US Gold Coin
Bloomberg’s has more highlights of Obama’s plan for toxic assets that will be unveiled Monday by Treasury Secretary Geithner. Newer details include:
- Geithner will ask Congress to give the Treasury and FDIC more powers: to guarantee more types of debt, limit payments to creditors, and break executive compensation contracts.
- The Federal Reserves Term Asset Loan Facility program (TALF) will expand to riskier assets. Financing will be 1:1, and will apparently include private partners (in a way similar to the Treasury fund) who will make the investment decisions. Profits and losses will be shared between the government and the private sector.
I still don’t like the FDIC funding plan, because the public component is up to 97%, but the Fed TALF plan makes a lot more sense. Doing the funding 50% public, 50% private is much more fair, is not nearly as heavily leveraged (although leverage can be applied in other ways) and losses are shared much more equally, assuming these are not non-recourse loans (which they appear not to be, though that’s not certain.)
The additional powers Geithenr is asking for are acceptable, except for the ability to guarantee more types of debt. The FDIC is already guaranteeing many bank assets: the idea of them guaranteeing even riskier classes only serves to set up taxpayers to shoulder even more losses from the private sector’s.
Many of these concerns would be moot if the administration would just nationalize firms which are effectively insolvent. But, given that the administration won’t nationalize the banks, at least parts of this plan are not completely stupid.
The plan does however appear to perpetuate the trend of taking on private losses and putting taxpayers at risk for most of them.