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Geithner’s Public Private Partnership Puts Public Most at Risk
Tim Geithner’s at it again, doing somersaults, with hundreds of billions of federal money flying out of his pockets in the process, all to distract us from the more sensible course of action, which is to nationalize the insolvent banks.
Instead, he wants to scrub their assets clean by having the government and some private speculators buy up their bad bets.
Geithner calls it the Public Private Partnership Investment Program, and if he were playing scrabble, he’d be all out of Ps.
But don’t be confused. The public is taking the biggest risk, whereas the private speculators, for a tiny investment, can gain quite a lot.
Here’s the deal. Say a bank has a bad mortgage loan that it is holding for $100,000.
The government will set up an auction to determine what the mortgage really is worth.
Say the highest private bid for the mortgage is $84,000.
The government will provide $72,000 in a loan guarantee, and then the private investor would put up only $6,000, which the government would match with its own $6,000 stake.
So the government, you and I, are on the hook for $78,000 whereas the private investor has only $6,000 of skin in the game.
But get this: The private speculator gets to control the management of the asset, and not the government, even though we’re on the hook for about 93% of the risk.
“The Treasury intends to provide 50 percent of the equity capital,” Geithner’s fact sheet says, “but private managers will retain control of asset management subject to rigorous oversight from the FDIC.”
Geithner infamously said, just a few days after he became Treasury Secretary, that “we have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system.”
And he is doing his best at that, which is all the worse for us.
- Posted in
33 Comments so far
Show AllThe corpulent corporatists and their cosmic cowboys of finance are bejizzing themselves in their orgazmatrons over the Obama/Geithner toxic tease in this dance of destruction.
I am intrigued by your analysis and wish to subscribe to your newsletter.
· Yr Obd't Servant
Good article by Rothschild. I read the Progressive all the time so I'm kind of biased.
With all these trillions going down the drain what chance universal health care & Social Security? No chance, that's what.
Where is the action behind the rants, raves or is all just rhetoric?
I've heard people call for a general strike on several posts. What do you say... one day a week?
Which day would be the most productive and least or most noticeable to your boss?
Maybe just use a sick day here or there?
Forgetting to pay your federal taxes?
A voluntary layoff or reduction in work hours to zero out your tax liability?
On your “day off” hold up a very large sign on a bridge with a sign stating, "Jail the Bankers" or 'Jail Geithner and Barnecke"?
Boycott US/Citigroup/etc (does not really matter which Bank) by pulling your money out?
Place your money in a credit union instead.
Boycott Wall Street by getting rid of your 401k investments.
Write a letter to the editor a couple times a month.
Boycott foreclosures by supporting squatter’s rights? Put your body, mind or greenbacks to work by helping those who are the most hurt.
Go out and start a garden to feed yourself and your neighbors, rebuild or get a really good used bicycle or two, do some gathering and get ready for a long hard winter and summer. We may no longer be able to live like 21-century royalty anymore. Maybe 19-century royalty will do?
I am sure there are plenty more tangible things that people could come up with.
Words are just rhetoric and thus meaningless without actions to back them up.
Have fun prying your freedoms back from the bankers and the elite.
Sioux Rose
CLEARCUT: I have put some of your suggestions into practice as I'm sure others in this forum have as well. The thing is, we are a group of what, maybe 100,000 persons at best? (And that would be ALL who check the site, obviously not the "regular" numbers.) I don't think we have enough power or clout to do much to the gigantic machine of broken values laying waste to our land, as it has done to so many others. It's at the stage where the momentum is so great the thing can only come to a halt on its own. And it will. Not a single spiritual tenet is in accord with the direction this monstrous machine fueled by money and depraved indifference is headed. Things are coming to a stop/collapse, and from there, the high-minded, the innovative, the visionary will begin to reanimate the Phoenix.
Ordinarily I'm very, very pessimistic. But, I'm partly encouraged lately because people are getting angry. I think something has to give here. Unfortunately, when the public finally becomes outraged I think the results will be unpredictable. But, it might be best if people get increasingly pissed off. I think a nice starting salvo might be for all citizens to file an extension on April 15th, just to get their attention - and don't pay if you owe anything - take the penalty, its not that big. Or just not file. I'm personally more and more disinclined to pay taxes. Screw 'em, they are f'ing Nazis. What they don't use to incinerate a poor Palestinian family they give to the extremely wealthy as a "bailout". What a crock. And that's Obama too, so far.
I will be interested in the public reaction to the Obama speech. I mean, come on now, we can read, and I for one find it absurd, in the true sense of the word, that Henry Paulson, who was personally instrumental in helping AIG avoid regulation, in the last month or so of the incredibly lame Bush admistration, trots out and asks for $750 billion to fix things up, or the economy is gonna crash, no questions asked.
And the Democratically controlled Congress gives it to him, of course. No accountability. We don't get to know who is getting the money. Something seem a bit fishy there, anyone? The initial $30,000,000,000 bailout brought Paulson's old company, Goldman, 12,000,000,000 - that was their cut. It pays to have friends in government! Now the most absurd scenario becomes - Obama's Plan to Save US! Allow the hedge funds on a tiny leverage, in a no-lose deal guaranteed by the taxpayer, to make billions buying bad stocks from other lying, stealing, cheating financiers called bankers. Rescue the bank stockholders - they come first, being the elite who is pulling the strings. Sweet deal!
So, that's why we need to starve the beast. I for one, being in a somewhat flexible situation (by which I mean I know how to get by even if food / clothing / shelter become somewhat chancy, but I hope it doesn't come to that) am planning to withdraw from the whole mess over the next 5 years if I can - cabin, solar, wind, BIG garden, about 1,000 books. I will probably build it myself on the cheap. I shop at good will, yard sales, and enjoy it, no problem. You never know what you might find. Ok, here's the prez, talking about how dangerous the Mexican border is. Hmmmmmmmmmm. :)
I was wondering what the next MegaScam would be to spring from the corrupt, rotten minds of this nation's financial death squads. What would replace the housing bubble? What Super Hustle were these assassins and grave diggers of the nation thinking up as an encore? Well, here it is.
"HOPE" and "CHANGE". What a bunch of cosmic suckers some of us were!
How about ___ N A K E D _ S H O R T _ S E L L I N G ___ ?
The sludge HEDGE fund operators have been behind the demise of Bear Stearns and Leahman, but remain idols of wall_eyed_street, for making billions with less than no scruples ( no compunction ).
Experts now believe that the trillions "dropped" in this current financial shit storm, were invoked and thus triggered by the meager profiteering of a few measly hundreds of millions ( Bear "shit" ). But then the clueless SEC, ignored the sign posts to disaster -- then relaxed the vacuous regulation ( enforcement ) to trigger even larger collapse of Leahman ( Goldman Sachs competitor - it really sux to be sacked )
Of course the edificial reality was ready to dump its shit, and the trigger is not the same as the trap ( or avalanche )
For the shitty dirt on "who wears the short shorts", see :
http://vimeo.com/3722293
http://www.deepcapture.com/
http://www.counterpunch.org/avnery03232009.html
Namaste
Well, here's one more--"GIVE"--Generations Invigorating Volunteerism and Education Act, just passed by Congress, in rather short shrift, I might add. But hasn't all our Constitution-altering legislation been fast-tracked?! This act is basically what Obama called for pre-election--a "National Domestic Security Force". The "Invigorating" part of "Volunteerism" seems to be that it won't be voluntary, but involuntary--MANDATORY. Below is a link to an article at Infowars.com citing an amendment inserted into the bill which for the most part, strips those "enrolled" into this "Service" of their First Amendment rights. I'm still trying to gather information on this legislation, but on the surface it appears to demand some intense scrutiny, much more than that afforded it by the Congressional Whorehouse which passed it.
http://www.infowars.com/give-mandatory-service-act-strips-first-amendment-of-volunteers/
Muhammed Ali came up with "Rope a dope." Obama came up with "Hope a dope."
When you hear that the banks like something you know it is not good dor the general public.
And not one banker in jail yet!!!!!!!!!!!!!!!!!!!!!!!
From today's congressional hearing--
"It is very important through a mix of law and regulation to bring these markets under an oversight framework," Geithner said. "But we need to get the world to move with us: There is a risk that capital will shift out of the United States otherwise."
Key:
"There is a risk that capital will shift out of the United States otherwise."
It never seems to occur to them that if people can't afford to buy the goods, it doesn't matter where the manufacturers of goods are camped--or that so-called capital was based on speculation of thin air. Shoot, these crooks could be sent over the world to destroy other countries--it would be more effective than guns.
What capital?
The public is about to be duped again! AIG + GOP = AIGOP
so the whole psyop plays out
that's the one where the supranational corporations use american tax dollars and the american military to fuck the rest of the world out of its tooth enamel
what a joke
it took a hundred years of rockefeller edumacation to get everyone dumb enough to go for this shit rope
wars and debt were bad enough but now the judas goat obama oversees the final pillage of the nation state once know as america
cue the bugle sadly blowing taps as the grass blows in the field
as pt barnum once said: never give a sucker a even break
“The Treasury intends to provide 50 percent of the equity capital,” Geithner’s fact sheet says, “but private managers will retain control of asset management subject to rigorous oversight from the FDIC (Fuck De Individual Citizen).”
I'm getting very discouraged.
Why is Obama playing into the hands of the con artists like AIG, CityBank, etc who caused this meltdown in the first place?
I don't believe the statements that letting these financial companies go bankrupt would have a worse effect than what is happening now -- our savings accounts are MELTING AWAY as the Federal Reserve prints more and more money.
This is just another huge transfer of wealth from us regular working people to the financial institutions.
I am really, really discouraged. We are being screwed. I WAS retired. Now it looks like what I am is UNEMPLOYED since my retirement has disappeared.
Sorry about your situation, but if it's any consolation, you'll have lots of company. At the risk of endless repetition, Obama isn't "playing into the hands" of anyone. He was already well into the fold. That's why he is now our LEADER, playing "good cop" to Bush's "bad cop". I think the whole good cop/bad cop scenario is becoming a moot issue in terms of the state of "our" government. It appears that the globalist, fascist assualt is getting pretty hot, fast and heavy.
what will truly help obama politically is to have his minions propose more and more proposals "to save the financial system" that are transparently outrageous in their trying to save the ultra-rich who are financially exposed to trillions in toxic investments.
and the left should welcome geithner's proposal as a great teaching moment regarding the fortunes the demoblicans are truly trying to save.
lazy leftists should stop proposing personnel to obama and finally make the effort to find out and publicize the names of the billionaires whom the demoblicans are trying to save with our taxpayer money.
this is a once-in-a-lifetime chance offered to americans to learn who are the billionaires that wag the usa dog and to rebel against them and their bribed politicians, journalists, and economists.
the idiotic left should stop complaining about "WS and the banks" and ask the american people if they really want to bail out this or that individual billionaire.
the billions that geithner wants now are not "for the failed banks", they are meant to save the ultra-rich !
even publicizing crude macro-economic data about how many trillions in toxic assets are in the hands of say the richest 0.1% would be very game-changing as it would make it impossible for the demoblicans to continue saying that they are acting for the public good.
demoblicans blackmail americans by crying wolf about "saving the financial system" but they won't be able to blackmail anybody anymore if they are compelled to cry wolf about "saving the billionaires".
even conservatives will find it hard to defend spending trillions in "welfare programs" for gambling billionaires.
only once the citizenry will start saying that it does not want to pay for the financial gambling follies of the richest 0.1%, etc., it will become feasible for obama to go against the billionaires, since at that point taking him out won’t be worthwhile for the billionaires.
Dave, if the above diagnosis is correct and if there's agreement that President Obama, for whatever reason, isn't up to the task of working with us to bring about CHANGE, doesn't this mean that we'll have to do it ourselves, or, at least initiate the process with the possibility that once we get going he'll join in? And if that's the case doesn't it follow that the first order of business is to get the word out via the Internet. Why the Internet? Because that's where everyone is. Which raises the all too familiar question as to what's to be done and who'll decide? The answer to which, if we're to pull this off, has to be that, based upon one equals one, all of us decide. And then what sort of world? It'll be up to us. But can we do this? If not us, who? If not us, when?
MARTYH
will some one with more expertise on the details of the public private partnershiptell me if my understanding is correct as follows:
partnership is owned 50% by hedge fund and govt.the partnership buys the toxic assets,and shares whatever profits are made 50-50,even it is less than would be expected it toxic mortages paid less than face value-this could go on for years and if eventually toxic assets were sold at less than what was originally paid the partnership would share the proceeds 50-50.does the hedge fund have to use the proceeds to pay it's loan to govt.? this says nothing about the management fees that the hedge fund will get?
We're At The Abyss
Based on?
Perpetual war + global warming + economic collapse = doomsday
The answer being?
Turnabout
Where?
Everywhere
Who?
Everyone
When?
Now
The plan?
We make it up as we go
And then what sort of world?
It'll be up to us
If the host if dying, and the parasites are only helping each other to more aggressively attack the host, then that must mean the parasites have given up on the host ever recovering and are eyeing another host, most likely the one that served the Mongolian parasites well several centuries ago.
Too bad the US Citizen doesn't send 93 % of our person expenses to Geithner. Bail us all out, huh?
What does Barney Frank and Chris Dodd think of this New Deal? They should be questioned by reporters, after all it was under their leadership that we got into this mess. The biggest reason homeowners cannot pay for the mortgage is that our
Industrial base was outsourced to China under Bubba Clinton..
Where will the homeowners get the money to pay for mortgages in the future if
we do not reclaim our industrial base? The Dreamers from the Ivy League seem to be living in a different world than the rest of us..Will someone please ring
Obama's Bell? Not a word from anybody about the loss of our good paying jobs.
Nothing, zilch, Nada...The Stimulus is being used to divert attention from the
real problem, NO JOBS....
Sioux Rose, I hope you're right. Otherwise we're screwed.
"Things are coming to a stop/collapse, and from there, the high-minded, the innovative, the visionary will begin to reanimate the Phoenix."
It is painful to watch human society flirting with self-destruction. In my hopeful moments, I try to prepare to be useful as it all unfolds.
Three questions about the scenerio presented in this article.
1. "...The private speculator gets to control the management of the asset ..." ,
what exactly can private speculator do with this asset?
2. How can anyone buy this 100,000 dollar mortgage with $6000 when the auction sets the value of the asset to $84,000? Does $72,000 of loan guarantee mean, that gov is putting up the $72000 to cover portion of the $84,000? Seems to me that investor is putting up $78,000 cash , with $72000 in loan guarantee and $6000 from tax payers.
3. When will loan guarantee take effect? I think in case the value of the asset drops below $72000. This could happen if the auction value of the asset was off.
Private Speculators will make out really well if and only if economy recovers rapidly . What are the chances of that happening? Speculator will tie up his cash in this economy on toxic asset he will loose in worst case $6000 and rest of his $72000 when loan guarantee pay him in case he decides he can no longer hold on to the asset. Waiting for this government to fulfill this obligation is quite a risk in itself.
toophat for you!
In economic context the word "partnership" must always be understood in the Orwellian sense:
HEADS WE WIN, TAILS YOU LOSE.
Read: profits for us (private finance), losses for you (the public)
This is also the central concept of Geithner's rescue plan and the basic idea behind the "financial innovation" (meaning organized fraud) that brought us to the current global crisis.
The "Public Private Partnership" Geithner has announced means that the greatest plunder of public wealth in history goes on undisturbed while the masses are distracted with endless debates about AIG bonuses.
After having looted US society for more than two decades by selling "securitized" packaged debt and bets on its default (CDS) back and forth among themselves, the financial mafia now need more debt-money to get the casino back into business.
This means pumping trillions of debt-dollars into the same system, run by the same people that created the mess or as Mike Whitney put it so nicely: ".. by dumping $ 2 trillion into the same over-leveraged, derivatives based garbage that blew up the financial system in the first place..."
Isn't that a nice way to "restore confidence" in the system?
Paul Krugman recently explained what the "partnership" really is:
"And so the plan is to use taxpayer funds to drive the prices of bad assets up to "fair" levels. Mr. Paulson proposed having the government buy the assets directly. Mr. Geithner instead proposes a complicated scheme in which the government lends money to private investors, who then use the money to buy the stuff. The idea, says Mr. Obama's top economic adviser, is to use "the expertise of the market" to set the value of toxic assets.
But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn't really about letting markets work. It's just an indirect, disguised way to subsidize purchases of bad assets.
But the real problem with this plan is that it won't work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus - for that is what the Geithner plan amounts to - will change that fact.
More explicit words can be found on nakedcapitalism:
"The idea that 97 percent "low interest" funding constitutes a "partnership", boggles the mind. Where can a businessman or a homeowner get gravy a deal like that? The Treasury is providing a subsidy to Wall Street crooksters to manage taxpayer money so they can fatten their own bottom line. It's that simple. Geithner's not only willing to empty the public purse for his buddies but, also, write another trillion dollar check on an account that is already overdrawn by $11 trillion. This is one GIGANTIC LOOTING OPERATION concocted by bank lobbyists MASQUERADING as public officials.
The whole purpose of the Geithner shakedown is to mislead the public. Why should the perilously underfunded FDIC provide a non-recourse loans to hedge fund sharpies and PE scalawags when its primary responsibility is to protect bank depositors? And why are they setting up more of the same Enron-type "off-balance sheets" special purpose vehicles which blew up the financial markets to begin with?
This has disaster written all over it. The non recourse loans create a "no lose" situation for investors who can dump any type of crappy mortgage-backed sludge into the program and not worry about any legal backlash."
Dear God, the Administration really thinks the public is full of idiots...."
http://www.nakedcapitalism.com/2009/03/private-public-partnership-details.html
Jo Stiglitz said it in a nutshell: "This is robbery of the American people.
If you are fed up with the financial jargon try this Rolling Stone article - it's brilliant and its funny... The Big Takeover by Matt Tabibi (published on CD on March 22)
This is a financial coup d'ètat, or "hedge fund socialism" as one commentator called it...
Just an update to my earlier post: you can watch Matt Tabibi talk about the "BIG TAKEOVER: How Wall Street Insiders are using the Bailout to stage a Revolution" on Democracy Now:
http://www.democracynow.org/2009/3/25/aig_and_the_big_takeover_matt
the bailout money is not "for failed banks". here is what a famous progressive economist told me today about who has been and will keep getting most of the bailout money.
"...the Congressional Research Service states that the wealthiest 1% increased their share of the returns from wealth from 37% ten years ago to
57% five years ago, [so] my estimate is 70% of the derivatives and other gambles are by the richest 1% today. And [...] my guess is that about 50% accrue to the top 0.1%."
the demoblicans are "saving the financial system" to save their billionaire friends....
but note that both the top demoblicans and their billionarie friends are people of the finest taste. so it's much better that they get to use our money than that we misuse it to buy tacky products...
upsetting you aside, it helps obama politically to have his minions come up with more and more proposals "to save the financial system" that are transparently outrageous in their trying to save the ultra-rich who are financially exposed to trillions in toxic investments.
and the left should welcome geithner's proposal as a great teaching moment regarding the fortunes the demoblicans are truly trying to save.
leftists should stop proposing personnel to obama and finally make the effort to find out and publicize the names of the billionaires whom the demoblicans are trying to save with our taxpayer money.
this is a once-in-a-lifetime chance offered to americans to learn who are the billionaires that wag the usa dog and to rebel against them and their bribed politicians, journalists, and economists.
the left should stop complaining about "WS and the banks" and ask the american people if they really want to bail out this or that individual billionaire.
even publicizing crude the macro-economic data above about how many trillions in toxic assets are in the hands of say the richest 0.1% would be very game-changing as it would make it impossible for the demoblicans to continue saying that they are acting for the public good.
demoblicans blackmail americans by crying wolf about "saving the financial system" but they won't be able to blackmail anybody anymore if they are compelled to cry wolf about "saving the billionaires".
even conservatives will find it hard to defend spending trillions in "welfare programs" for gambling billionaires.
only once the citizenry will start saying that it does not want to pay for the financial gambling follies of the richest 0.1%, etc., it will become feasible for obama to go against the billionaires, since at that point taking him out won’t make any difference for the billionaires.
Excellent observation .
However, would it make more sense to check which mutual fund invested in these derivitives without informing the prospective of the fund. Informing its investors. So a moderate risk mutual fund should not have invested in these risky derivitives and hedge funds.
Rich people hate spending their own money in the market. They use other peoples money.
The top .1% may represent the mutual funds collective on Wall Street, where millions of people have lost money . Greedy money managers who could not resist jumping into this game.
Chances are this is how money kept flowing into these investments for a decade. How else can such feeding frenzy occur, where else is there this much money hanging out in Wall Street. A careful audits of all mutual funds may catch the criminals red handed. Every Money Manager is suspect.
toophat for you!