Market Gives Geithner's Plan A Resounding "Boo!"

The market gave Treasury Secretary Tim Geithner's new plan to rescue our struggling banking system a resounding "booooooo!" today. Market participates suggested the plan left out too many crucial details which they felt makes it lack credibility. The Dow closed down 382 points, or 4.6%, the Nasdaq sank 67 and the S&P 500 fell 43.

Geithner's plan has three main pieces; a bank stress test, a Public-Private Investment Fund, and the expansion of the TALF. The Treasury will also launch a comprehensive housing program.

Many of the outstanding questions surround the Public-Private Investment Fund. Geithner said this part of the plan will provide government capital financing to help leverage private capital to help get private markets working again, targeting the legacy loans that have plagued the balance sheets of the nation's banks. The announcement did not answers questions like "how the assets will be priced" and "how they will be taken off the banks' books without further impeding bank capital levels".

Mr. Geithner said the part of the plan to stem foreclosures would be announced in the coming weeks, also disappointing anxious investors. Geithner said the focus of the plan will be to use the resources of the government to help bring down mortgage payments and to reduce mortgage interest rates.

One possible bright spot was the massive expansion of the TALF to up to $1 trillion. The TALF expansion is intended to kickstart the secondary lending markets to get credit flowing to households and businesses. The eligible collateral was also broadened to encompass other types of newly issued AAA-rated asset-backed securities, such as commercial mortgage-backed securities, private-label residential mortgage-backed securities, and other asset-backed securities.

A number of bank stocks were under heavy pressure today following the news. Bank of America (NYSE: BAC) fell 19%, Citigroup (NYSE: C) fell 15%, JPMorgan (NYSE: JPM) fell 10%, Wells Fargo (NYSE: WFC) fell 14%, US Bancorp (NYSE: USB) fell 14%, State Street (NYSE: STT) fell 13%.

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