Granted, I'm a crackpot, but being a crackpot helps understand the Geithner plan...

[Kurt_and_Hunter]

I have inflicted a long series of posts on the DU community about the "real" thinking behind the Geithner plan.

The private investor is merely a "beard" to obscure the fact that the FDIC and the banks are sleeping together.

The program is designed to transfer federal money into banks by over-paying for bad assets. It is not a plan to develop a market in toxic assets, it is a raw recapitalization. If it has secondary benefits that's cool but not the point of the thing.

The private investors and fake-auctions are tactics to accomplish one objective: to move a $trillion into the banks without congressional authorization.

And I am not complaining about that. If we need to pump a trillion dollars into banks and congress wouldn't approve it the Geithner plan is a very clever way to do it.

The FDIC puts up the trillion as loans so there are no losses realized on the balance sheet right away. (Hey... the loans may be paid off.)

If the FDIC "loaned" a trillion dollars to Treasury to over-pay for bad assets it would be too obvious. So the process is buttressed with "loans" to private parties that don't have to be paid back if the assets don't go up. Such a loan is a gift. We give money to private people so they can give it to the banks. If the deal goes south the congress will have no choice but to make good the losses later or else the FDIC would fail.

But the key words are LATER and WILL HAVE NO CHOICE.

It is a big gamble, and not necessarily wrong. But though I may well approve of the plan versus most alternatives that does not mean the plan is not a deception. (I probably would have have approved of Lend-Lease while also recognizing that it was an end-run around Congress's constitutional perogatives.)

So I give the Geithner plan high marks for accomplishing something very, very difficult: the de facto recapitalization of the TARP fund. (Which is now down to only a little over 100 billion) What is fascinating is that Congress will not block the plan (which it could) because they don't have to vote on anything. Then later they will get all indignant, in typical fashion.

Anyway, my negative, loony analysis of the "for real" reason for the Geithner plan has reached the NYT, so now at least I'm now a mainstream crackpot.

The PPIP and the FDIC

Why are the PPIP loans coming from the FDIC? Apparently to avoid asking Congress for additional funds ...

Andrew Sorkin writes in the NY Times: ‘No-Risk’ Insurance at F.D.I.C.

http://www.nytimes.com/2009/04/07/business/07sorkin.html

[AtomicKitten]

1. It is presumptuous for you to claim to know the REAL thinking behind Geithner's plan.

You're guessing.

[Bluenorthwest]

4. But why should that be?

Why has Geithner not explained his thinking and removed the need for conjecture?

[masuki bance]

2. Being on crack/pot...

[Redbear]

3. I think I heard that "crackpot" Brad Sherman say much the same thing

“This is an end-run around Democracy,” Rep. Brad Sherman (D-Calif.) told CNBC.com. “No one even imagined we would see trillions of dollars shifted from Washington to Wall Street that no member of Congress ever voted for.”

http://www.nbclosangeles.com/news/business/Obama_s_Toxic-Asset_Plan__End-Run_Around_Congress_.html

[TacticalPeek]

5. The estimable Sheila Bair should never have let them talk her into this.

That FDIC circumvention crap flew right under the radar. Imo, she knows better and must have been taken into some backroom Cone of Silence and whispered to about The Bloody Horrorshow we faced if she didn't play along.

Fuck.

From the link:

And these days, whenever anybody talks about risk-free investing, it’s not hard to hear the famous line uttered by Joseph J. Cassano of A.I.G. in 2007: “It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.”

[denem]

7. Mr. Joseph J. Cassanom. Sir, your words will be remembered

as long as 'the fundamentals of our economy are strong'.

[denem]

6. Yep - It's more than a slight of hand,

but the burden, if it all goes south doesn't not necessarily the bill will arrive at Treasury. At around the same time the Fed announced it was purchasing $750 billion, 'toxic' mortgage assets from Fannie and Freddie. That more naked "printing" money than it would be, should they step in to 'secure the banking system' by keeping the FDIC solvent.