Sunday, March 22, 2009

Geithner Plan Leaked: "Banks Are Sound, We Have A Confidence Problem"

In what is sure to be a stock market killer this week, the details of the Geithner "bad Banks" program leaked out earlier today.  Asian markets are already responding negatively and we can expect much the same from the US Stock Markets this week, says blogger Paul Krugman:

The Toxic-Asset program to be announced early this week is the same plan that was widely analyzed weeks ago and found wanting.  The Zombie ideas have won.  The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. … And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved. To this end the plan proposes to create funds in which private investors put in a small amount of their own money, and in return get large, non-recourse loans from the taxpayer, with which to buy bad … assets. This is supposed to lead to fair prices because the funds will engage in competitive bidding.

“But it’s immediately obvious, if you think about it, that these funds will have skewed incentives. In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities.

For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem.

Or to put it another way, Treasury has decided that what we have is nothing but a confidence problem, which it proposes to cure by creating massive moral hazard. This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized.

And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan that might actually work. What an awful mess.”

In short, prepare for the stock market to seek a new bottom, and another tough week for financial stocks.  All this from the President who claimed to have the "moral authority" during the campaign and election to right the system.  We, the common taxpayers of this country are about to get screwed again at the hands of the Obama Administration.

It's high past time for these feel-good 'tea parties' and time for more serious action on the part of those of us who pay the bills in this country.  Our voices are being ignored by the Obama administration in favor of those with their hands out to the Federal Government to make their lives better, or bolster their Corporate bottom lines. 

It's time for the tree of liberty to be watered with the blood of the tyrants that infest Washington DC my friends.  Until that happens these goons in Washington DC are just going to keep putting the screws tous.

1 comment:

Pro said...

No one can trust him for a lot of reasons. First, his tax problem. Highly unlikely it was an honest mistake. 2nd, he was a main author of TARP, which has yet to be effective. 3: He lied about the AIG bonuses. He knew, bonuses flew; and now the story changes because of outrage. We don't have honest people. They must have another agenda, otherwise they'd be totally honest.

It is well documented to a point there is not a question they are not telling the truth. Here is why O and G are spewing misinformation!