OPINION: Geithner's crash

Treasury Secretary Timothy Geithner's eagerly awaited presentation on the next steps the government plans to save the financial industry from itself fell like a thud, generating more questions than answers. One should be cautious about one-day swings in the stock market, but the fact that the Dow Jones industrial average fell 382 points after the announcement does not suggest that it inspired a great deal of confidence.

It is not difficult to understand why. The financial meltdown that began in the mortgage securities market was precipitated largely by years of loose-money and government's easy-lending policies. When the housing bubble burst, it exposed problems, including highly leveraged investment vehicles, in the secondary mortgage market, where lenders package mortgages together and sell the packages to investors.

When an investment bubble bursts, the sensible thing to do, even though it can be painful, is to let the market find its bottom and allow it to rebuild from there, even if some banks and financial institutions go under or reorganize under Chapter 11 bankruptcy laws. But last fall the Bush administration decided some institutions were "too big to fail" and dragooned Congress into approving a $700 billion bailout bill, $350 billion of which has since been used in ways Congress didn't anticipate and have been far from transparent.

While it is an exaggeration to say that banks haven't been lending at all after getting bailout money, it is true that most financial institutions have tightened their standards, and credit markets are far from healthy.

Geithner's presentation was billed as a more detailed explanation of what the government plans to do with the $350 billion left in the bailout authorization. Instead, he offered more boilerplate than details and announced even more spending plans. There will be another $500 billion to $1 trillion fund to absorb what are called toxic securities on various banks' books. The government will inject more capital into banks and assume more control over their operations. And the Treasury and Federal Reserve will expand a consumer lending initiative designed to kickstart up to $1 trillion in new lending.

So a problem created by reckless credit expansion is to be solved by expanding credit even more. No wonder the markets were not impressed.

We don't expect an administration ideologically committed to expanded government intervention as the cure-all for all economic woes to embrace a let-the-market-work approach to this crisis. But Geithner needs to come up with a more modest plan with a lot more details about (for example) how the government plans to determine the prices at which taxpayers will buy up securities the market now considers worthless.