Stiglitz: Geithner Plan Will Rob US Taxpayers

[KittyWampus]

Guess he's another Freeper.


Geithner Plan Will Rob US Taxpayers: Stiglitz

The U.S. government plan to rid banks of toxic assets will rob American taxpayers by exposing them to too much risk and is unlikely to work as long as the economy remains weak, Nobel Prize-winning economist Joseph Stiglitz said on Tuesday.

"The Geithner plan is very badly flawed," Stiglitz told Reuters in an interview during a Credit Suisse Asian Investment Conference in Hong Kong.

U.S. Treasury Secretary Timothy Geithner's plan to wipe up to US$1 trillion in bad debt off banks' balance sheets, unveiled on Monday, offered "perverse incentives", Stiglitz said.

The U.S. government is basically using the taxpayer to guarantee against downside risk on the value of these assets, while giving the upside, or potential profits, to private investors, he said.

"Quite frankly, this amounts to robbery of the American people. I don't think it's going to work because I think there'll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer."

Even if the plan clears banks of massive toxic debt, worries about the economic outlook mean banks could still be unwilling to make fresh loans, while the prospect of a higher tax burden to pay for various government stimulus plans could further undermine U.S. consumers, he said.

Some Republican lawmakers have also expressed concern over the incentives offered by the government, which could end up providing private investors with more than 90 percent of the funds to buy the troubled assets.

But President Barack Obama has said the plan was critical to a U.S. economic recovery, Stiglitz, a professor at New York's Columbia University and a former World Bank chief economist, also urged G20 leaders at their London summit next month to commit to providing greater resources to developing countries and said China should be given bigger voting rights in the International Monetary Fund.

[high density]

1. lol.

The most loved option here is nationalization, and that puts FULL RISK on the Treasury. The proposed plan is less risky. We share in the upside with the private investors.

There are lots of "what ifs" that we won't know until we try the program. Any solution has that problem.

[Cant trust em]

8. That doesn't seem to make sense to me either

I feel like a lot of the criticism of the Geithner plan is that we don't see the same profits as they investors do. We take the risk, they get they reward.

The only reward I'm interested in is getting the economy back on track. I don't really need the government's portfolio to jump. Just get our money back.

[Barack_America]

10. People seem to forget that if we nationalize, taxpayers OWN the bad assets.

Why people, including Krugman, seem to find that a more attractive scenario is beyond me.

[HamdenRice]

16. Own with limited liability. Common stock owners like the fed in the case of nationalization are not

liable for the debts of the corporation.

[CTLawGuy]

56. the government, as an investor, would not be liable to a creditor for the debts of the bank

but they have to buy all the assets in the first place so money would still be lost.

[EmilyAnne]

72. Also, apparently the Swedish nationalization that Krugman points to as model is quite different

because it was much easier to separate bad assets from good assets.

[HamdenRice]

14. No, that's wrong.

First of all, the full risk is on the treasury in Geithner's plan because the "debt" the feds are putting in is non-recourse.

Meanwhile, the upside that should go to the feds is given to the hedge fund investors, because once you pierce the illusion of federal "lending" then you can see that the feds are contributing 93% and the hedge funds 7%, yet profits are split 50/50. That's a pure gift of money to hedge funds with no downside risk.

In nationalization, the risk would be much less because the feds would take common stock in the banks, recapitalize them, take away the toxic assets, and sell them for a profit. Then if toxic assets increase in value, the feds recoup even more profit.

Geithner's plan is pretty much the worst possible plan imaginable. It's outright theft -- and I was a supporter of TARP I, and a knee jerk supporter of Obama (and still am somewhat). Geithner needs to be fired.

[girl gone mad]

61. That's an inaccurate description of nationalization.

Institutions that cannot survive without continual provision of public funds should be taken into receivership, their assets should be restructured to better ensure repayment, their stockholders should be wiped out, bondholders should take a major haircut, customer assets should (and will) be fully protected just as they are now, and these institutions should be re-privatized when the economy stabilizes.

The course of defending the bondholders of insolvent institutions is not sustainable. Do the math. The collateral behind private market debt is being marked down by easily 20-30%. That debt represents about 3.5 times GDP. That implies collateral losses on the order of 70-100% of GDP, which itself is $14 trillion. Unless Congress is actually willing to commit that amount of public funds to defend the bondholders of mismanaged financials so they can avoid any loss, this crisis simply cannot be addressed through these ongoing bailouts. Bondholders have to take losses. Debt has to be restructured. There is really no other option. All Geithner's plan does is transfer the debt from the banks' balance sheets onto ours, which is not a long term viable solution.

[amandabeech]

68. Bond holders may include sovereign wealth funds of nations that we don't want to offend,

or so I recall reading.

It's a political calculation to a certain extent, but it is not being openly debated. Can you imagine the ruckus if it came out that we were guaranteeing the Saudi bonholders?

I think that we need more transparency here.

[amandabeech]

67. Yeah, we share the upside. Like about what, 10-15% and take all the risk

exceeding the amount of the loan plus the skin that private equity will actually put in.

The announcement on this thing was a monument to obfuscation.

[MarjorieG]

2. If not this, then what? Like managing an impossible crisis to wind it down vs quick cure

That isn't a cure, just feels bold, cleansing and more expensive.

[high density]

3. I'd say this guy must want us to do nothing

That has its own risk and we'll probably limp along economically for decades like Japan.

[high density]

4. Oh there we go, 5 recs from the Krugman crowd

Again, what is the solution that has LESS RISK to the tax payer than what Geithner has proposed? It is NOT nationalization.

[Kurt_and_Hunter]

15. Doing nothing would have less "risk.".. what's your frigging POINT?

The objective is not to minimize risk to the taxpayer.

The objective is an optimum balance of risk and efficacy.

If the current plan is less effective than nationalization then its real COST is potentially higher.

[JoseGaspar]

22. Nonsense

There is no "risk" with nationalization. The balance sheet disappears. The banks are backed by the Federal Government and can lend immediately, without taking the value of toxic (or benign) asserts into account. If the asserts turn out to have value five years from now, fine. Neither is any private "initiative" required. As credit institutions, without fancy "financial products", bank lending is strictly pro forma.

Japanese stagnation was caused by the opposite. It was the result of a "neither fish nor fowl" plan, much like Geithner's. There were a series of "bailouts" and implied guarantees but no solvency.

The only risk with nationalization is compensation. The solution is equally simple. Don't compensate. They are bankrupt without government intervention. Calculate compensation based on salvage value alone.

[high density]

26. Nationalization assumes all of these "assets"

We are going to pay for them under nationalization. You can gleefully ignore that they're still there and give loans, but the fact is they have to go somewhere if we're going to continue with a private banking system. We WILL pay for them either way.

Geithner's plan is to get rid of the toxic assets to avoid the Japanese issue. They just let the banks rot with whatever crap they had on the books and Obama's team is clear that they do not want that to happen.

[JoseGaspar]

37. The key phrase.

The key phrase in your post is "if we're going to continue with a private banking system." Why would "we" do that? The banks are central to circulation but they also engage in speculative "investment" (they've been regulated out of it half a dozen times and always come back). It is like having a Post Office that insists on being in the toxic waste business. "Too big to fail" is the same as saying they should be public.

Obama's Team's first priority is to maintain private banking as it is. They are wrong.

[high density]

41. Because this is the United States of America?

I know Obama promised us change and the Republicans called him a socialist, but expecting that much change is completely silly. Too big to fail is a problem, but Obama will fix that with regulation once the economy catches its breath.

[JoseGaspar]

46. Phrase it just like that and take it to the public.

"We will take on insane risk, pay disproportionate compensation, and save the banks only to turn them back over to the people who ruined them in the first place because THIS IS THE UNITED STATES OF AMERICA. That's how we do things here. I hope you will all agree. Tough if you don't."

Or, did you mean:

"We will hide the real issues, talk in code language, and not tell you what we are really doing, regardless of who you elect or what party you voted for because this is the United States of America."

The issue is simple. The ideologies, not so much.

[tomp]

74. nicely put in terms of the obfuscating language.

however, from my perspective, that of a person with little education in economics, this is all very complicated and hard to form an opinion about. i know i'm an intelligent person, so i want to believe that it is purposely overcomplicated to avoid scrutiny by the bulk of ordinary people, keeping the "experts" in control, though here even the "experts" seem to disagree vehemently.

from the political perspective i know we're being screwed royally and obama is part of the problem, if for no other reason than he is not making it clear to me what's going on.

[CTLawGuy]

57. sorry

he is not a socialist, and government-run banking will only be worse than private banking. The better solution is regulated private banking as opposed to unregulated private banking.

[girl gone mad]

62. What are you talking about?

We're currently operating under the worst form of socialism. The Bush and Obama administrations have socialized all of the losses caused by the foolish decisions of private institutions, and now the profits of the government bailouts are being largely privatized.

It resembles Mussolini style corporatism as much as anything.

[CTLawGuy]

70. there are no profits from this

I don't know where people get this idea. The banks aren't profiting from this--they lost money on the deal. The point is to put money in the economy to lend. These unmarketable assets are hindering that right now.

If the government holds the assets for 20-30 years, the loans that underlie them will mostly be repaid and the taxypayers will recoup their money.

Right now people cannot get credit to buy houses, cars or to open businesses and create jobs. The point of this plan is to replace that lost credit.

[girl gone mad]

75. People are broke.

They aren't seeking loans because they can't afford to buy cars and homes and they still have too much debt from the previous credit binge.

There is absolutely no guarantee written into this program that would force banks to lend to broke American households or businesses. None. And it would be foolish to try to force them to do so.

Of course hedge funds and banks stand to profit enormously from this program. To say otherwise is pure fantasy. Banks will be transferring their bad debt onto our balance sheet and hedge funds get non-recourse loans and fundamentally no downside for gambling with our money.

[Telly Savalas]

58. Nationalization also assumes all of the non-toxic assets.

Rather than just cherry-picking the worst parts of the banks' balance sheets like Geithner is fixated with.

[CAcyclist]

60. We've already paid over twice what we could have bought the company for on the open market

[ShortnFiery]

23. Believe it or not, there's more of us than "the Krugman crowd"

I don't care much for Krugman but I know if we CONTINUE to send the money UPWARD to Wall Street, us peon wage slaves will NEVER see hide nor hair of that money again. It's time to FEED "Main Street."

[high density]

28. Having a healthy banking system helps us all

Don't cut off your nose to spite your face.

[ShortnFiery]

34. NOT when AIG sends the money overseas.

:eyes:

[high density]

39. AIG is a problem

But it's not this problem. This thread is about mortgage backed securities and the Treasury's plan to start up a subsidized market for them.

[girl gone mad]

63. The financial sector is a parasite on the real economy.

It needs to shrink back down to a more realistic size, back to where it was before Reagan came along and set us on the path of reckless greed and misguided deregulation. Any attempts to keep the bloated parasite fully fed will be futile. Japan learned that lesson the hard way and it appears we are going to have to learn the hard way, too.

[truedelphi]

69. ShortnFiery - there was a letter to the editor maybe two months ago

Letter writer stated that when it was all worked out, the total debt for all the various BailOuts BuyOuts, etc would probably at least total 25,000 per citizen. For every and any man woman and child, each would owe $ 25,000 for these plans.

So why, asked the Letter Writer, can't the government just give the money over to each of us!!

That would enable people to pay down their mortgages, pay the college tuition, go back to eating out once in a while, maybe buy a new car. And although economists have a lot of quibbling over this kind of idea - it doesn't do this that or the other thing etc (though they give each quibble a fancy pants name) int he end there would be a lot to show for it.

These toxic assets are not worth anything now and probably will not be worth anything when he terms for the loan that is created is over in three years. But in the meantime, there will be rampant inflation, and social unrest and absolutely nothing of value created. (Except for replating gold faucets in the bathrooms of the already rich.)

[DrToast]

5. Hey genius, we know we're getting screwed...

So go ahead and tell us an option that doesn't involve the taxpayer footing the bill.

Go ahead. I'm dying to hear it.

*crickets*

Gah! I'm so sick of these boneheads saying, "Well, this will be bad for taxpayers!"

Yes, we know. Now shut up.

[Jennicut]

11. Its bad for us no matter what. Wall St. screwed us infinitely and totally.

Even nationalization involves us using funds to take over the banks. The question is which would cost us less and is it right for firms like BlackRock to come in and make money on the bad assets? That would be a better frame of questioning.

[ShortnFiery]

29. But do we have to say, "Thank you Wall Street, please take more of our money?"

:crazy:

[liberal N proud]

6. What's left to steal?

[Beetwasher]

7. Ok, Fine, But I Don't See Much Detail In His Criticism

"and is unlikely to work as long as the economy remains weak,..."

Ok, but if it starts recovering it could work? :shrug:

"I don't think it's going to work because I think there'll be a lot of anger..."

:shrug: Anger? That's his reason why it won't work? People will be angry?

"The U.S. government is basically using the taxpayer to guarantee against downside risk on the value of these assets, while giving the upside, or potential profits, to private investors, he said."

That's partially true. However, if we nationalize, then the total risk will be US taxpayer. The risk is mitigated by having the private sector involved. Now, you can argue it's not much mitigation, but it IS still mitigated. And while the private sector will make the profits (if there are any) so will the gov't.

Some more points. This plan is meant to stabilize. It is not the end all be all. It is merely a step to stabilize the system and inject confidence. Psychology is a big factor in economics and confidence can help stabilize the system and help us reach a bottom. And by his own admission, the plan won't work if the economy remains weak, but if the plan stabilizes the economy and it turns around, I'm assuming he feels it CAN work. And also, this is only one part of the big picture. If you add the stimulus and mortgage assistance etc. you have a total picture of various mechanism that should all be working together to stabilize and turn the economy around. Once the system is stabilized then we can begin the work of REFORMING THE UNDERLYING SYSTEMIC PROBLEMS. I have no doubt that that is coming as well, but before you fix the foundation, you have to first make sure the house doesn't collapse around you.

[asphalt.jungle]

9. In order for it to rob taxpayers you have to assume it fails

If that's the standard then you can make that argument about pretty much anything. Cheney's argument that Pres Obama is making us less safe because he "thinks" the policies he enacted won't work is reasonable along those lines. A wingnut thinking that Pres Obama will ruin the country because he "thinks" his policies will be a complete failure is also reasonable along those lines. To make such a strong statement like "robbery of the American people" because you THINK (and that word was used twice in the same sentence) is pretty irresponsible. I would prefer words like "KNOW" when you say things like that.

And yes the FDIC is being used to guarantee the downside risk, but the potential profits aren't GIVEN to private investors, it's split 50/50.

[HamdenRice]

12. No, it will rob the taxpayer if it succeeds as well

I think the plan is incredibly dishonest because it pushes the 50/50 split lie.

Geithner uses some tricky math to make it look like a 50/50 split, because the equity is contributed 50/50. But the equity is only about 15% of all the funds. The rest is "debt," provided by the federal government. But that debt isn't debt, because it's non recourse, which means, it bears the risk of failure, which means for all intents and purposes, it's equity.

So, in fact, the amount of money being put in is 93% federal and 7% private. If it succeeds, they then split the profits 50/50 even though they should split the profits 93/7.

It's robbery of the taxpayer, pure and simple -- much worse than TARP I.

[asphalt.jungle]

18. how?

if it succeeds the FDIC won't have a failure to cover. the 50/50 split isn't a lie because the profits are split 50/50. just because the profits aren't split 93/7 (due to the FDIC guaranteeing the downside) doesn't mean taxpayers are being robbed. private investors aren't GIVEN the profits, to suggest otherwise is dishonest.

[HamdenRice]

19. The federal government is putting in 93% of the money

about 85% debt and 7.5% (iirc) equity. But the debt is non-recourse, so it should be treated as equity.

It's not just guarantees; it's the proceeds for the purchases. Then, Geithner is trying to disguise 85% of the federal contribution as debt, when it really isn't.

The input is 93/7. The profit output is 50/50. Losses are 50/50 up to 15%, then 100% federal.

It's robbery pure and simple.

[Beetwasher]

21. Source?? Forgive Me If I Don't Just Take Your Word On This

n/t

[Kurt_and_Hunter]

24. From the treasury website:

I am not offering this as an endorsements of Hamden Rice's specifics, which I have not calculated, but Treasury is pretty up front about the level of leverage and who guarantees it.

In Treasury's own example of an $84 purchase the private invetor puts up $6 and the government puts up $78 ($6 from treasury and $72 from the FDIC)

In their example the private party can lose only $6 total because the FDIC loan in no-recourse, meaning he can only lose his original investment. The federal government (Treas and FDIC combined) can lose $78.

Sample Investment Under the Legacy Loans Program

Step 1: If a bank has a pool of residential mortgages with $100 face value that it is seeking to divest, the bank would approach the FDIC.
Step 2: The FDIC would determine, according to the above process, that they would be willing to leverage the pool at a 6-to-1 debt-to-equity ratio.
Step 3: The pool would then be auctioned by the FDIC, with several private sector bidders submitting bids. The highest bid from the private sector – in this example, $84 – would be the winner and would form a Public-Private Investment Fund to purchase the pool of mortgages.
Step 4: Of this $84 purchase price, the FDIC would provide guarantees for $72 of financing, leaving $12 of equity.
Step 5: The Treasury would then provide 50% of the equity funding required on a side-by-side basis with the investor. In this example, Treasury would invest approximately $6, with the private investor contributing $6.
Step 6: The private investor would then manage the servicing of the asset pool and the timing of its disposition on an ongoing basis – using asset managers approved and subject to oversight by the FDIC.

http://www.treas.gov/press/releases/tg65.htm

[Beetwasher]

31. So How Is It Theft? If The MBS Perform, The Loan Is Paid Back

And government has an equity stake as well.

So we get the equity on the $6 investment, plus the loan back w/ interest.

Doesn't sound like theft. Criticism of the risk balance is certainly valid, but it ain't theft.

[Kurt_and_Hunter]

36. Theft isn't my word, but risk is money

Risk is money.

The program must be analyzed in terms of probability weights of all penitential outcomes.

I offer to bet you on the flip of a coin. If you win I pay you $2.00. If you lose you pay me $1.00.

That constitutes a gift to you regardless of how the flip comes out. I am giving you $0.50 by offering the bet.

It is indistinguishable from me handing you $0.50 so we are each betting $1.50.

In financial terms there's no other sensible way to think about it.

The outcome of the flip doesn't change the real value of my offer before the coin was flipped.

The plan is in every scenario a payment to the private investors involved.

That doesn't mean it's a bad plan. But it is a give-away. A good plan might also be a give-away if giving something away achieves a desired end.

[Beetwasher]

38. That's Irrelevant, The Gov't Will Get The Loan Back PLUS Interest PLUS Equity

The gov't is in the business of loaning money to entities ALL THE TIME without sharing in ANY of the profits. If/when the economy stabilizes and turns around, the gov't stands to do pretty well historicaly speaking on this deal. If it fails, they will do better than if they were on the hook for 100% of the losses.

This is NOT a business venture for the gov't. This is a stabilization plan to help stablize the economy and get investment and capital flowing again.

[Kurt_and_Hunter]

40. No, actually your your comment is irrelevant

You said that if the MBS perform the loan gets paid back so what's the big deal.

That was a statement about outcomes and equity.

If you want to withdraw that and replace it with "This is NOT a business venture for the gov't" that's fine.

But it isn't what I was responding to.

I can only make relevant responses to what you say, not what you might later say.

[Beetwasher]

42. They're Intrinsically Related

Not my problem you don't get that. Loan gets paid back AND the gov't is not in it for a business venture means "outcomes and equity" is irrelevant. Gov't loans money all the time and only expect back interest regardless of how much profit is made via the loan.

You mean you didn't know the gov't is not a business? I had to point that out to you?

[HamdenRice]

44. "Loan gets paid back" -- not necessarily, which is why it's not really "debt"

That's the dishonesty in the program. The loans are non-recourse loans. The government almost never makes non-recourse loans.

A non-recourse loan is one in which if the enterprise fails, the lender (the government) has "no recourse" against the borrower other than the assets, ie the toxic assets.

So if the program doesn't work for any securities, the debt is basically forgiven. So it really should be treated as equity, not debt. Which means that the government/private contribution really is 93/7 not 50/50.

[Beetwasher]

45. No, It's Not Dishonest

They are quite upfront about the non-recourse aspect of the loan and it's not unheard of. How is it dishonest if they're telling you about it? It's not equity if it is in fact a loan that will be paid back if the enterprise is successful.

Is there risk in the plan? Of course, there's risk in ANY plan of this nature. There's MORE risk if the gov't just goes ahead and buys up all the toxic assets w/out the private element and the assets fail.

[amborin]

47. the likelihood of making a profit is very, very low

many of these assets are totally worthless

just think about it: if they were really good investments, the kind people would make money off of, then the gov't would NOT be funding their purchase through no-recourse loans

[Beetwasher]

48. You STILL Have NOT Backed Up That Bullshit Claim

"many of these assets are totally worthless"

That's bullshit and time and again you fail to back it up.

[amborin]

49. clearly, you have not read a newspaper in ages

[Beetwasher]

50. So BACK IT UP! It Should Be Easy Then

Come on, put up.

[high density]

32. These assets are loans; we expect most of them will be paid back

Has everybody forgotten how loans work?!!? I know there have been a lot of defaults/foreclosures/bankruptcies lately, but it would help to stop assuming end-of-world 100% failure because things just aren't that bad. If we're ever at that point the dollar we're using to buy these things has no meaning anyway.

[Kurt_and_Hunter]

43. And what is our basis for expecting repayment?

These happen to be assets banks volunteer to get rid of below face value.

The reason we need to enter the market is that nobody will pay what banks are asking for them.

We are seeking, by definition, to pay above-market prices.

So their awesome profit potential is not established.

We subsidize a certain price. Then the investor has to try to sell the thing for a higher price without being able to offer the same subsidy

Why would the second price be higher?

It may be but it is hardly obvious

[Telly Savalas]

59. Would be purchasers of the assets seem to be skeptical that there will be a low default rate

otherwise they'd be buying them at a price the banks find acceptable without taxpayers having to accept almost all of the downside risk of the gamble.

[Egnever]

55. I dont see the robery

if there is a profit at all we have just staved off disaster and got repaid in the process including perhaps a return on our investment.

How is that robbery?

This also has the advantage of setting the price on these "toxic assets" which is a large part of the problem right now no one wants to buy them as they dont have a estimated value people are willing to buy in at. this will force that value and assets that are curently unknown will become known quantities that banks can use to reconcile their books again.

Greed seems to be your factor as in the american public should get all the profit screw the reason we are doing this in the first place.

The level of idiocy on this board astounds me at times.

[girl gone mad]

65. You are calling Stiglitz an idiot?

The arrogance on this board astounds me. It's clear from your comments that you have little understanding of Geithner's proposal. You might want to steer clear of calling a Nobel prize winning economist (the most widely read and respected in his field, I might add) an idiot.

[girl gone mad]

64. Taxpayers can get hosed either way:

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=114&topic_id=61482&mesg_id=61482

[Kurt_and_Hunter]

20. But toxic assets always go up... don't you know that?

Just because everyone who has touched any one of these particular assets burst into flames doesn't mean anything... this time is different.

They always go up! (Just like the real estate they're based on.)

[asphalt.jungle]

25. so is the problem the 93/7 or not nationalizing the banks?

do you disagree with it simply because the balance of risk isn't right? or do you feel that nationalization is the best option?

the govt wants to start cleaning up the system at the lowest possible cost to taxpayers and private investors want to make money. so the risk balance was always going to favor those with the cash on the sidelines who need to be incentivized to participate. with nationalization wouldn't the govt be on the hook for ALL the losses? obviously they would get all the profits as well, but i think there are greater chances for profits with private investors involved than without. 50% of something is better than 100% of nothing. 93% of losses resulting from failure is better than 100%.

[flyarm]

52. Thank you ..HamdenRice ..absolutely correct..this is raping of us..the taxpayers..

its a screwing without the love!

fly

[Jennicut]

13. We have already been robbed.

Too late for that. Investors may make off like bandits. If we nationalize would we even make any money? Who would want to re privatize the banks and would we be mad at that investor/firm/company for making money after we essentially cleaned up the bank and handed it over nice and pristine? I don't know. I need an actual course in economics. This is over my head and many others. That is part of the problem in this whole financial mess. Credit default swaps, never heard of it until a few months ago. I need it explained in like animated form. I am that dumb.

[Kurt_and_Hunter]

17. Not correct

Risk = Money.

There is no such thing in these matters as "how it works out" or "what we assume."

Your boss decides to skip your paycheck this week and instead gives you a lottery ticket. Are you complaining? If so, why? Maybe your boss just paid you a million dollars. Who knows?

It is correct to say your boss robbed you, even before the lottery drawing is held.

There is an array of outcomes which cumulatively add up to the expected value of an action (to use a poker term).

Every dollar bet at roulette has a real value of somewhere around $0.95. (using a round number) To a reasonable, responsible person betting a dollar at roulette is equivalent to paying a nickel for the experience.

To counter that with, "nobody knows if you'll win or lose" is fiscal madness.

Assuming risk for someone is a payment to them. Whether it results in real losses down the road is largely irrelevant to the question of whether the plan is, as constructed, robbery. (I am not using the term robbery, just defining the argument.)

Question: If we are so SURE these things will go up then why are we bribing people to buy them? Why don't we take all that profit for our poor over-extended taxpayers?

[girl gone mad]

66. Nice to hear from someone who's at least taken statistics.

Thank you for elevating the level of discussion in this thread.

[amborin]

27. how will the Treas get the reservation price for each asset?

[Skwmom]

30. So the tax cheat supports robbing US taxpayers.

What a surprise.

[amborin]

33. what you get for $6

[amborin]

35. The Bank Rescue: NY Times Editorial: won't even get banks lending:

".......The first assumption is that those battered assets will recover handsomely, thus allowing the government loans to be repaid with interest. There has, however, been no independent assessment of the assets or their underlying collateral, so there’s no way to know that they will recover by much, if at all from their beaten-down state.

The Times has reported that investors are currently offering 30 cents on the dollar for certain toxic assets. Banks are unwilling to sell at that price, but that doesn’t mean the offer price is too low. It may only indicate their fear that taking such losses might render the banks insolvent. With government subsidies, investors will presumably offer a price that is more to the banks’ liking. But that, in turn, could expose the government to big losses. Government loans are huge compared with the sums that investors must put up, so even a modest decline in the value of the purchased assets would endanger repayment of the loans.

Even if we assume that the assets do increase in value, allowing the government to be repaid, there are still unsolved problems.

Successful sales will rid banks of some of their toxic assets, but not necessarily all or even most of them. To restore the banks to health, the sums expended would have to be enough to balance the banks’ assets and liabilities, and provide a reasonable cushion to resume lending and absorb future losses. No one knows with any certainty how much that is, though some estimates put it north of $2 trillion, much more than what the administration is contemplating.

And even if you assume that the sums ....."

snip


<http://www.nytimes.com/2009/03/24/opinion/24tue1.html?ref=opinion>

[ihavenobias]

51. Typical. Another brilliant, proven economist thinks he knows what he's talking about.

We'll show that arrogant bastard! If he argues against Geithner (and by extension, the President), he MUST be wrong, period.

Ain't no know-it-all "experts" gonna change my mind!

;)

[ProSense]

53. "Geithner Plan Will Rob US Taxpayers: Stiglitz"

But President Barack Obama has said the plan was critical to a U.S. economic recovery...

Does Obama know that the plan will "Rob US Taxpayers"?

[Egnever]

54. I don't think it's going to work because I think there'll be a lot of anger

Well there you have it. The reason isnt technical its a fear of anger from the american public. Wonder why the media is trying to get all of you pissed off?

[EmilyAnne]

73. This is what jumped out at me, too! Its irrational.

[invictus]

71. K&R