More on the Treasury stress tests. Not very positive.

My guess is that Team Obama is hoping to “keep their options open”, one of the classic modes of failure for decision-makers facing difficult choices. Unfortunately time relentlessly closes options. Every decision taken closes options. Every opportunity missed closes options.

The Planet Money podcast today is a must-listen. Adam Davidson interviewed Treasury Secretary Tim Geithner. The questions are great; the answers....hmmm.

The producer sets up the interview with a very revealing account of how Geithner's press person kept scribbling furiously during the interview and shoving the talking points under his face. He certainly sounds like he reading canned phrases at certain points.

The topic is a "Stress Test" that Geithner says Treasury is doing on the banks. Davidson keeps asking him what he knows now (not naming names) about insolvency in big banks and Geithner keeps dodging the question talking about how the tests will show, not which banks are bad, but which banks will benefit from the government giving them money to get credit moving again. At one point he calls what the government is doing as providing "comfort".

Very disappointing to me is Geithner's claim that the reason the housing market is bad now ("artificially depressed"!) is because the credit markets are tight. There doesn't seem to be any recognition that the way-too-loose credit markets of the past is what made the housing market inflated. Does he think we can get back to those kind of prices? If not, we still have to deal with underwater homeowners.

Davidson calls the interview a "dance". It certainly isn't "transparent".

The interview is going to make it onto This American Life this weekend. I'll have to check out how it develops into their show then.

Based on my back-of-a-crackerjack-box understanding of Keynsian theory, Government needs to get cash into the hands of those most likely to spend, so that the economy will have higher demand.

It wouldn't be a good idea to give tax breaks to the rich, because they are more likely to save it, rather than spend it and increase aggregate demand.

But doesn't that mean that when we DO bailout Wall Street and banks, IF they spend money on commodes and trips to Vegas and corporate jets that those are the few cases where the wealthy ARE increasing aggregate demand?

Shouldn't we want more corporate jets, so that jet makers have jobs?

I seem to recall Clinton's luxury tax on yacht's decimated the yacht industry and put people out of work until it was reversed.

As a side note, Obama promised before being elected that he would go "line by line" through the budget and eliminate programs that don't work (why he couldn't do any of this work before hand he didn't say.

So if he thinks that's good, why won't he go through the stimulus package and object to things that "don't work"?