Geithner's Folly: Bank Rescue Disaster in the making

[katty]

more:
http://www.alternet.org/workplace/126354/geithner%27s_folly%3A_the_bank_rescue_plan_is_a_disaster_in_the_making/

EXCERPT:

Geithner says that letting private investors bid on these assets -- with government guarantees against large losses -- will allow the market to define concrete prices for them and thus "avoid a program that has government overpaying for a bunch of financial assets."

The trouble with this, of course, is that many of these assets will never be worth what the banks will accept for them. Economist Dean Baker, co-director of the Center for Economic and Policy Research, told me that the worst of these assets "have lost value because they rest primarily on underwater mortgages." The only way these assets will ever regain the value they've lost over the past few years, says Baker, is in the unlikely event that the housing bubble makes a comeback.

Economist James K. Galbraith told me that the government is simply in denial if it thinks it can ever recoup the losses it will inevitably take by paying insurance for those "toxic" assets. Instead of trying to sell them off in an attempt to hide the depth of the banks' losses, Galbraith says that the government should instead acknowledge that they are insolvent.

[indepat]

1. Seem to recall Roubini having proffered estimated losses exceed total bank capital by about a

trillion dollars: ouch! :P

[jkshaw]

2. See Paul Krugman's take on this

http://krugman.blogs.nytimes.com/2009/02/10/the-rorschach-plan-wonkish-or-at-least-hard-to-read/

"So what is the plan? I really don’t know, at least based on what we’ve seen today. But maybe, maybe, it’s a Trojan horse that smuggles the right policy into place."