At the risk of inviting further lectures on how a Democrat should never question this Administration (sorry I am not an "O, the President" bumper sticker kinda guy), I have another question regarding the Geithner Plan.
My concern that the auction would turn into a game of you scratch my back I will scratch yours, underwritten with tax payer money, between the banks holding the toxic waste seems to have been adequately addressed (thanks rweba) in the Fund Manager application. Still I have another major concern.
Recalling that the true beneficiaries of the AIG bailouts were the counter parties (let’s put aside the retention bonuses for the moment) who actually got the money, what prevents Fund Managers and the funds they manage to be comprised of parties to whom these banks owe money? Is this simply a way to pump Government cash into these banks so that the bank now have the cash they need to pay whoever the bank owes? So OK, the fund puts up 7.5% and can lose it all, but so what? If the parties comprising the fund are owed money by the bank, these parties can now be repaid by the toxic waste selling bank with money the bank would otherwise never see.
I’d pay $7.50, plus an UNLIMITED amount of government provided funds, to insure someone who owed me $100 could repay me if I believed that deadbeat would otherwise renege. Who wouldn’t?
But then what? The auction is over, assets have been moved around, and no subsequent buyers of these temporarily non-toxic assets have access to the same 92.5% non-recourse government financing auction bidders used. How is the auction value of the toxic assets to be maintained in secondary markets? It won’t as far as I can tell.
So the bottom line from my example is I get re-paid my $100 from the money received by the bank for auctioning off its toxic waste, the bank sheds the waste, I lose my $7.50 used in bidding for the toxic waste, but I use the toxic waste to pay in full the amount of my non-recourse government loan.
As party to whom these banks owe money, I get 92.5 cents on my dollar thanks to Geithner’s plan instead of the bupkiss I am looking at today.
How does the plan protect tax payers from this scenario? If I am wrong to be concerned about this, why? And please, because President Obama and/or Geithner & Co. say so is not a satisfying answer, not when the Administration in all likelihood gets one shot to get this right. Recent events have amply demonstrated my suspicion of Wall Street-concocted Government solutions to be well founded.
I want to be wrong about this because I want the economic crisis to end. So what am I overlooking? Anything?