The Geithner-Summers Plan is Even Worse than we Thought

[katty]

by Jeffrey Sachs

more: http://www.huffingtonpost.com/jeffrey-sachs/the-geithner-summers-plan_b_183499.html

Two weeks ago, I posted an article showing how the Geithner-Summers banking plan could potentially and unnecessarily transfer hundreds of billions of dollars of wealth from taxpayers to banks. The same basic arithmetic was later described by Joseph Stiglitz in the New York Times (April 1) and by Peyton Young in the Financial Times (April 1). In fact, the situation is even potentially more disastrous than we wrote. Insiders can easily game the system created by Geithner and Summers to cost up to a trillion dollars or more to the taxpayers.

Here's how. Consider a toxic asset held by Citibank with a face value of $1 million, but with zero probability of any payout and therefore with a zero market value. An outside bidder would not pay anything for such an asset. All of the previous articles consider the case of true outside bidders.

Suppose, however, that Citibank itself sets up a Citibank Public-Private Investment Fund (CPPIF) under the Geithner-Summers plan. The CPPIF will bid the full face value of $1 million for the worthless asset, because it can borrow $850K from the FDIC, and get $75K from the Treasury, to make the purchase! Citibank will only have to put in $75K of the total.

[FrenchieCat]

1. Perhaps so, perhaps not.....

Jeffrey Sachs' opinion isn't as valued by me as some others are.

Sachs has also been criticized by leftists for having an overly neoliberal perspective on the economy. Nancy Holmstrom and Richard Smith pointed out that, in advising implementation of his shock therapy on the collapsing Soviet Union, Sachs "supposed the transition to capitalism would be a natural, virtually automatic economic process: start by abandoning state planning, free up prices, promote private competition with state-owned industry, and sell off state industry as fast as possible…". They go on to cite the drastic decreases in industrial output over the ensuing years, a nearly halving of the country's GDP and of personal incomes, a doubling of the suicide rate, and a skyrocketing unemployment rate. The Lancet has recently reported that rapid privatization of the Soviet Union caused a 12.8% death rate increase among males in just two years, a claim that The Economist disputes. Canadian activist Naomi Klein argues in her 2007 book The Shock Doctrine: The Rise of Disaster Capitalism that Sachs' Bolivian "success" is clearly not true. In her analysis, the radical reforms pushed by Sachs were neither democratically agreed upon nor achieved without violent state repression, and in her opinion, left the majority of Bolivians in far worse circumstances.
http://en.wikipedia.org/wiki/Jeffrey_Sachs

[SLSmith]

2. PROTESTERS STOP Lawrence Summers @ Conference "WE WANT OUR $$$ BACK" VIDEO

Lawrence Summers @ Economic Club of Washington. Just now now, CodePink went on stage with their PINK banner "WE WANT OUR $$$ BACK" behind the man for 1 min.
Here's the complete VIDEO with Larry's followup question "these times are challenging" No sh@#t!
http://www.youtube.com/watch?v=pzTrPVSni14

[xchrom]

3. recommend

[acmavm]

4. Trusting these guys is comparable hiring Ted Bundy to babysit

your kids.

[ima_sinnic]

5. but apparently obama just doesn't care, because he is adamant about staying with their plan

how much do we get screwed before we finally and fully resist?

[bemildred]

6. I think calling it a "plan" is being a bit generous.

It's more like a panic reaction to a colossal fuckup.

[femrap]

7. I heard tonight on the

news that 'they' will offer the public mutual funds in these toxic assets!! After all the public wants to participate in making some money too.

It's just too fucking unbelievable.

[MasonJar]

8. I am simply appalled and mystified that the man I thought we had

elected is someone so totally different from the one we got. On the most crucial issues (the bailout of the rich with our money, the wiretapping of American citizens, the absurd DOJ filings in court cases, the refusal to hold the Bushista accountable, the continuation of executive power and secrecy, health care, etcs.) Obama is not very different from the man we wanted so badly to get rid of for 8 long and miserable years. He is the personification of a DLCer, a blue dog. I am distraught with disappointment!!!!!!!

[tomp]

9. the numbers like you are mounting here rapidly. nt

[truth2power]

10. Well, he is more articulate. Kinda like

"a spoonful of sugar makes the medicine go down". :evilfrown:

More than ever, I'm convinced that no one gets elected who isn't vetted by the oligarchy. Obama has his marching orders.

[tbyg52]

11. >>no one gets elected who isn't vetted by the oligarchy

Oh, absolutely no doubt. I knew that *before* President Obama starting doing some disappointing things. (And some very good things, let us not forget.) We need campaign finance reform, maybe even before throwing out the faith-based voting machines.

[truth2power]

13. I agree..Obama has done some good things as well as things

that really disappoint me.

I'll say this again. We need:

1. Publically funded elections.
2. Instant runoff voting.
3. Deprive corporations of their "person" status.

Those 3 things would go a long way to help fix our broken system, IMO.

[MarjorieG]

14. Rethink IRV, which requires very complex electronic voting. Rather have assured public's 1st choice.

[tbyg52]

15. You took the words right out of my mouth!

Which in no way diminishes my support for #1 and #3! :applause:

[Skittles]

17. you would have seen this before he was elected if you had paid attention

[Two Americas]

18. many did

Have you forgotten? Many tried to warn us. They were shouted down. "Now is not the time! We need to win an election!"

[truedelphi]

12. With the Moyer's-Black interview, the cat is out of the bag

A toxic asset is something that has crushing risk. There were the appearances of fraud inside every single file relating to the ratings of the bank investment offerings.

Now these "investments" are being offered up under the PPIP - and under PPIP, these stinky "assets" will be transferred over to the public.

And sometime during the next fifteen months, the devaluing of our dollar will occur. It won't affect the more well off among us - in fact another DU'er told me that if I am concerned about inflation, I can "invest" or bet in the TIPS program - a Wall Street invention that will offset my losses due to inflation.

But I don't have the money to do that, just as I didn't have the money to bet against the economy via the Credit Default Swaps. Do most of the posters here at DUhave this kind ofmoney?

Under Geithner, according to Black, "The Taxpayers play the fool!"

Black says "The government was working in concert with industry to avoid regulation."

[autorank]

19. k*r

This is the best interview and statement yet on the meltdown. OUTSTANDING. Sorry I wasn't in time
to REC it. It is most deserving!

[natrat]

16. wait, wasn't the great obama telling us to invest in exactly these assets,reminds me of fdr not