Strange Bedfellows

Later today, Treasury Secretary Timothy Geithner is expected to unveil his agency’s long-awaited plan to remove toxic assets from the financial sector’s balance sheets. Central to the plan’s success is the creation of a public-private sector partnership to absorb the troubled assets to the tune of some $500 billion to $1 trillion. These private sector fellows who are integral to the plan’s success are the same rabble currently being vilified by the President and Congress for its excesses in executive compensation.

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The Geithner plan is a three-prong attack designed to stabilize the financial system and restart business and consumer lending. The plan’s components include:

- A partnership of the Treasury and FDIC to stimulate auto, credit card and consumer lending;
- Government purchasing of securities backed by the SBA loans to encourage lending; and,
- A mortgage-loan modification program to reduce foreclosures.

While the plan calls for a “stress test” for troubled major banks and new infusions of capital for those that need it, it does not address (or I didn’t see it) reorganization as a remedy for these institutions – in other words, they’re all too big to fail.

Writing in this morning’s Wall Street Journal, Secretary Geithner believes that his plan will help to unclog the lending channel and provide a market-based price for these toxic assets, which he feels to be undervalued at the moment. And to help ease the sting of Congressional spankings over executive compensation, Geithner hopes to exclude program participants from executive pay rules imposed by Congress.

Considering the anti-capitalist furor that has seemed to grip the American psyche over the last few months, this “partnership” would seem a risky proposition. And while Wall Street would be certainly within its rights to thumb its nose at the administration for its sanctimonious sermons on executive bonuses, it also understands a good deal when it sees it. If this is an opportunity to make money, Wall Street is in – it will find other ways to keep its fat cats happy.

But for any overtures made by the administration toward program participants with regard to exemption from executive pay rules, I submit the fable of the Scorpion and the Frog as a likely outcome of that proposition…