When President Barack Obama recently called for construction spending, he probably did not envision Web design. Yet the website financialstability.gov that Treasury Secretary Timothy Geithner announced more than a month ago with the Financial Stability Plan (FSP) was launched with the banner “This site is coming soon”—and the banner remains (see screen shot below taken March 23, 2009). A former Federal Reserve official remarked after visiting the site looking for information, “Is this supposed to make me confident?” 

Geithner said in February, “The website will give Americans the transparency they deserve.” Although the site has been updated, it has been more a clearinghouse for white papers and Frequently Asked Questions than the promised home of transparency.

The rudimentary FSP website is unlikely the failure of any IT department and instead comes from confusion about what information to place on it. For example, as much as Monday’s announcement clarifies the auction mechanism that the government will use to purchase assets, it still leaves several key questions unanswered. A host of technical details such as the size of haircuts and lending rates have yet to be determined. Other requirements of the Legacy Loan Program are “subject to notice and comment rulemaking.” These missing details are exactly the terms that private firms will need to determine if participation makes sense for them.

The plan presently allocates $500 billion for use in the program. It also allows for “the potential to expand to $1 trillion over time.” In this way, the plan mimics the now-disgraced TARP—giving the plan room to “evolve” by holding out a possible increase in funding. This does little to spur investor confidence. Why should banks sell assets today if a new bundle of government money is expected after a first round of purchases may have improved prices?

The greatest shortcoming of the Financial Stability Plan so far has been its failure to provide stability.

While the Public Private Investment Program provides large incentives for private firms to purchase assets, little attention is given to making owners sell them. Monday’s announcement repeats the administration’s position that assets are undervalued. But if that is true, banks may see themselves better served by simply holding assets to maturity, risking that they will go bad rather than take a loss. The Treasury argues that firms will sell in order to free up capital to invest elsewhere. While the Public Private Investment Program may remove toxic assets from a firm’s own balance sheet, that same firm may remain leery of lending to counterparties that may still be looking to expunge bad assets.

The greatest shortcoming of the Financial Stability Plan so far has been its failure to provide stability. In order to obtain stability, markets need clear guidelines. Monday’s announcement provided broad strokes but left important details open for further discussion. Doing so only delays recovery. Asset purchases have been on the table since September, with varying degrees of commitment. It is time to remove the specter of “coming soon” from the stabilization plans, otherwise private partners will fear that quick political turns will leave them holding unwanted assets or result in targeted taxes that strip them of their profits if they succeed.

Adam Paul is a research assistant at the American Enterprise Institute.

Image by Darren Wamboldt/The Bergman Group.