Obama’s bank plan could rob the taxpayer (Could?)

Financial Times ^ | 3/26/2009 | Jeffrey Sachs

[mojito]

The Geithner-Summers plan, officially called the public/private investment programme, is a thinly veiled attempt to transfer up to hundreds of billions of dollars of US taxpayer funds to the commercial banks, by buying toxic assets from the banks at far above their market value. It is dressed up as a market transaction but that is a fig-leaf, since the government will put in 90 per cent or more of the funds and the “price discovery” process is not genuine. It is no surprise that stock market capitalisation of the banks has risen about 50 per cent from the lows of two weeks ago. Taxpayers are the losers, even as they stand on the sidelines cheering the rise of the stock market. It is their money fuelling the rally, yet the banks are the beneficiaries.

The plan’s essence is to use government off-budget money to overpay for banks’ toxic assets, perhaps by a factor of two or more. This is done by creating a one-way bet for private-sector bidders for the toxic assets, then cynically calling it “private sector price discovery”.

[mojito]

If you thought the AIG stuff was ugly.

[MarkL]

And the government has only just begun to monetize the debt, meaning that the government is "borrowing" money from the Fed, in order to print treasury bills, which the fed will buy... Or did I get that backwards... It's hard to tell, because it's the government loaning money to itself, in order to buy treasury bills, to fund the government...

Mark

[RebelTXRose]

Does anyone know details about what is happening with the credit unions? I’ve heard that the profitable ones are being assessed to bail out the losers.

[mojito]

More flim-flamery: it's the FDIC that's supposedly guaranteeing these “loans.”

It won't take long until the FDIC needs a bailout, since it's not loaning money, but subsidizing over-payment to banks so that their crummy assets can be transferred to private investors (and maybe even the banks themselves), and doesn't expect to see the money back.

[mojito]

Sorry, I’m not aware of the issue you mention.

[RebelTXRose]

There have been ads on the radio here asking folks to call Congress about this. The good credit unions shouldn’t have to shoulder the bad ones in any form. They are calling it an “assessment.”