????Treasury Secretary Tim Geithner said the market rally validates the administration's financial rescue plan, but skeptics said a rude awakening awaits.

????By Colin Barr

????The stock market's rally serves as "broad validation" of the Obama administration's financial rescue efforts, Treasury Secretary Tim Geithner said Monday.

????But Geithner also stressed that the economy faces "an enormously challenging period ahead" -- a view that was vigorously seconded by a panel of economic skeptics headlined by Nouriel Roubini, the economist known as Dr. Doom.

????The comments came at an economic discussion sponsored by Time Warner, which is the parent company of Fortune and CNNMoney.com.

????All of the panelists agreed the nation's financial regulatory apparatus is a mess, with Geithner calling the overlap among oversight agencies a "spectacle."

????The administration is scheduled to outline its regulatory reform plan Wednesday. Geithner said the program, to be unveiled by President Obama, will result in a financial system that's more stable and more efficient. He added that avoiding future crises should make the finance business "a little less exciting."

????Geithner said the financial system is in "the early stages of repair" following a round of capital-raising at big banks and other financial institutions.

????The flurry of stock and bond sales came on the heels of a rebound in major stock indexes and the release of the government's bank stress test results. Geithner called the success of banks, ranging from Goldman Sachs (GS, Fortune 500) and Bank of America (BAC, Fortune 500) to KeyCorp (KEY, Fortune 500) and Fifth Third (KEY, Fortune 500), the "key test" of the system's health.

????He said that because of these stock offerings, programs the government put in place to facilitate the removal of toxic assets from banks may not be used as much as initially planned. The Federal Deposit Insurance Corp. recently delayed the debut of a plan to auction off troubled loans.

????Skeptics think worst isn't over for housing market

????Not everyone shared Geithner's optimism. Roubini, a New York University economist who has gained fame for his mostly prescient bearish forecasts, said the U.S. banking system is still awash in toxic assets.

????Roubini said house prices are likely to fall another 15% to 20% nationwide from current levels, which would add to banks' mortgage losses.

????Robert Shiller, the Yale economist who warned years ago of the danger of a housing bubble, also said further declines in house prices are highly likely.

????And though the stock market's rally has lifted hopes for a quick economic recovery, Shiller said the history of post-bubble recoveries doesn't support the current level of optimism.

????Meredith Whitney, the banking analyst who was among the first in 2007 to forecast a slew of writedowns, said even though the government's support of troubled institutions such as Citigroup (C, Fortune 500) may have "taken the solvency card off the table," most large financial institutions still aren't healthy.

????Many observers attribute the explosive rally in bank stocks since March to federal policies ruling out wholesale bank takeovers, while promising that large institutions won't be allowed to fail.

????But Whitney cautioned that there are "multiple screws loose" in the banking industry's profit picture, with rising unemployment and stagnant wages likely to keep a cap on consumer spending.

????Geithner conceded that consumer debt rose during the boom to "extraordinary levels," and that a sustained change in behavior by consumers will be necessary to work off that burden.

????In the meantime, Roubini said, private debts are being transferred to the government -- which runs the risk of "creating another timebomb," he warned.

????Roubini added that he believes the unemployment rate will hit 11% in the latter half of 2010 -- well above the current rate of 9.4% and 10.3% peak jobless rate called for in the government's stress tests.

????This should cause more problems at banks still holding hundreds of billions of dollars of troubled leveraged buyout and commercial real estate loans, Roubini said.

????With all that in mind, Roubini quipped that where some see "green shoots" of economic revival -- referring to the metaphor frequently used by Federal Reserve chairman Ben Bernanke and others optimistic about a recovery -- he sees "yellow weeds."