The market is telling Obama and Geithner to go back to the drawing board. Stocks are down, and Treasury yields are down, good signs that today's two big events, the Senate passage of the so-called stimulus bill and Geithner's unveiling of his grand plans for fixing the financial markets, are not going to be helpful.
I'm somewhat encouraged that key risk measures, such as the Vix Index, the TED spread, and swap spreads, have not deteriorated materially. This suggests that the two measures won't increase risk or uncertainty, but they will fail to produce any meaningful improvement and could actually slow down an eventual recovery.
How about trying some very simple but potentially incredibly powerful ideas? Why not slash or eliminate completely the corporate income tax? That would be far less expensive that the stimulus bill, and it would take effect immediately rather than over the course of years. Plus, corporations have this thing about spending their money on projects that make sense, whereas politicians such as Nancy Pelosi love to spend other people's money with wild abandon.
How about relaxing the mark-to-market rules? This would go a long way to relieving the burden of toxic assets on bank balance sheets.
How about cutting the capital gains tax? That, combined with a big reduction in the corporate income tax would immediately give a huge boost to equity values, and that in turn would go a long way to offsetting the wealth destruction of declining home prices. Both measures would also instantly increase the after-tax rewards to creating new ventures, which in turn would result in new jobs.