers on the Great Depression called "Regime Uncertainty." It explained one of the reasons that long-term private investment stayed low throughout the 1930's: Because of uncertainty, created by government, businessmen did not make long-term investments for fear of changes in rules and regulations that might take place that would damage their investments.

Tim Geithner seems to want to prove Higgs theory correct all by himself. First, we had his absurd press conference, and now we have a leak, reported by WaPo, from the Treasury trying to explain why Geithner's performance was so bad.

The leaker is obviously Geithner, or someone close to him. The leaker tells WaPo that:

Just days before Treasury Secretary Timothy F. Geithner was scheduled to lay out his much-anticipated plan to deal with the toxic assets imperiling the financial system, he and his team made a sudden about-face.

According to several sources involved in the deliberations, Geithner had come to the conclusion that the strategies he and his team had spent weeks working on were too expensive, too complex and too risky for taxpayers... There was one problem: They didn't have enough time to work out many details or consult with others before the plan was supposed to be unveiled.

The sharp course change was one of the key reasons why Geithner's plan -- his first major policy initiative as Treasury secretary -- landed with such a thud last Tuesday
Is Geithner really this clueless? He changed his entire rescue plan for an on the edge banking sector just days before he was to outline his plan to the country, and is now using this fact, which paints him as totally clueless, for justification for his clueless press conference. Is it any wonder the market was down by 4.0% today? Folks, this is as clear a case of regime uncertainty as you are ever going to get. Nobody has read the playbook because there isn't one. How can anyone invest in the banking sector under these clueless conditions?

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