Posted on 04/01/2009 9:08:59 AM PDT by mojito
THE Obama administration’s $500 billion or more proposal to deal with America’s ailing banks has been described by some in the financial markets as a win-win-win proposal. Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.
Treasury hopes to get us out of the mess by replicating the flawed system that the private sector used to bring the world crashing down, with a proposal marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency.
Let’s take a moment to remember what caused this mess in the first place. Banks got themselves, and our economy, into trouble by overleveraging — that is, using relatively little capital of their own, they borrowed heavily to buy extremely risky real estate assets. In the process, they used overly complex instruments like collateralized debt obligations....
The government plan in effect involves insuring almost all losses. Since the private investors are spared most losses, then they primarily “value” their potential gains. This is exactly the same as being given an option.
Consider an asset that has a 50-50 chance of being worth either zero or $200 in a year’s time. The verage “value” of the asset is $100. Ignoring interest, this is what the asset would sell for in a competitive market. It is what the asset is “worth.” Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses. Some partnership!
(Excerpt) Read more at nytimes.com ...
If the NYT is running this, the plan must actually be scaring some people in the Dem establishment.
Time to start considering a new nationality, I’m afraid.
“Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.”
I don’t know how he figures this—taxpayers ARE investors!
Stiglitz is a liberal as is Krugman. They both are trashing the obama/geithner plan because they know it will not work, has been put together by the same Goldman Sachs crowd that started the mess. They know if/when the public finds out that Wall St has paid off the Dems even more than the Republicans, the libs will have hell to pay.
the obama/geithner plan protects the interest of banks over the interest of tax payers. IF government subsidies or bail out banks, thats not capitalism, thats socialism
nowhere to run.....nowhere to hide....
Obama should have taken economics at Columbia.
We’re screwed.
As long as congressional and senate pension plans are safe... that’s all that really matters! /sarc
We, in this country, have the habit of making the same people rich over and over at taxpayer expense. Usually it comes in the form of sports stadiums and useless clover-leafs.
Obama is merely expanding the practice.
What was his major?
Political Science with a focus on international relations.
Thank you. That’s pretty good timimg too! My guess was Political Science, but I should have made it known.
thanks neverdem.
Class War in America
The American Thinker | April 01, 2009 | Richard Baehr
Posted on 04/01/2009 3:24:01 AM PDT by Scanian
http://www.freerepublic.com/focus/f-news/2219630/posts
Actually, it's mainly protecting the interests of the banks' creditors at shareholder expense.
What he means is that it's protecting, at the expense of taxpayers, the people who invested in the banks before the crisis. He doesn't go into this much detail, but it's primarily the bondholders who are getting bailed out.
It should be scaring the piss out of all of them. (it sure does me) You have to go to Zimbabwe to find the kind of inflation this represents.
I ran and hid in gold about two years ago. I should have run sooner.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.