Monday, March 23, 2009


Tim Geithner's new plan for bringing private market players back into the financial mess they created is getting hammered already. Robert Kuttner's most recent article helps explain why.

In a few words, the Treasury Secretary's plan is to get the Federal Reserve and the FDIC to put up new money to purchase (or subsidize the purchases of) the toxic debt on the books of our nation's financial institutions, and then to insure those newly purchased debt products. Geithner believes that by doing so we can entice the private equity players back into the game. In a few words (and to grossly oversimplify the process), we are pretty much bribing private players with guaranteed money and a guaranteed payoff ... and with public funds, no less.

Interestingly, according the the Wall Street Journal, many private market players are going into "wait and see" mode because they don't like how they are being villified in Washington. To be sure, they like the ideas and guarantees in Geithner's plan, but they don't like the oversight and tone they see coming from Washington.


- Mark

UPDATE: Count Paul Krugman as uninspired by Geither's Plan. Here are the money quotes,

And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing. It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street.
But I especially like this one,

But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets.
You can read Krugman's article here.

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