Inauguration day cheer didn’t make it to Wall Street…

Apparently, Wall Street did not get the memo from the Obama economic team on Tuesday.

No inauguration day cheer. Stocks fell 332 points as bank stocks were pounded due to fears that more emergency medicine from governments was going to be required to save them from their bad investments. And although banks rebounded Wednesday, they are still down, down, down over the past few months and the outlook of analysts for the foreseeable future is somewhere between gloomy and how-much-hose-do-I-need-to-connect-the-exhaust-pipe-to-my-window? (Just look at Paul Volcker’s remarks in support of Geithner yesterday. That these remarks did not cause an immediate market nosedive suggests how bad things have gotten. Saying the financial system is broken and will cost trillions to restore, or that this is mother of all financial crises, is old news.)

The problem, of course, is that banks continue, even now, to understate their problems and government officials continue to buy their baloney. Then, government officials produce inadequate plans based on insufficient information to partially address problems of much greater scope and consequence than they had imagined. Or as in the case of Tim Geithner’s hearings on Wednesday, promises of bold-plans but little in the way of specifics. I think Geithner is the right guy for the job and will do his level best, but right now, the economic fixes being discussed publicly offer the aroma of pure snake oil, feel good formulas with uncertain ingredients that are only going to help the patient at the point the patient is ready to start feeling better.

Once again: pumping in money to “restore confidence” without changing the underlying behaviors that have caused the problems will simply increase the flow of good money after bad. (We don’t want to just restore the health of banks so they can lend, as Geithner said, we need to obligate them to lend — within sound guidelines, of course.) Still, rather than breaking down the problems we face into their component parts, identifying the problems and offering  thoughtful solutions with real metrics by which we can judge success or failure, we just offer big, bigger, biggest as the choices we face and always opt for biggest. It is the ugly-American-abroad syndrome. We don’t speak the language. We don’t understand what’s going on around us and no one understands us. And our solution is to simply repeat everything in English louder and louder as if somehow that’s going to bridge the gap in understanding.

Another wonderful economic development that slipped in unnoticed thanks to the glitz and glamour of the Obama-bration in Washington was the decision by Fiat to snap up 35 percent of Chrysler. Doesn’t it make your heart go pitter-pat to know that U.S. bailout dollars have preserved the assets of the automaker so that Fiat could step in to capture the upside. What a great country we live in. The billions that we sent to Chrysler first bailed out a private equity company chaired by George W. Bush’s first Treasury Secretary, John Snow, whose vice chairman is former U.S. Vice President Dan Quayle. (These guys, none of them eligible for the public dole in any other respect, bought Chrysler from Daimler, the German owner who wanted out a couple years ago.) Now, we are laying the foundation for Italy’s biggest company to be another beneficiary of our national largesse. In fact, the deal being done calls for the United States to pump in more cash while Fiat-itself flat on its back just a couple years ago-offers technology and know-how. As we say in Turin, such a deal. (And Fiat teaming up with Chrysler to revive each other’s economic fortunes is a little like the time that Britney Spears became BFFs with Paris Hilton in order to improve each other’s images.)

Of course all this raises another interesting question: just who are the big winners from these bailouts? Let’s see, at Citibank, we have that great fellow Prince Alwaleed bin Talal, their number one shareholder. At Chrylser we have the Cerberus boys and the Agnellis and the rest of the Fiat owners. We have CIC, the Chinese sovereign wealth fund, and its big chunk of Morgan Stanley. Now, I’m all for preserving jobs and saving the international financial system, but when we look back at the deals these guys were getting for the U.S. government, the American taxpayer is going to be really steamed.

For all these reasons my guess is that the first batch of members of the new Obama team that will be worried about job security (yes, I know, it’s only day two), will be the folks engaged in the business of designing bailouts. The public’s fuse is short already, they have been told “trust us” too many times and whereas they may give the Obama team the benefit of the doubt in other areas accounting for a learning curve, the failure of one or two big ticket plans will result in a serious debate about how to install a bigger revolving door in the building on 15th Street with the statue of Albert Gallatin in front of it.

(I’m not wishing this on anyone. Tim Geithner and his team are excellent. I am just saying that they are inheriting a very brittle relationship with the public.)

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