Joseph Stiglitz Will Not Stop (Geithner Pile Driver Included)

I wasn't going to post about this, but wtf.  Noble Laureate Dr. Joseph Stiglitz remains on the offensive and will not back down.  His target remains the Tim Geithner PPIP bank rescue program (really nothing but a taxpayer bailout and complex give-away to all the large and failed).

There are some new quotes but Stiglitz's message remains the same.  The Getihner plan amounts to "robbery of the American people."

Here's the juice from Dr. Stiglitz's New York Times editorial 'Obama's Ersatz Capitalism':

"The Obama administration’s $500 billion or more proposal to deal with America’s ailing banks has been described by some in the financial markets as a win-win-win proposal. Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.

Treasury hopes to get us out of the mess by replicating the flawed system that the private sector used to bring the world crashing down, with a proposal marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency.

Let’s take a moment to remember what caused this mess in the first place. Banks got themselves, and our economy, into trouble by overleveraging — that is, using relatively little capital of their own, they borrowed heavily to buy extremely risky real estate assets. In the process, they used overly complex instruments like collateralized debt obligations.

The prospect of high compensation gave managers incentives to be shortsighted and undertake excessive risk, rather than lend money prudently. Banks made all these mistakes without anyone knowing, partly because so much of what they were doing was “off balance sheet” financing.

The main problem is not a lack of liquidity. If it were, then a far simpler program would work: just provide the funds without loan guarantees. The real issue is that the banks made bad loans in a bubble and were highly leveraged. They have lost their capital, and this capital has to be replaced.

Paying fair market values for the assets will not work. Only by overpaying for the assets will the banks be adequately recapitalized. But overpaying for the assets simply shifts the losses to the government. In other words, the Geithner plan works only if and when the taxpayer loses big time.

What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess.

So what is the appeal of a proposal like this? Perhaps it’s the kind of Rube Goldberg device that Wall Street loves — clever, complex and nontransparent, allowing huge transfers of wealth to the financial markets. It has allowed the administration to avoid going back to Congress to ask for the money needed to fix our banks, and it provided a way to avoid nationalization."

Comments

[DailyBail]

Stiglitz op-ed

http://www.nytimes.com/2009/04/01/opinion/01stiglitz.html?pagewanted=2&_r=2

[DailyBail]

David Kotok Explains Why Geithner's Toxic Asset Plan "Stinks"

http://www.businessinsider.com/david-kotok-geithners-toxic-asset-plan-stinks-2009-4

[RobertM]

I don't know if your readers caught this excellent article but it's sure worth a read. Might want to keep your favorite medication handy because it'll sure make your blood boil.

http://www.ritholtz.com/blog/2009/04/aig-before-cds-there-was-reinsurance/#more-22986

[James H]

@Robert

Thanks for the Chris Whalen. I think I might go out for more cigarettes before I tuck into this one. ;-)

[Hulu]

Colore me confused why we are proceeding with TG's idea and plan when so many thinkers have offered better ideas.

[spideydouble]

@Hulu

Sadly this isn't about better ideas but something more sinister entirely.