On the face of it, the Geithner plan is a disappointment. Economist Paul Krugman is right: It’s really just another version of the proposal put forward months ago by former Treasury Secretary Hank Paulson.
But it could work, and I am cautiously optimistic.
For one thing, the three-pronged private-and-public investment partnership is only one part of the Administrations economic rescue plan. We have the fiscal stimulus, the homeowners renegotiation plan and Geithner’s approach toward getting the toxic assets off the books of the banks. In combination the three could work.
My suspicion is that Congressional and popular fury over the AIG retention bonuses further convinced the Administration that a straight forward nationalization ala Sweden wouldn’t work. It’s a good idea, but I’m betting they were afraid of what might be unleashed, the law of unintended consequences.
Last, there probably is some value to the toxic assets, or at least a portion of the portfolio. Right now, there is no market in them and investors are extremely risk averse. But with the public/private partnership buying there may still be some value there.
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
