The Identical Plutocrat Pigs Who Destroyed the Economy Are Eating at OUR Trough Again [Updated]
By SusanUnPC on March 26, 2009 at 11:15 AM in AIG, Larry Summers, Middle America, President Barack Obama, Tim Geithner, Toxic Assets
The plutocrat pigs are at our trough again, thanks to one Timothy Geithner and one Lawrence Summers. Well, if you have seen my posts featuring interviews or columns by Princeton’s Paul Krugman, Nobel Laureate in Economics, you know Geithner’s “toxic assets plan,” announced Monday under Geithner’s, not Obama’s name, is designed to 1) Avoid any need for legislation, thus circumventing the Constitutional will of the people through their representatives in Congress; and 2) Reward the same plutocrats with another one trillion dollars of secretly stolen taxpayers’ money, at little risk to all the Mr. Moneybags, and its risks carried on the backs of taxpayers. Writes world-famous economist Jeffrey Sachs (more below) in today’s Financial Times:
[U]nder the Geithner-Summers plan the loan is precisely designed to be a one-way bet, for the purpose of overpricing the toxic asset in order to bail out the bank’s shareholders at hidden cost to the taxpayers.
People must scream to the high heavens about the the toxic assets plan, not the AIG bonuses. The plan costs incalculably more, and unfairly rewards plutocrats while stealing hard-earned taxes paid by lower- and middle-classes and small businesses (the “underclass”) neglected by 0bama and Geithner.
Readers, this is where YOUR rubber meets the road. Now is the time when we prove if we can get it or, sigh, that we can only comprehend simpleton issues like the AIG bonuses. Populist anger only shakes things up IF it’s focused on what truly matters. You can be sure Obama/Geithner/Summers loved the distracting AIG bonus outrage whilst they launched this far more costly, undemocratic plan to reward their filthy rich pals while further pauperizing the rest of us.
Although the toxic assets plan can require some explanation, you can tell people that:
1) Taxpayers bear the burden and investors carry no risk except their own investment — that even though they get government money six-plus times their own investment, they bear NO responsibility if their venture fails;
2) The toxic assets plan rewards only plutocrats, not the U.S. government or its taxpayers (barring a miracle if toxic assets sell high); and
3) The same long unregulated, irrationally wild gamblers who created our crisis will benefit the most financially.
NOW, here’s another world-famous economics expert, JEFFREY SACHS, who is as correct as Paul Krugman. From today’s Financial Times, in “Obama’s bank plan could rob the taxpayer“:
The Geithner-Summers plan, officially called the public/private investment programme, is a thinly veiled attempt to transfer up to hundreds of billions of dollars of US taxpayer funds to the commercial banks, by buying toxic assets from the banks at far above their market value. It is dressed up as a market transaction but that is a fig-leaf, since the government will put in 90 per cent or more of the funds and the “price discovery” process is not genuine. It is no surprise that stock market capitalisation of the banks has risen about 50 per cent from the lows of two weeks ago. Taxpayers are the losers, even as they stand on the sidelines cheering the rise of the stock market. It is their money fuelling the rally, yet the banks are the beneficiaries.
The plan’s essence is to use government off-budget money to overpay for banks’ toxic assets, perhaps by a factor of two or more. This is done by creating a one-way bet for private-sector bidders for the toxic assets, then cynically calling it “private sector price discovery”. Consider a simple example: a toxic asset with face value of $1m pays off fully with probability of 20 per cent and pays off $200,000 with probability of 80 per cent. A risk-neutral investor would pay $360,000 for this asset.
Along comes the government and says it will finance 90 per cent of the investor’s purchase and, moreover, do so as a non-recourse loan. Non-recourse means the government’s loan is backed only by the collateral value of the toxic asset itself. If the pay-out is low, the loan is defaulted and the government ends up with the low pay-out rather than full repayment of the loan.
Now the investor is prepared to bid $714,000 (with rounding) for the same asset. The investor uses $71,000 of his/her own money and $643,000 of the government loan. If the asset pays off in full, the investor repays the loan, with a profit of $357,000. This happens 20 per cent of the time, so brings an expected profit of $71,000. The other 80 per cent of the time the investor defaults on the loan, and the government ends up with $200,000. The investor just breaks even by bidding $714,000, as we would expect in a competitive auction.
Of course, the investor has systematically overpaid by $354,000 (the bid price of $714,000 minus the market value of $360,000), reflecting the investor’s right to default on the loan in the event of a poor pay-out of the toxic asset. The overpayment equals the expected loss of the government loan. After all, 80 per cent of the time (in this example) the government loses $443,000 (the $643,000 loan minus the $200,000 repayment). The expected loss is 80 per cent of $443,000, equal to $354,000.
The idea of “private sector price discovery” is therefore flim-flam. There would be price discovery if the government’s loan had to be repaid whether or not the asset paid off in full. In that case, the investor would bid $360,000. But under the Geithner-Summers plan the loan is precisely designed to be a one-way bet, for the purpose of overpricing the toxic asset in order to bail out the bank’s shareholders at hidden cost to the taxpayers. …
You must read all of the Financial Times‘s “Obama’s bank plan could rob the taxpayer” by Jeffrey Sachs, director of The Earth Institute at Columbia University.
READ and MEMORIZE this closing paragraph of Sach’s op-ed:
Tim Geithner, Treasury secretary, and Lawrence Summers, director of the White House national economic council, suspect that they cannot go back to Congress to fund their plan and so are raiding the Federal Reserve, the Federal Deposit Insurance Corporation and the remaining Tarp funds, hoping that there will be little public understanding and little or no congressional scrutiny. This is an inappropriate institutional use of the Fed, the FDIC and the Tarp. Mr Geithner and Mr Summers should at the very least explain the true risks of large losses by the government under their plan. Then, a properly informed Congress and public could decide whether to adopt this plan or some better alternative.
We have THREE BRANCHES OF GOVERNMENT for a reason. Duh. One of the reasons is to keep the Executive Branch from calling the shots or from STEALING from taxpayers to REWARD their own friends.
I quibble with Mr. Sachs in that I do not wish to hear Mssrs. Geithner’s and Summers’ explanations that will obfuscate the essential problems with the plan (exposed by Mssrs. Krugman and Sachs) and just end up confusing Americans.
This is why our Forefathers protected the Fourth Estate, through which we occasionally get good, factually- and reality-based information we can use to evaluate our government and its leaders. We all lament the state of the media, but it is still, for now, publishing the likes of Krugman and Sachs who dare to tell us the truth.
Mr. Sachs, you and Paul Krugman have done an outstanding job of explaining this massive and undemocratic theft of the underclasses’ money. NOW it is up to US to all call our Representatives and Senators and demand 1) Hearings, and 2) Legislation to disallow Mssrs. Geithner and Summers from “picking our pockets” and bankrupting the United States of America.
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WHO’S WHO:
1) Timothy F. Geithner is the Secretary of the Treasury;
2) Lawrence Summers is the director of the White House national economic council; and
3) Barack Obama is the president of the United States who is working on his bowling game except when he practices with his teleprompter.
“Me love you long, long time,” whisper the prostitutes Geithner, Summers, and Obama — telling us what we want to hear — as they slyly slip a drug in our drinks as they pleasure us with seductive talk and acts, but then empty our wallets while we’re passed out.
UPDATE: Run over to CNN and listen to Senate investment hearing. (C-Span3 is only carrying BO’s live townhall b.s.) BTW: Geithner is testifying before Franks’ House committee, but I can’t find live video. Can you? The WaPo is live-blogging Geithner’s testimony. Here’s Geithner’s prepared testimony.
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