Why Markets Dissed the Geithner Plan

Here's how he should handle the banks.

By ANDY KESSLER
Wall Street Journal

One of the cool things about being Treasury Secretary is that you get your signature on dollar bills, giving them authority, defending their honor. Timothy Geithner's plan to save the struggling banking system probably does the opposite, throwing good money after bad to a banking system struggling under the weight of its own mistakes. The markets don't like it. The Dow dropped 382 points while bonds rallied as a port in a continuing storm.

Mr. Geithner announced a three-point plan yesterday to "clean up and strengthen the nation's banks," and made a vague declaration to use "the full resources of the government to help bring down mortgage payments and to help reduce mortgage interest rates." Unfortunately, those are conflicting plans. Hence the markets' skepticism.

The Treasury secretary seems stuck on keeping the banks we have in place. But we don't need zombie banks overstuffed with nonperforming loans -- ask the Japanese.

Mr. Geithner wants to "stress test" banks to see which are worth saving. The market already has. Despite over a trillion in assets, Citigroup is worth a meager $18 billion, Bank of America only $28 billion. The market has already figured out that the banks and their accountants haven't fessed up to bad loans and that their shareholders are toast.

(More here.)