Sen. Crapo Could Land Geithner in the Crapper

April 8, 2009 at 2:30 pm | Posted in Economy | 2 Comments
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Huffington Post reporting now that Geithner’s bank plan is facing a new round of criticism.  Some choice quotes from those getting on the Krugman wagon: Columbia University’s Jeffrey Sachs says: “The amount of potential rip-off in the Geithner-Summers plan is unconscionably large,” while Andrew Ross-Sorkin of the NYT says its “closest thing to risk-free investing — with leverage!

And economists taking another look at Geithner’s bank bailout concoction say he painted a far too rosy picture of how the plan would work during his testimony on Capitol Hill a couple weeks ago. HuffingtonPost dug up this exchange where he insists the government would not be guaranteeing private investments:

SENATOR CRAPO: So there will not be any aspect of the federal guarantee of the asset purchase?

GEITHNER: Not as we envision it in this proposal. In fact, part of the virtue of this proposal, again, is to try to bring a structure that allows a market mechanism to help catalyze market solutions to clean up these legacy assets.

CRAPO: …. But would simply the financing that you’re talking about — do you believe that that would have an impact on the purchase price, in terms of the federal government being involved in some way of subsidizing the price?

GEITHNER: Well, I wouldn’t think it requires a subsidy. I think you’re absolutely right. In a solution where the government is either purchasing or providing insurance or capping losses on a portfolio of assets, then you’re acutely vulnerable to the risk that the government is taking risks that it can’t understand, cannot manage, may get wrong, may end up providing a level of subsidy to the institution that is not appropriate. We’re trying to avoid that risk by using this kind of structure. And, again, by providing financing alongside private capital with private asset managers, we think we’re going to — likely to put ourselves in a better position to avoid that risk, very important to try to avoid that risk.

Just when we thought he was in the clear…but more importantly…we have a Senator Crapo?! What?!

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  1. I saw Andrew Sorkin on Charlie Rose last night. I think he is weening himself off being a Wall St apologist as he too has come to realize the bankers’ folly (presumptuousness) in fighting attempts to regulate the industry so the crisis of 2008 doesn’t happen again. In case you are interested, I have just posted a piece based on his discussion.

    • yeah, i watched about half of it too. i really want to pick up his book…have you read it yet?


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