Brett Joshpe

Barack Obama and his new Treasury Secretary Timothy Geithner are handing Republicans a golden opportunity to pin down the new administration early in its term. Obama and Geithner will announce a plan today to purchase toxic assets from banks, continuing the policies of their respective predecessors, George W. Bush and Henry Paulson. Opposing this latest socialist effort gives Republicans a rare opportunity to distance themselves from the Bush administration, while challenging Obama on his already stale pledge to change the ways of Washington.

Reeling a bit from having to expend more political capital than anticipated in pushing a stimulus package through Congress, Obama is now increasingly vulnerable to public outrage with Washington interventionism. And for all of Obama’s rhetorical swipes at the policies of George W. Bush, the new President’s response to the economic crisis differs primarily in style at the moment from Bush’s.

The latest plan—which Obama tells us is “comprehensive”—involves several components. One of the main features is the “bad bank,” which is designed to purchase toxic assets from banks and, therefore, remove them from the balance sheets. Of course, this is precisely what the first round of the Troubled Asset Relief Program (TARP) was supposed to accomplish. The new plan, which Obama is calling The Financial Stability Plan, raises as many questions as it answers, such as what constitutes a bad asset; how does the government value the asset; should the asset be purchased for a premium, thus further exposing taxpayers, or a discount, thus causing greater write downs for already weak financial institutions? Financing for the bad bank will come partially from TARP funds and partially, we are told, from the private sector, although the administration has provided little detail as to how that would work. All of these questions are better answered by the market, not the Treasury Department.

The government also plans to inject new cash into the financial sector in return for preferred shares that will convert into common shares in several years. The infusions will come with new strings attached, such as executive compensation limits. The plan will also expand the Federal Reserve Bank’s Term Asset-Backed Securities Loan Facility, which is a federal lending program to finance the private purchase of certain asset-backed securities.

Brett Joshpe

Brett Joshpe is co-author, along with S.E. Cupp, of the book, "Why You're Wrong About the Right: Behind the Myths: The Surprising Truth About Conservatives."
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