Nomi Prins: A former Wall Streeter on why Treasury's toxic assets program stinks.

[Better Believe It]

Panning Geithner's Plan
A former Wall Streeter on why Treasury's toxic assets program stinks.
By Nomi Prins
Mother Jones
March 24, 2009

Nomi Prins, a former investment banker at Goldman Sachs, Bear Stearns and Lehman Brothers, is a senior fellow at the public policy organization Demos and the author of "Other People's Money: The Corporate Mugging of America."


Though the stock market may have lifted off on news of Treasury Secretary Timothy Geithner's purchase plan for toxic assets, don't be fooled by Wall Street's optimism. The plan is even worse than the one floated by Geithner's predecessor, Henry Paulson, last fall. At least Paulson wanted the government simply to buy the banking industry's junk outright—and spend less doing so.

Under Treasury's complicated Public-Private Partnership Investment Program, which was unveiled on Monday morning, Geithner wants to strike a deal with private investors who wouldn't touch these assets without serious incentives. The program will essentially give investors between $500 billion and $1 trillion dollars—at this point, what difference does half a trill make?—of spending money to go shopping for the bad assets that banks are dying to get off their books. And the kicker? The White House says the private sector is doing us a favor.

I've never been a fan of any toxic asset purchase plan (nor of the capital injection through stock purchase plans). Randomly buying a bunch of heavily layered, heavily leveraged securities and expecting them to be profitable some day has never made sense to me, especially when nothing is being done to bolster the underlying collateral. The White House and Treasury Department are throwing money at the banking and finance industry, while simultaneously doing little about the loans and borrowers at the bottom of the crisis—not to mention the very risky and overleveraged structure of the banking system itself.

The administration is caught up in crafting big plans to solve the problems of big banks. Instead, it should be dissecting the system into transparent, quantifiable, and understandable parts—and then dealing with those elements that can and should be assisted. Geithner ought to jettison the too-big-to-fail nonsense and keep it simple: Break up the banks into their commercial and speculative parts, and separate the assets along similar lines. Let the speculative parts die, and tend to the rest. As it stands, the present solution—propping up the entire system in a complex, highly leveraged manner that depends on the kindness of the culprits that caused this mess—is a colossally expensive exercise in bipartisan stupidity.

Please read the complete article at:

http://www.motherjones.com/politics/2009/03/panning-geithners-plan

NOMI PRINS

[LittleBlue]

1. She makes some good points, although suggests the good bank/bad bank solution

For the life of me, I don't understand the good bank/bad bank stuff. I presume many of the liabilities of these banks are collateralized with assets, and trying to split these into separate corporations just doesn't seem legal. If someone could just explain to me how this is legal.

Otherwise, she makes some good points about Geithner's plan.

[indepat]

2. All bi-partisanship is stupid for if 'pukes like it, it is a 100% certainty it is not good for we

the people and the probability of it being very bad/disastrous is assured. You ask how can I know this: simple, I know this for the proof is in every pie 'pukes have ever cooked up for us. :P

[Teaser]

3. She's cute, so it's probably true

Of course, I thought the same thing about Greenspan.

[BeyondGeography]

4. I think Katrina Vanden Heuvel wants her sexy pout back