Tuesday, March 31, 2009

Diagramming Geithner's Plan

Geithner Plan I

Explanation of the Toxic Asset Theory of banks' failure to lend, and the Treasury's recent proposals to "solve the problem," including the original idea behind TARP as well as Geithner's new plan of Private-Public Partnership Investment
Program. (14 minutes)

But wait, there's more!
Caveat: The criticisms are good, but the speaker's proposed alternative solution is not.

Geithner Plan II (12 minutes)

These clips demonstrate how the new plan sets us up for yet even more government-subsidized risk through "investment" scenarios which end in either private gain or socialized loss. Additionally, the government's diagnosis is flawed on several levels.

The problems Geithner's plan aims at solving appear to be primarily: (1) potential bank insolvency if "toxic assets" are sold at market price, and (2) the failure of banks to loan in spite of recent and copious money infusions from the government. The first aspect is to be addressed by providing banks with an indirect bailout--government assistance to buy off bad assets via shared equity-risk and non-recourse loans. In regard to the second, other reasons besides toxic assets may be why banks aren't lending, perhaps most importantly, the scarcity of credit-worthy borrowers. Bailing banks out from underneath their self-inflicted exposure to declining asset values won't change the fact that people who are good credit-risks aren't interested in acquiring more debt.

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