Interest Rate Roundup

Tuesday, March 24, 2009

More comments on the Geithner plan

There are all kinds of views, both positive and negative, on the Geithner toxic asset plan today. You can read the kudos from columnists like Steven Pearlstein at the Washington Post and John Berry at Bloomberg. Or you can read critiques from Paul Krugman at the New York Times, the Institutional Risk Analyst, and the folks at various blogs, including Naked Capitalism.

Suffice it to say that I believe the administration is subsidizing/propping up weak institutions at the expense of the strong. We are pursuing a policy of "No Bank Left Behind" rather than performing proper triage -- separating out the weak institutions, letting them fail and then resolving the assets through the receivership/FDIC process. You can see the folly of this prop up policy approach by looking at what AIG is reportedly doing -- using its government subsidy/backing to undercut stronger insurers on price in an attempt to stem the defection of customers.

For a much more detailed examination of this issue, please check out the just-released white paper entitled "Dangerous Unintended Consequences."

1 Comments:

  • Martin,

    Please read the article of Jeaffrey Sachs in the FT.com dated March 25th. It explains how the this is a dress-up. An asset previously worth 360K would now be worth 714K under this new plan because of the non recource loans of the FDIC.

    No wonder the banks are surging. The gvt just gave the half a trillion.

    By Blogger Michel, at March 26, 2009 at 9:24 PM  

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