Geithner plan is a give away, moral hazard thrives!

Sal Khan of Khan Capital Management is pretty sharp, a frequent guest on CNN, and I think he is pretty spot on in describing the Geithner plan. The banks will create an entity that will act as the investor in the public/private partnership, then they will pay a tiny fraction (3 percent, $7 is used in the example, but as I read the plan it is really between 3 percent and 4 percent) of value to buy their OWN bad assets in partnership with the treasury (3 percent) and the Fed (94 percent). In fact even the 3 percent that the banks will need to put up will come from the TARP money that they have been given.

In affect, they are stealing our money, taxpayer money!  And when they are done they have no incentive not to do it again. There are no ramifications! So, some questions.

  1. Who would possibly invest in this garbage?
  2. Why wasn’t this done with a REAL EXCHANGE TRADED instrument so that the REAL public could invest and profit if there is value?
  3. Why did they structure it so that REAL price discovery is not possible? The execution of the plan will result in massive over payment for this garbage. The banks will pay whatever they want, it is a give away to themselves! UNREAL! This REALLY IS theft, and the very people who are orchestrating this are the very same people who will be regulating our entire banking and investment system.

This is from the on line educational videos at Khan Academy.


One thing that Khan does not mention is that the money that is borrowed just kind of goes off into never never land. The  94 percent is coming from the fed in the form of a loan to the partnership, the fed does not loan money for free, so the partnership has to service the debt, I assume they service this loan equally, so the treasury pays and the partnership pays, the treasury’s portion comes from our taxes (actually borrowed money) and the bank’s (or whatever entity that is created) is likely to be payed with Tarp money) We are stuck paying interest to the Fed in perpetuity! Perfect.

3 replies
  1. DemGeorge
    DemGeorge says:

    This is all over the left blogosphere as well.  Krugman is leading the charge.

    You are right, this is a massive theft of taxpayer money on top of a massive, economy destroying fraud.  Bad behavior rewarded, handsomely.

  2. PatRiot
    PatRiot says:

    Agreed.  Get the drunks out from behind the bar.  Perhaps it is time for us to contact the Supreme Court and the  Pentagon to work with us. To call BS on Congress and set them straight.  Straightout.  A second call to the Supreme Court may catch their attention too.  Ask how to start or become part of a class action lawsuit charging Congress with treason. 

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