Wall Street’s vote of no confidence

Financial markets gave the Obama administration’s bank-rescue plan a resounding thumbs down this week, with the Dow Jones industrial average falling almost 5 percent the day the plan was unveiled. Investors criticized the plan, announced in a speech by Treasury Secretary Timothy Geithner, for its lack of specifics and new ideas. The administration “said we’re going to do something bold and new, and it was neither bold nor new,” said Chicago investment manager Peter Cook.

Key elements of Geithner’s plan, which could eventually cost

$2.5 trillion or more, include creating a public-private partnership to buy the distressed loans weighing down the banking sector; a

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$1 trillion program to kick-start commercial and consumer lending; and at least $50 billion to prevent home foreclosures and to lower mortgage payments. Geithner acknowledged that “this strategy

will cost money, it will involve risk, and it will take time.” But doing nothing, he warned, risked “incalculable” harm to banks and the economy.

Like Henry Paulson before him, Geithner is “making things up as he goes along,” said The Wall Street Journal in an editorial. His plan for buying up the banking system’s toxic assets “would seem to echo” the Bush administration’s initial approach, which it abandoned when it couldn’t settle on a fair price for the assets. And his determination to throw even more public money at banks will discourage, not spur, private investment. Why buy into the banks when the administration is obviously nationalizing them in slow motion? The bottom line: “If the goal was to reduce uncertainty, it didn’t work.”

No amount of government bailout money can change a basic fact, said Robert Kuttner in USA Today. “Several of America’s biggest banks are insolvent.” The new plan, like the old one, will serve only to prop them up while toxic debt eats away at their capital. “It would be far cleaner and more efficient” for the government to “take over the large banks, clean out their balance sheets,” and then sell them back to the private sector.

The worst shortcoming of the administration’s plan is its near-total lack of transparency, said David Ignatius in The Washington Post. The first round of bank bailouts “was rush-rush and shush-shush,” and when the dust settled, no one could say where the money went or whether it did any good. “If Geithner wants our money for this new rescue package, he has to give the public more details about how it’s being spent.”