A new element of the Treasury Department’s plan was introduced in the conference call with bloggers today. It came so subtly that you might have missed it.
We’re talking about something that’s been missing from the so-called Committee To Save The World since the beginning: humility.
All through the financial crisis the government officials charged with overseeing the mess have been convinced that they knew far more than they did. They were certain asset prices would recover, the crisis was mostly one of liquidity, that technical market interventions—short selling bans, for instance—would prevent further deterioration. Each different iteration of the bailout plan, the officials have spoken in gravely hubristic tones both about what ails us and what would cure us.
Along the way, this self-confidence has shaken the confidence in markets. It becomes hard to believe that officials who confidently spoke about one plan and then quickly switched to another really know what they are talking about. And as each plan has turned out to be ineffectual or even counter-productive, the confidence has seemed even more misplaced.
This morning the Treasury Department officials sounded a decidedly different note. When asked how much the Treasury Department was willing to spend on the public-private partnership plan, officials said it would depend on both the level of participation and the effectiveness of the plan in reinvigorating the broader credit markets. When asked about whether banks would participate given the size of the bid-ask spread on troubled assets, Treasury Department officials said they couldn’t guarantee participation.
It was refreshing and reassuring. The message from the Treasury Department was that they are going to remain flexible, expanding programs that seem to be working and discontinuing programs that aren’t. Some might criticise this as continuing the uncertainty about what the government will do in the future. But we’d rather a Treasury with a humble uncertainty rather than a wrong-headed certainty.