Timothy Geithner takes to the Wall Street Journal editorial page to explain his plan to save the economy. The plan is a Public-Private Investment Program that will purchase real-estate related loans. Banks will be able to sell pools of loans to dedicated funds. Investors will compete for the opportunity to participate in those funds and take advantage of government provided financing. The dedicated funds will have three characteristics:
First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors. Second, the Public-Private Investment Program will ensure that private-sector participants share the risks alongside the taxpayer, and that the taxpayer shares in the profits from these investments. These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.
Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.
Already I see a problem. What if somebody makes money on the deal? Ah! Reading on we encounter what might be an answer!
Moving forward, we as a nation must work together to strike the right balance between our need to promote the public trust and using taxpayer money prudently to strengthen the financial system, while also ensuring the trust of those market participants who we need to do their part to get credit flowing to working families and businesses -- large and small -- across this nation.
This requires those in the private sector to remember that government assistance is a privilege, not a right. When financial institutions come to us for direct financial assistance, our government has a responsibility to ensure these funds are deployed to expand the flow of credit to the economy, not to enrich executives or shareholders. These provisions need to be designed and applied in a way that does not deter the participation by the private sector in generally available programs to stabilize the housing markets, jump-start the credit markets, and rid banks of legacy assets.
This is sure to be a really clever design -- one which attracts investors who are assured that they won't be enriched. Good luck with that one. Timothy continues...
We cannot solve this crisis without making it possible for investors to take risks. While this crisis was caused by banks taking too much risk, the danger now is that they will take too little. In working with Congress to put in place strong conditions to prevent misuse of taxpayer assistance, we need to be very careful not to discourage those investments the economy needs to recover from recession. The rule of law gives responsible entrepreneurs and investors the confidence to invest and create jobs in our nation. Our nation's commitment to pursue economic policies that promote confidence and stability dates back to the very first secretary of the Treasury, Alexander Hamilton, who first made it clear that when our government gives its word we mean it.
Shall we ask the AIG execs who stayed on to wind down the Financial Products division about the rule of law? No doubt, they are laughing out loud at the part about the government keeping its word. Or they would be if they weren't in mortal terror of being overheard by the hordes that surround their houses.
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