• 
• 
• 

But, is it really? The same economist went on to explain in simple terms why he did not think the Geithner (or rather, Obama) plan would work.

If we look at a balance sheet, we have assets on the left, liabilities on the top right, and investors' equity on the bottom right. If a bank sells the assets for less (which is likely to be the case because these assets are "toxic"), it will not affect the top right, namely the liabilities, but will have a direct adverse effect on the equity part. That means banks will not want to sell these assets cheap. Private-sector investors in the role of buyers in the Geithner scheme, on the other hand, will not want to pay more, for an obvious reason. If all does not go as well as planned (such as sufficiently fast appreciation of the price of these toxic assets after purchase), and the economy dips deeper into recession, they will end up with a loss that will hurt their equity.

Right now, they want to acquire these toxic assets for, at most, 40 cents on the dollar. The government wants, and expects, these assets to go for 80 cents. The gap is wide, and bridging it may prove impossible. Then, things will go back to square one. No matter how much sweetener the government uses to entice investors in the form of free, federally insured bonds (non-recourse loans) to be used to buy toxic assets from the banks, if pricing remains an issue, private money may decide to move to the sidelines.

This may seem too simplistic an explanation. But we should keep in mind the Occam's razor principle that if there are a number of explanations for an observed phenomenon, the simplest explanation is preferred.

One may wonder why the country that was so successful in cleaning up bad assets after its savings and loan crisis of the 1980s is still scrambling for the right formula to deal with the present financial emergency. The answer lies not only in the nature and size of the crisis and the assets, but also in the current political environment of Washington.

In 1980s, the failed thrifts - the savings and loan (S & L) associations - were closed down and their assets auctioned off in an orderly, mark-to-market manner. The Resolution Trust Corporation (RTC) - a government-owned asset management company - was set up in 1989 to liquidate bad assets owned by those troubled S & L's. From 1989 to 1995, the RTC closed down 747 thrifts and liquidated their assets of US$394 billion in total.

The RTC pioneered public/private equity partnerships with sophisticated supporting mechanisms, and set up land development funds which granted rights to the private sector to develop on a long-term basis, the land parcels that were the underlying assets of bad loans. With the floor prices of assets being established, private money from hedge funds and vulture funds moved in. Of course, vultures only consume carrion, not live meat.

The same thing cannot be said about the current troubled financial institutions and their toxic assets. Some of these institutions are among the largest, and their bad assets are alive, if not well. No one knows exactly how big and bad these assets, comprising extremely complex derivatives, are.

So, as far as the government is concerned, they cannot be allowed to perish, just yet. As such, trying to remedy the situation is like shooting moving targets; it requires dexterity and Lady Luck's intervention. Geithner's multi-part, market-based scheme also makes scamming easy. Already, the Internet is flooded with various possible ways to take gratuitous advantage of the plan.

The US administration has been mocked that, in the end, it has to brown-nose Wall Street - which has been the object of Obama's criticism throughout his campaign and early presidency. But the president will have to take such mockery in stride. His administration needs the market's cooperation to get a handle on this giant sucking hole and financial debacle.

One thing worth noticing is the fact that the Geithner plan does not differ much from Paulson's Troubled Assets Relief Programme (TARP) proposal that was authorised by the Emergency Economic Stabilisation Act of 2008 and several other laws that were passed to deal with the crisis.

The Paulson plan was shot down immediately after its initial trial balloon and underwent numerous modifications; the proposal did not come into effect before President Bush's term ended.

Given the edgy political climate in Washington as the result of public discontent and wariness of government bail-outs, it is understandable why the Obama administration, for political reasons, does not want to go back to Congress to get authorisation for another completely different proposal than the one already sanctioned, and thus risk turning any reasonable rescue plan into a political football.

At the moment, Obama's popularity is still high. The window for him to act, therefore, is now, even with a less-than-perfect rescue package. It is a no-brainer to see why political strength is needed for a government to push difficult initiatives and bet on them having some success.

While President Obama has the political luxury of making a wager on his programmes for economic recovery, the Thai government is not as fortunate. The chronic political instability here is threatening the chance of calming our economic maelstrom.

As the barrage of phone-ins from somewhere on earth continue to increase in number and vileness, we know the endgame is near for the exiled former leader of Thailand. He is going for broke, as his current situation and predicament is not sustainable. It remains to be seen if his last-ditch effort will pay off. It is clear, however, that the whole country and its 60 million people are being held hostage by the intensified internal political strife.

At the rate things are going, it does not matter much if the former leader wins or loses in his game of craps; the country ends up with snake eyes - two dice with a single pip on top, which is the lowest possible roll. It signifies bad kismet, not only now, but for years and years to come.