Posted on 03/24/2009 8:34:19 PM PDT by St. Louis Conservative
Americans can be forgiven for experiencing a sense of deja vu as they digest the details of Treasury Secretary Timothy Geithner's Public-Private Investment Program (PPIP) for troubled bank assets. What was rolled out on the pages of newspapers this week read like press releases on the various plans over the past year from Mr. Geithner's predecessor, Hank Paulson.
The two Treasury secretaries share a touching faith in public-private cooperation to lift the value of troubled assets. This assumes, of course, that those assets are troubled because their true values are obscured by irrational self-doubt and market illiquidity, and not by fundamental problems in the prospects of repayment. It also assumes that the solution to problems created by excessive leverage is for government to encourage more leverage.
Notably absent in the Geithner plan is any progress on the barrier at which Mr. Paulson stumbled last year: What are the right prices for troubled assets? To believe that the solution lies in harnessing the public and private sectors in tandem shows a misunderstanding of these sectors' incentives.
Public officials want this problem to go away without being stuck with the smoldering wreckage of large and complicated financial institutions. That requires buying assets quickly from problematic firms at the highest prices possible.
Private investors want to make a profit. That can best be achieved by delaying purchases, thereby lowering prices and sticking the government with as much of the loss as possible.
The possibility of outsized profit, made possible by government guarantees and matching capital contributions, is the carrot government can offer to those with private capital willing to commit to the enterprise. The problem is that Congress has been demonizing the financial sector and considering ex post expropriation of bonuses.
(Excerpt) Read more at online.wsj.com ...
the taxpayers will get screwed, friends of the O will get filthy rich.
one way or another.
Of course. One often forgets that Wall Street execs, hedge fund managers, investment bankers, etc all overwhelmingly supported Obama and liberal Democrats like Chuckie Schumer, Hillary Clinton, and on down the line.
It’s a bizarre paradox that these people support the very leftists that trash them and want to tax them out of existence, but I guess they get plenty of government kickbacks in return.
exactly.
Exactly. You can be sure that the “private investors” that will help buy the toxic assets will make tons of money without any real risk. And this profit will be acceptable for two reasons:
1. the Dems (both O and Congress) will say that they needed these people to help the economy.
2. the list of “private investors” will read like the Obama campaign contribution list. Except it will be kept confidential, unlike the AIG executive home addresses. So much for transparency.
And if it is not successful, then Congress would be holding hearings complaining about the taxpayer getting shafted. As they should.
When any outcome is unacceptable, then don't do it. But they will.
Not too different from the Left trashing oil and coal while blocking every alternative.
This stuff is “above my pay grade.” But I know one thing: if it turns out at all like the PIPE* deals that fledging public companies use to raise capital, it will be an utter disaster for the Treasury (IOW, we taxpayers).
*Private Investment in Public Equity
Doesn’t Chelsea Clinton work for a hedge fund in NY?? George Soros is a hedge(hog) fund.
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