It's not a perfect plan, but at least it's something.
Treasury Secretary Tim Geithner finally announced his plan to remove toxic assets from the ledgers of banks and financial institutions.
The basis of the plan is to create a "Public-Private Investment Program"; the public being $500 billion to $1 trillion more of federal money, the private being investments by the private sector into the fund. The plan is that investors can set the proper valuation of the troubled assets and share in the risk.
It seems like a relatively simple plan, which makes one wonder why it took Geithner so long to come up with it.
The problem with the plan is that private investors could have been buying these troubled assets all along - why will they start to do it now? Theoretically, investors will buy in because they are only taking half the risk - with the government (taxpayers) taking the rest. But if the private investors stay away, the taxpayers will be left holding the entire bag of [expletive deleted] and it will probably require more than the trillion dollars of federal funding that Geithner has offered up initially.
The first question will be to see how people respond in the morning. My guess is that people will be happy to have some sort of plan, and that alone might help ease financial tensions.
Subscribe to:
Post Comments (Atom)
Posts
2 comments:
My biggest problem with this is just what you've already said. Who's to say that private investors will do it? What incentive do they have to invest given that more than a trillion dollars of private money has been lost in the market over the past 8 months?
and why will private investors suddenly drive valuation when they haven't had the stomach to do it to this point?
Post a Comment