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Ear to the Ground

Taxpayers to Buy Bad Bank Assets

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Posted on Mar 23, 2009
Flickr / epicharmus

What a deal! Timothy Geithner’s new plan to save the banks from themselves commits American taxpayers to a massive purchase of the toxic assets that the banks had originally insisted were risk-free investments. Of course, Wall Street loved the news.

However, Paul Krugman’s not buying it.

Update: The Dow soared nearly 500 points on the news.

The New York Times:

The Obama administration formally presented the latest step in its financial rescue package on Monday, an attempt to draw private investors into partnership with a new federal entity that could eventually buy up to $1 trillion in troubled assets that are weighing down banks and clogging up the credit markets.

The Dow Jones industrial average was up sharply early Monday, gaining more than 300 points by midday. When the Treasury secretary, Timothy F. Geithner, spoke on Feb. 10 of a bank rescue plan without offering much detail, investors took that as a worrying sign and the Dow fell sharply, losing 380 points.

The Treasury secretary did not deny the uncertainties inherent in the new program on Monday but defended it as a practical approach. “There is no doubt the government is taking a risk,” Mr. Geithner said, “the only question is how best to do it.”

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By wildflower, March 24, 2009 at 2:13 pm Link to this comment

Informative updated discussion on this issue on NYT’s Room for Debate, “Will the Geither Plan Work?”  It includes comments from various economists. Some say it might work and others say no.  Commentators are Brad Delong, Simon Johnson, Paul Krugman, and Mark Thoma. 

Simon Johnson made some excellent points:

“. . . This kind of complex market-based scheme makes scams easy. After less than 24 hours, the Internet already abounds with detailed and plausible proposals regarding how to take unreasonable advantage of the plan, either if you are an independent hedge fund buying toxic assets or the employee of a bank selling the same or – ideally – someone with connections to both.

Banks, hedge funds, insurance companies and the like are willing to stay involved only if this does not bring onerous additional government scrutiny. As scams become more apparent – and it only ever takes one or two prominent examples – controls will be tightened and private sector participation will fall off. . .

. . . We must learn the painful lessons of A.I.G. and create laws, put in place procedures, and hire people who can clean up massive financial messes. The magic of the market will likely not get us out of this morass; we need a new Resolution Trust Corporation-type structure and we need it fast.”

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By psickmind fraud, March 24, 2009 at 11:10 am Link to this comment

You people just don’t understand the brilliant subtlety of this plan.  The idea is that the handover of our money makes the populus so pissed off that we threaten the uber wealthy and their corporations.  In turn, they have to hire massive security forces to protect themselves and their holdings (this also allows the withdrawal of troops from the Middle East, since they can get these jobs). These forces therefore have disposable income, which begins to circulate, and the multiplier effect kicks in.  Since we no longer manufacture anything to sell to anyone, and none of the pols are addressing this issue, what else can we do?

So do your part, and storm the gates of a nearby multi-millionaire’s home today.  If it’s a politician, all the better!

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By Aarky Newman, March 24, 2009 at 10:31 am Link to this comment
(Unregistered commenter)

For you uneducated, angry, and unwashed people, read two articles that will make you smarter than almost all members of Congress and a lot angrier. “What Cooked the World’s Economy” from the Village Voice and a more recent article,“The Big Takeover” by Matt Taibbi from Rollingstone Magazine. He has done an excellent job of research and is scathing about the whorish relationships between Congress and the financial industry that only wanted to make huge profits. The last article I read from Matt was,“How I Puked for Jesus”, which was a hilarious expose of a cult like Texas mega-church. Read these two articles and I promise you will want to kill people. Don’t do it, it’s illegal,even though the bastards deserve it. In China a number of these perpetrators would have already been executed for “high economic crimes”.

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By artie, March 24, 2009 at 9:09 am Link to this comment
(Unregistered commenter)

Common to all these schemes is- enriching the power elite at the expense of the masses. Until the masses get organized, energized, and activated, this thievery will continue.

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By thebeerdoctor, March 24, 2009 at 7:41 am Link to this comment

This is my favorite thread. Everybody here gets what is going on.

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By coloradokarl, March 24, 2009 at 3:44 am Link to this comment

One financial institution said it MIGHT offer a Mutual fund to invest in this pile if shit. INTERESTED??

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By Xntrk, March 23, 2009 at 11:13 pm Link to this comment
(Unregistered commenter)

Felicity, “Next thing we know, air will be owned and we’ll have to pay for it if we want to breathe.”

We already do, at least those of us who can afford health insurance and/or living in cleaner environments etc. The rest of us die younger, and often with the feeling that we are coughing up a lung. That is another cost our society pays by enabling those who can grab the fastest to keep everything they can reach.

One can only hope that the Midas myth will come true for those who assume THEIR children will be unaffected by the behavior of their parents.

The speed with which War, Pestilence, and Drought are spreading makes that scenario rather unlikely, IMO. Not that the gods will care if the rest of us also pay the penalty for allowing the world to go to shit.

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By ocjim, March 23, 2009 at 9:51 pm Link to this comment

What can you say other than “utterly disgusting.

Obama is becoming a Bush Light and Geithner rather than being fired is actually listened to in all of his bankruptcy.

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By Micah, March 23, 2009 at 5:29 pm Link to this comment
(Unregistered commenter)

This is all making my stomach hurt and my head ache.

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By Tammy Manh, March 23, 2009 at 4:37 pm Link to this comment
(Unregistered commenter)

I was an Obama fan until today.

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By Allan Krueger, March 23, 2009 at 2:54 pm Link to this comment

Call me naive, but, this strikes me as a ridiculous plan! The shady criminals in the banks, investment and insurance companies are the ones being rescued, while the people on the street are left holding the bag!

Gee, golly, I guess I am not smart enough to understand this and I should just trust the people who created this fucking disaster in the first place! I was born once, but, it was not yesterday!

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By felicity, March 23, 2009 at 2:51 pm Link to this comment

Xntrk - isn’t it interesting that some other countries consider their country’s natural resources, like oil, as belonging to the people of the country whereas we consider them the property of whoever gets them out of the ground.  What’s interesting is the natural resources were not created by those who claim to own them.  Next thing we know, air will be owned and we’ll have to pay for it if we want to breathe.

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By Xntrk, March 23, 2009 at 2:22 pm Link to this comment
(Unregistered commenter)

Strange isn’t it? Obama and his Chief Banker Geithner are making both Argentina and Russia during the 1990’s appear as great examples of economic probity. We are one of the few countries who voluntarily adopt IMF protocols in response to financial fuck-ups. Of course, the bankers run the IMF also, and that is probably where Geithner will wind up after he leaves the Treasury stripped and bare.

Faced with a similar problem, Hugo Chavez is safe-guarding Venezuela’s social programs, and expanding them. He is doing so by increasing the rate of nationalization of recalcitrant industries, and raising taxes on the wealthy. Just last week, Coca Cola was told to relocate to a new location [provided by the government] so the City of Caracas could transform the existing bottling plant/warehouse in a poor neighborhood into housing for the low-income community.

What a concept!

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By G.Anderson, March 23, 2009 at 1:20 pm Link to this comment

Isn’t this exactly what got us into this mess to begin with, the buying and selling of debt?

This plan just means that we have to learn twice the hard way…

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By felicity, March 23, 2009 at 12:37 pm Link to this comment

This is the way it’s going to work, dummies.  We choke the banks with money, they gag and whatever they throw-up, we get - a version of Reagan’s trickle-down alchemy if there ever was one.

And, what better evidence do we need that we’re getting screwed than the stock market passing the 400 mark today?

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By thebeerdoctor, March 23, 2009 at 11:54 am Link to this comment

Everyone one of the comments on this thread gets to the bloody heart of this matter. What else can a human being say?

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By Eric L. Prentis, March 23, 2009 at 11:41 am Link to this comment

Now we know what our brave young men and women fight for in foreign wars, i.e., the freedom for Wall Street financiers and their on-the-take politicians to screw Americans at home. What a great life for bailed-out bankers and their huge, unwarranted bonuses, and of course the taxpayers are told by the corporate media to sit and take it for the good of the country. Could the politicians, i.e.,  Obama/Schumer/Dodd/Frank/Geithner/Summers/Bernanke and the financial elite be any sleazier!

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By RdV, March 23, 2009 at 11:15 am Link to this comment

“There is no doubt the government is taking a risk,”

  Taking a risk with our money—we underwrite their risk and they make out either way.
  What we could be doing with that money—for us.
Maybe it ultimately was a good thing when Wall Street fell in ‘29. The country re-appraised priorities for the common good. The way it is evolving now—in order to stave off a repeat they are protecting Wall street at our expense- and ultimately—that may have a completely different outcome. Much worse than it was in the 30’s.
Because we are saving their lifestyles at the expense of our own.
I am really starting to despise Obama and his servile acquiescence to greed.

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By NYCartist, March 23, 2009 at 10:50 am Link to this comment

I heard Krugman on DemocracyNow this morning.  It’s a nice adjunct to the quote above.  I shall read the transcript.  At least Krugman was aware when he was speaking “economics” speak and switched to plain English for us regular folks.  http://www.democracynow.org  I wonder why Pres. Obama doesn’t speak/write/get some input from Krugman (besides Krugman’s column)?

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By skulz fontaine, March 23, 2009 at 10:07 am Link to this comment

Turbo Timmy is certainly fast and loose with American taxpayer money. Yup. Turbo Timmy is working all by hisself at Treasury too. Hmmm, that sort of figures. One more “trillion” dollars to go please. Key-rist, isn’t that about enough? Does the American taxpayer have ANY money left for Turbo Timmy to piss away to the Wall Street types? Holy freaking crap, our grandchildren are going to hate us viciously. ‘We the people’ just laid there and took it up the chute and didn’t even blink. Talk about “taxation without representation.”

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By AWM, March 23, 2009 at 10:05 am Link to this comment

Here are some of the best investments the banks have ever made as reported on the hill.com

JPMorgan Chase & Co., which received $25 billion in bailout money last fall, was the largest bank contributor in the last two periods. The firm’s PAC spent roughly $87,000 since Nov. 25, including $5,000 to former Sen. Norm Coleman (R-Minn.), $5,000 for debt retirement to Sen. Mark Warner (D-Va.), $15,000 to the National Republican Senatorial Committee and $5,000 to the New Democrat Coalition

Wells Fargo’s PAC also gave Coleman a $5,000 PAC contribution on Dec. 23 for his Senate Recount Fund. Huntington Bancshares, an Ohio-based bank, gave $5,000 to the leadership PAC of House Minority Leader John Boehner (R-Ohio) on Jan. 15. KeyCorp, another Ohio-based bank, gave $7,670 to Ohio Democratic Gov. Ted Strickland in January.

http://thehill.com/business—lobby/troubled-banks-still-donate-to-campaigns-2009-03-03.html

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By P. T., March 23, 2009 at 9:54 am Link to this comment

White House Officials Oppose Tax on Wall Street Bonuses

Obama administration officials are expressing concern over moves by Congress to heavily tax Wall Street bonuses. Last week, the House voted to levy a 90 percent tax on bonuses paid since January 1 by companies that owe the government at least $5 billion in bailout loans. Jared Bernstein, Vice President Joe Biden’s top economic adviser, said the House bill is a “dangerous way to go.”

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By reason, March 23, 2009 at 9:43 am Link to this comment

The ordinary American is screwed!

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