Everything's fine. Stress tests passed.
Please disregard the fact that BofA still needs $36 billion after already taking $163 billion in govt assistance and risky asset guarantees. That's what ventilators and bypasses are for.
Oh and Citi - Citi has taken $45 billion in TARP funds. We have guaranteed $306 billion against losses in risky assets. SO, except for the $351 billion in govt assistance Citi's doing fine.
BofA and Citi are doing so well, they've been buying even more toxic assets.
They must really like Geithner's plan, too. If it's good enough for Ken and Vikram. It's good enough for me. Good job on your report card guys.
Except, I do wonder - what happens under the Geithner plan when they sell at a loss? Does the gov't cover the spread there, too? Do we just keep insuring losses.
Are we USAIG now? I have so many doubts about Gethner's plan.
For everyone who holds Roubini's faint praise of Geithner's plan up as a weapon against reality, remember that it relies on some caveats:
- Roubini says it would only work for solvent banks.
Which begs two questions -
a. if they're truly solvent, why do they need our help?
b. Are these banks really solvent?
- Roubini says banks must be forced to fully participate, seeming to acknowledge Stiglitz's point
The banks get to choose the loans and securities that they want to sell. They will want to sell the worst assets, and especially the assets that they think the market overestimates (and thus is willing to pay too much for).
But the market is likely to recognize this, which will drive down the price that it is willing to pay. Only the government’s picking up enough of the losses overcomes this "adverse selection" effect. With the government absorbing the losses, the market doesn’t care if the banks are "cheating" them by selling their lousiest assets, because the government(taxpayer) bears the cost.
- That banks would follow the spirit as well as the letter of the plan. As Sach's lays out, it would be impossible to identify-
..the gaming of the system doesn't have to be as crude as Citibank setting up its own CPPIF. There are lots of ways that it can do this indirectly, for example, buying assets of other banks which in turn buy Citi's assets. Or other stakeholders in Citi, such as groups of bondholders and shareholders, could do the same.
If any economist has been assessing the potential of the Geithner Plan in a vacuum it has been Roubini. However, his "caveats" are starting to pile up and reflect those of his contemporaries.