Joe Nocera's column in Saturday's New York Times looking at Treasury Secretary Tim Geithner's plan to make the banking system's toxic asset problem go away is by far the most optimistic appraisal of the scheme I've seen from anyone who is not actually a member of the Obama administration. So optimistic, in fact, that it's almost hard to credit.
I was particularly interested in FDIC chairwoman Sheila Bair's assertion that the plan is part of "a necessary cleansing process."
"We need to face up to it sooner or later," said Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation. By "it," Ms. Bair was referring to the losses still embedded on the banks' balance sheets. To her, the Public-Private Investment Program, as the feds have labeled it, is most definitely not an attempt to disguise losses. It is, instead, an effort to shine a clear, bright light on them.
Such reasoning is consistent with the thesis that application of the plan will give us an ironclad evaluation of the true state of banking finances, which some people think is a necessary step before sending in the regulators to secure the premises. The proof of that will be in the pudding.
But the section that jumped out at me didn't have much to do with the details of the plan at all. Instead, it was the the comparison between the current administration's approach and Japan's notorious decade-long failure to deal with the bad loans on the books of Japanese banks.
When I asked Thomas F. Steyer, the head of Farallon Capital Management, the big West Coast hedge fund, whether he thought America was acting like Japan during its lost decade, he scoffed. "We were interested in some of the assets in Japan, but whenever we asked them when they were going to start dealing with them, the answer was always 'in two years,'" he replied. "Japan fell apart in 1989, and we were having those conversations in 1998 and 2000. Our country is moving on this. This administration has only been in office for a little more than two months, and they are already grappling with this."
Opinions differ, of course, as to how quick the administration has been to grapple. When Geithner failed to deliver a detailed plan to solve the banking crisis in February, critics were quick to note that he had been nominated as Treasury secretary way back in November, and dealing with the crisis from the front lines for many months before that. So how come he hadn't already figured out what to do? If you are convinced that immediate seizure of Citigroup and Bank of America is the only appropriate solution to the current crisis, and can be effectively accomplished with the powers currently invested in the executive branch, that's a fair question.
But the comparison with Japan is not fair, at least not yet. Japan stands as a shining example of a path not to follow, but two months of the Obama administration does not equal a lost decade.