The country's largest banks appear stable even as Obama's largest bank plan is dead. Treasury Sec. Tim Geithner's Public-Private Investment Plan to price and buy toxic assets from the banks has withered on the vine, and it's enough to make some writers wonder whether the Obama bank plan has failed. But wait, how can you say the big bank plan failed if the biggest banks aren't failing?
Half a year ago, our financial system was in catastrophe, and the debate was over how much money it would take to bail them out, or even take them over. Today, the biggest banks are -- or at least appear to be -- on stable footing, and the debate is over how much TARP money they will be allowed to give back. To be clear, this is a statement of confidence from the banks, not evidence that they will be OK in four or six months. But it is still a remarkable turn of events, one we can credit to the Obama administration's overall strategy of ... what again?
Consider: Geithner's first plan was a flop. PPIP is dead, or hibernating. So what exactly saved the United States' financial system? Ezra Klein elegantly encapsulates the first rule of the bank bailout as: "heads the economy improves, tails the taxpayers bail them out." That is exactly right. But was it a bad rule? In the short term, maybe not. The Libor inter-bank lending rate is falling. Unemployment is slowing. The banks are finding it easier to raise capital. Green shoots galore. What exactly fertilized them?