Treasury Secretary Timothy Geithner has been in hot water over his handling of the AIG bonus scandal, but some are saying his job may be safe after all, pointing to Monday’s 500-point surge in the Dow Jones industrial average following Geithner’s announcement of a bank bailout.
According to the bank bailout proposal, the United States federal government will offer low-interest loans to private investors if they agree to purchase toxic assets, or bad mortgages from banks. Theoretically, once banks are rid of toxic assets, nearly $1 trillion will be freed up, and banks will be able to start lending money again.
On the surface, the very idea of American tax dollars having anything to do with something ‘toxic’ seems like a bad idea. But the U.S. has never seen a subprime-mortgage crisis of this magnitude, and drastic action is needed.
It’s impossible to know if any of the Obama administration’s proposals will bring us out of the financial mess. With today’s 24/7 news media cycle keeping a close eye on the economy, it’s no wonder that many will be looking to judge this bank bailout before it has a chance to take effect. This is the scenario that played out with the $800 billion stimulus package that was signed into law by President Barack Obama on Feb. 17. Only a few weeks passed before it was revealed that Democratic leaders in the U.S. House of Representatives were already considering a second stimulus proposal.
As tempting as it is to issue knee-jerk reactions to the latest economic plans, it is not productive. The stock market is only one unreliable indicator of the true strength of the economy, and whether the market is up or down must be taken with a grain of salt. It could be months or even a year before we see the true effects of this bank bailout or the stimulus package, and any judgments that have been made thus far or those made in the near future are simply premature.