I wondered yesterday at the 500 point jump in the market given the very limited amount of new information. What could justify a 7% increase in the value of publicly traded corporations under such circumstances?
Of course, the “black swan” in me makes me reluctant to argue that there is any rational link between traders’ behavior and market price, but one explanation does come to mind. Tim Geithner is viewed by Wall Street as their thin red line of defense against the “populists” inside the Obama Administration. And with Geithner under attack they jumped on the new details about an old rescue plan (remember the idea of buying up the toxic assets was first proposed and then rejected by Hank Paulson last fall) to bolster Tim’s rep.
Why do I come to this conclusion?
Recall that in early February the New York Times reported that the first attempt by Geithner to roll out a plan was subjected to an intense attack inside the White House on the issue of executive compensation. Geithner fought back and won and then the now infamous grandfathering of bonuses for execs of failed companies was put into the rescue package authored by Senator Chris Dodd. Dodd denied authoring the clause and eventually it was determined that indeed the clause came from Treasury!
But if Geithner thought that would be the last of it he had another thing coming. He apparently did not understand the nature of the Obamabot machine that had put the man in the White House in the first place. All of a sudden, from really out of nowhere, emerged a populist upsurge from Congress, of all places. Yet it had been known for months that AIG had planned to pay big bonuses, in fact AIG had already paid many of those bonuses. Normally populist revolts do not have such exquisite timing.
My best guess is that Rahm Emanuel and David Axelrod had decided Geithner was a liability and unleashed their Congressional friends as well as the Obamabots still around from the campaign to pony up some tough sounding “outrage” (the word of the week) about the AIG bonuses. At the end of the day, the President was content to let the two factions fight it out. That may explain his odd demeanor in the 60 Minutes interview or in his speech at the White House where he joked about being “all choked up” with outrage.
I certainly thought it odd that despite all the foaming at the mouth by certain Congressmen there was in fact very little actual discontent being expressed outside the beltway. A bus tour through wealth Connecticut suburbs reported on by the Times looked lame at best and also a bit patronizing. Apparently the ACORN group, which some view as little more than a cult, was part of the organizing effort.
Now, that does not mean that the bonuses made sense. Of course not. And I have myself argued that Geithner is in over his head on this job and ought to go. But at the same time I think there should be some concern about the faux political style being used by this White House. Of course, veteran followers of the Obama presidential campaign will recall that similar tactics were used then to silence opponents.