{"id":11938,"date":"2009-03-27T15:37:52","date_gmt":"2009-03-27T15:37:52","guid":{"rendered":"http:\/\/127.0.0.1\/site\/2017\/2\/1985\/will_toxic_asset_bailout_plan_work\/"},"modified":"2009-03-27T15:37:52","modified_gmt":"2009-03-27T15:37:52","slug":"will_toxic_asset_bailout_plan_work","status":"publish","type":"post","link":"https:\/\/kendallharmon.net\/?p=11938","title":{"rendered":"Will toxic-asset bailout plan work?"},"content":{"rendered":"<p><a href=\"http:\/\/www.usatoday.com\/printedition\/news\/20090327\/column27_st3.art.htm\">An interesting array of editorial opinion on the subject<\/a>.<\/p>\n<p><b>Update<\/b>: in yesterday&#8217;s Financial Times <a href=\"http:\/\/www.ft.com\/cms\/s\/0\/b3e99880-1991-11de-9d34-0000779fd2ac.html\">Jeffrey Sachs did not like the plan<\/a>:<\/p>\n<blockquote><p>The idea of \u201cprivate sector price discovery\u201d\u009d is therefore flim-flam. There would be price discovery if the government\u2019s loan had to be repaid whether or not the asset paid off in full. In that case, the investor would bid $360,000. But under the Geithner-Summers plan the loan is precisely designed to be a one-way bet, for the purpose of overpricing the toxic asset in order to bail out the bank\u2019s shareholders at hidden cost to the taxpayers.<\/p>\n<p>The banks could be saved without saving their shareholders \u201d\u201c a better deal for taxpayers and without the moral hazard of rescuing shareholders from the banks\u2019 bad bets. Most simply, the government could provide loans to buy the toxic assets on a recourse basis, therefore without the hidden subsidy. Alternatively, the plan could give the taxpayers an equity stake in the banks in return for cleaning their balance sheets. In cases of insolvency, the government could take over the bank, the much dreaded nationalisation, albeit temporary. At the end of the Bush administration, Congress voted for the $700bn (\u00e2\u201a\u00ac517bn, \u00c2\u00a3479bn) troubled asset relief programme (Tarp) on the assurance the taxpayer would get fair value for money (for example, by taking equity stakes in the rescued banks). The new plan does not offer that.<\/p><\/blockquote>\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>An interesting array of editorial opinion on the subject. Update: in yesterday&#8217;s Financial Times Jeffrey Sachs did not like the plan: The idea of \u201cprivate sector price discovery\u201d\u009d is therefore flim-flam. There would be price discovery if the government\u2019s loan<span class=\"ellipsis\">&hellip;<\/span><\/p>\n<div class=\"read-more\"><a href=\"https:\/\/kendallharmon.net\/?p=11938\">Read more &#8250;<\/a><\/div>\n<p><!-- end of .read-more --><\/p>\n","protected":false},"author":794,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[40,595,149,616,151,667,583,596,584,668],"tags":[],"class_list":["post-11938","post","type-post","status-publish","format-standard","hentry","category-economics-politics","category-credit-markets","category-economy","category-office-of-the-president","category-politics-in-general","category-president-barack-obama","category-the-2009-obama-administration-bank-bailout-plan","category-the-credit-freeze-crisis-of-fall-2008the-recession-of-2007","category-the-u-s-government","category-treasury-secretary-timothy-geithner"],"_links":{"self":[{"href":"https:\/\/kendallharmon.net\/index.php?rest_route=\/wp\/v2\/posts\/11938","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/kendallharmon.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/kendallharmon.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/kendallharmon.net\/index.php?rest_route=\/wp\/v2\/users\/794"}],"replies":[{"embeddable":true,"href":"https:\/\/kendallharmon.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=11938"}],"version-history":[{"count":0,"href":"https:\/\/kendallharmon.net\/index.php?rest_route=\/wp\/v2\/posts\/11938\/revisions"}],"wp:attachment":[{"href":"https:\/\/kendallharmon.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=11938"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/kendallharmon.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=11938"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/kendallharmon.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=11938"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}