And until that changes, nobody's going to take Timmy The Invisible Boy seriously. The "confidence in the stock market" problem is Timmy's baliwick, and until he and Helicopter Ben come up with a plan that doesn't boil down to "let the banks get trillions from the taxpayer as a reward for screwing up" then there's no real hope.
Calculated Risk looks at the latest plan floated by the Treasury — to make low-interest, non-recourse loans to private investors who buy bad assets — and immediately gets it: this is a plan to drive up the prices of toxic assets by creating a lot of moral hazard.Indeed. Every plan we’ve heard from Treasury amounts to the same thing — an attempt to socialize the losses while privatizing the gains. We’re going to buy up all the bad assets at premium prices; no, we’re going to offer the banks guarantees against losses; no, we’re going to let private investors buy the stuff, but offer them de facto guarantees against losses in the form of non-recourse loans.
By offering low interest non-recourse loans, these public-private entities can pay a higher than market price for the toxic assets (since there is no downside risk). This amounts to a direct subsidy from the taxpayers to the banks. It is amazing how many different ways they’ve tried to recycle the same bad idea.
They're making it up as they go along, trying to find a plan where we don't catch on to the swindle. At this point, Obama needs to be looking for a new SecTreas.
Timmy is a fool.