Free Markets, Free People

The Geithner Plan And Why It Isn’t What It Is Reported To Be

That is, why it isn’t the solution it is touted to be. Jeffrey Sachs of the Financial Times:

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.

If you’ve been wondering why the stock market had a short rally upon its announcement, there’s your explanation. You need to read the whole thing as Sachs uses a simple example to explain his point. He concludes with:

Tim Geithner, Treasury secretary, and Lawrence Summers, director of the White House national economic council, suspect that they cannot go back to Congress to fund their plan and so are raiding the Federal Reserve, the Federal Deposit Insurance Corporation and the remaining Tarp funds, hoping that there will be little public understanding and little or no congressional scrutiny. This is an inappropriate institutional use of the Fed, the FDIC and the Tarp. Mr Geithner and Mr Summers should at the very least explain the true risks of large losses by the government under their plan. Then, a properly informed Congress and public could decide whether to adopt this plan or some better alternative.

But, of course, we’re just in too big of a hurry and the situation is too dire to actually discuss and debate the situation or do it properly through Congressional action. Instead we’ve been sold a bill of goods which, disguised as a way out, is simply a rip off of the taxpayer – again. As Jennifer Rubin notes:

So to avoid the overwhelming popular objection to perpetual bailouts and expenditures, the Obama administration will do this all “off budget” and with no hearings, Congressional debates, or votes. Not very transparent and quite imperious, when you get right down to it.

Yeah, not very “hopey changey” is it?

I’m warming more and more to my suggestion that government officials be compensated the same way they think CEOs should be compensated. If this ends up being a big loss to the taxpayer, Geithner and Summers should receive zero compensation for the outcome. And that would also go for anyone else in the administration or Congress who had a hand in implementing this plan.


4 Responses to The Geithner Plan And Why It Isn’t What It Is Reported To Be

  • The POTUS, VP, and both Houses of Congress should return all salary received for the year so far, but far $1. They are as much to blame for this train wreck as ‘Wall Street’. This should be an equal cry along with the Tea Parties. What is sauce for the goose is sauce for the gander.

  • The AIG outrage “thing”, the employees of AIG now quitting, and the growing number of banks that just can’t wait to return their TARP money have come together to yield a recovery that at least will be much slower as the government has now proven itself a “useless partner.” The Banks will now “grunt it out” rather than take any more money and the endless “strings” that goes with it. In fact, I expect at least one bank, in the next couple of weeks, to return the money .. even before the Treasury sets up a system to take it back .. embarrassing the hell out of Geithner et al.

    Now, if O’Bama and Geithner can convince the remaining few “rich folks” out there that they won’t become poor in this scheme, and he can promise them a “get out of jail” card when they get pillaged by the Congress-critters, and if, in fact, they do make some money and are allowed to keep it, then I’ll believe the new “Geithner Plan” will possibly work.

    For now, it’s a real hard sell and my money is … under my mattress. The waters appear to be so polluted that I expect this whole AIG episode to be the downfall of the “O’Bama Recovery” going down in the history books right next to Smoot-Hawley as an example of “what not to do in an economic downturn.”

  • I sometimes wonder if maybe there aren’t some threats from China and elsewhere that if the US doesn’t stabilize credit markets through some kind of major buy out of toxic assets then they will stop buying US debt.   Our life style of the last quarter century has left us very vulnerable — I wonder how much we don’t know about the scope of this crisis.

  • I heard the plan described by a bank president as – “privatizing profit and socializing loss”