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US Treasury Secretary Timothy Geithner said on Saturday in Instabul at a meeting of International Monetary Fund (IMF) that economic recovery signs are “stronger” and have appeared “sooner” than expected throughout the world, while also saying it’s too soon to retreat from stimulus programs. In a statement issued at a meeting in there, Secretary Geithner said global financial conditions have improved “dramatically.” The US housing market has stabilized, while jobless rate in the USA is remains “unacceptably high” and the financial system remains damaged, as a result, it’s not the time for governments to roll back stimulus, he said.

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The S&P 500, since sinking to a 12- year low of 676.53 on March 9 surged 25% as banks from Citigroup Inc. to JP Morgan Chase said they made money in the first two months of 2009 and Treasury Secretary Timothy Geithner announced plans to finance as much as US$1T in purchases of distressed assets from financial firms.

“No matter how you feel about the stimulus package, some of it is going to stick and the economy should stabilize in the second or third quarter,” said Bruce Bittles the Nashville- based chief investment strategist at Robert W. Baird & Co.“If that’s going to happen, the market will sniff it out.”

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Crude Oil prices fell alongside the broader markets last week on the limited details released about a Treasury Department program to raise more than US$1T in public and private funds to free up credit markets. The Dow Jones industrials lost 400 pts after Treasury Secretary Timothy Geithner announced the rescue plan last Tuesday, and light, sweet crude for March delivery sank by US$2.01 bbl to settle at US$37.55bbl on the New York Mercantile Exchange. US President Barack Obama’s US$838B economic recovery plan, which was approved by the US Senate did little to reverse Crude Oil’s downturn. Phil Flynn, an analyst at Alaron Trading Corp., said investors appear concerned about the inflationary effects of massive government spending.

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Last Tuesday Timothy Geithner unveiled a raft of new measures aimed at returning functionality to the besieged credit markets. Geithner outlined the picture of the latest US recovery attempt, i.e., promoting greater transparency and stricter oversight of both established and new financial stability programs, providing capital to institutions in desperate need of a cash infusion, committing up to US$1T to support consumer and business lending, addressing the housing crisis and reducing foreclosures, and stricter oversight of US taxpayer money. “The American people will be able to see where their tax dollars are going and the return on their government’s investment,” the Treasury Secretary said. “They will be able to see whether the conditions placed on banks are being met and enforced.

They will be able to see whether boards of directors are being responsible with the taxpayer dollars and how they are compensating their executives. And they will be able to see how these actions are affecting the overall flow of lending and the cost of borrowing.” This information will be made available on a new Web site: FinancialStability.gov.

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Some of the large banks in the USA may require more aid to remain solvent, say some economists and other finance experts. This is a sobering commentary on the growing mountain of losses that can overwhelm the value of the banks’ assets.”The United States banking system is effectively insolvent,” it quoted Nouriel Roubini, a professor of economics at the Stern School of Business at New York University, as saying. He estimates that total losses on loans by USA financial firms and the fall in the market value of their assets will reach US$3.6T, up from his previous estimate of US$2T according to the New York Times last week.

U.S. Treasury Secretary Timothy Geithner unveiled a plan last week to soak up as much as US$1T in bad assets on banks’ books and expand a Federal Reserve program to support up to US$1Tin new loans. The market yawned and rolled over as experts said that in order for the US banks to resume the ample lending needed to restart the wheels of commerce, bigger, and more direct government role than in the Treasury Department’s plan called outlined. The government needs to really get in and close the weakest banks, inject capital into the surviving banks, and sell off the bad assets sooner rather then later.

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The United States and Europe have committed a lot of money to rescuing ailing banks to date. Japan’s veterans have just two words of advice: More and Faster.

The Japanese have experience as they endured a decade of economic stagnation in the 1990’s, because their banks struggled under crippling debt, and successive governments wasted trillions of yen on half measures to restore them.

In 2003 the Japanese government finally took actions that led to a recovery: forcing major banks to submit to merciless audits and declare their bad debts; spending two trillion yen, or US$22.23B at today’s rates. Thus effectively nationalizing a major bank at the expense of shareholders; and allowing weaker banks to fail.

But by the time that went into effect the Nikkei 225 stock index dropped by about 75% from its highs. Prices for real estate ultimately fell for 15 consecutive years, and public debt grew to exceed gross domestic product as deflation took hold. Some scholars of the Japanese debacle see the USA heading to a similar fate.

“I thought America had studied Japan’s failures,” said Hirofumi Gomi, a top official at the Japanese Financial Services Agency during the crisis. “Why is it making the same mistakes?”
Some US critics of the plan announced last week by US Treasury Secretary Timothy Geithner said it lacked details. Experts on Japan found it timid at best, especially given the size of the banking crisis the Obama administration faces.

“I think they know how big it is, but they don’t want to say how big it is,” said John Makin, an economist at the American Enterprise Institute, referring to administration officials. “It’s so big they can’t acknowledge it.”He added: “The lesson from Japan in the 1990s was that they should have stepped up and nationalized the banks.”

Instead, the Japanese first tried many of the same remedies that the administration of President George W. Bush tried and the administration of President Barack Obama is trying, i.e., low interest rates, fiscal stimulus and ineffective cash infusions, among other things.
The Japanese also tried to tap private capital to buy some of the bad assets from banks, as Geithner proposed.

One of the reasons Japan was so timid was fear of public outrage, which grew with each act of the bailout, but the Japanese experience shows that resolving the mess will require a firm government hand and will be extremely expensive. Delay in doing it now will only cause the cost to soar, and the bank rescue will determine the fate of the wider US economy. While President Obama has prioritized his stimulus plan, no stimulus is likely to succeed unless the banking sector is repaired, and the United States probably will not be able to count on a growing demand for its products as the global economy worsens. A further lesson is that the bank rescue will determine the fate of the wider economy. While Obama has prioritized his stimulus plan, no stimulus is likely to succeed unless the banking sector is repaired.

“The way things are going right now the U.S. taxpayers’ burden will keep going up and up.” said Takeo Hoshi, an economics professor at the University of California at San Diego.

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