Geithner plan: Banks set price taxpayers pay for banks' junk assets

A week ago, I pointed out that the government’s massive subsidies to “buyers” of troubled financial institutions' assets incents financial institutions to massively overpay to “buy” one another’s assets using taxpayer’s money.

Michael Hudson, Distinguished Research Professor at University of Missouri, Kansas City, has also figured out this scam. In Hudson’s example, “buyers” put up 15% of the purchase price, but The New York Times reported “buyers” could pay as little as 3%.

Whether taxpayers pay 85% or 97%, banks will soon reap massive profits (at taxpayers' expense) buying one another’s junk assets at sky-high prices. Banks name their price. We pay the bill.

If banks bid $100 trillion for one another’s junk assets, will taxpayers just cough up $85 trillion (or $97 trillion)? That seems to be the Geithner plan.

Posted by James on Saturday, March 28, 2009