"Bank bailout is a massive redistribution of wealth to bank shareholders and top executives"

Dealing With BANKRUPT Banks: Nationalization or Welfare
Dean Baker's commentary on economic reporting

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. He is a frequent guest on National Public Radio, Marketplace, CNN, CNBC and other news programs. He is the author of several books, including The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer and The United States Since 1980. He received his Ph.D in economics from the University of Michigan.




The media continue to do more to misinform the public than to inform them when it comes to plans for fixing the financial system. Following the absolute worst in journalistic practices, a front page Washington Post article explains the Obama administration's policy by telling readers that the "approach reflects Treasury Secretary Timothy F. Geithner's philosophy of how governments should respond to financial crises."

The excursion into philosophy deflects readers from the real issue. Mr. Geithner wants to use taxpayer dollars to keep bankrupt banks in business. In effect, he wants to tax teachers, fire fighters, and Joe the Plumber to protect the wealth of the banks' shareholders and to pay high salaries to their top executives. No readers of this piece would understand that this is the process being described.

The Post editorial page carried on with this deception. An editorial on saving the banks dismissed nationalization because it would involve the government in running the banks. Then it discusses the idea of buying bad assets and warns, "but there is a huge risk that the government would badly overpay in the first place."

Actually, this is not a risk, this is the point. If the government paid the market price for these assets the banks would be bankrupt and we would be back to step 1, nationalization. The point of buying the bad assets is to pay too much, so that the banks can get enough money to stay solvent. (In is worth noting that deciding how much the government will overpay, and to whom, also involves the government in running the banks in a really big way.)

It would be nice if the Post and the rest of the media would report honestly on the bank bailout and stop trying to conceal plans for a massive redistribution of wealth to the bank shareholders and their top executives.

http://www.prospect.org/csnc/blogs/beat_the_press_archive?month=02&year=2009&base_name=dealing_with_bankrupt_banks_na


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Now It's Official: Public Private Partnership to Overpay for Toxic Bank Assets
Monday, March 16, 2009

We have been saying from the first time the idea that Team Obama floated the idea of having a "public private partnership" buy toxic bank assets, that it was merely a very costly way to disguise overpayment. Henry Paulson tried twice to find a way to hoover up bad bank assets, the first time via the MLEC, the second via the initial conception of the TARP. Both times he was unable to solve the basic conundrum: the banks were holding the assets on their books at above market prices, and would not be willing to sell them for less (that would result in them showing losses, which is precisely what they want to avoid). And under the TARP, Paulson had contended the purchases might result in the government showing a profit; that would almost certainly be rubbish, given that the banks would have the incentive to dump their most overvalued assets on Uncle Sam.

The U.S. will give further details of the Geither public/private partnership plan to take bad assets off banks books, later this week a senior department official has said. The official said that the Treasury wants to put out enough information in the coming week so that the potential participants can better judge the proposal. It will also detail the timeframe in which it will become operational. So far the plan is expected to leverage both public and private capital to buy assets using government financing. The initial funding would be from what remains of the USD700bn financial rescue fund, but a “placeholder” provision in President Obama’s fiscal 2010 budget plan signals a possible request of around USD750bn in new funds. Neel Kashkari, the Treasury’s interim administrator for the USD700bn rescue fund told law makers last week that private investors are ready to invest in distressed mortgage assets if they can get financing. With no private financing available, they could only pay prices that are too low for banks to be willing to pay. The bad asset plan is expected to be structured along similar lines to the TALF, which is scheduled to launch this week, although the TALF will be restricted to funds investing in highly rated asset-backed securities.

This is what readers ought to be upset about. The AIG bonuses are rounding error, and an done deal. This is billions to avoid price discovery, which is what it needed to assess the magnitude of the problem, attract private capital, and do triage on sick financial firms. This is simply a Japan solution with a lot of moving parts to disguise the essence of the undertaking.

http://www.nakedcapitalism.com/2009/03/now-its-official-public-private.html

"Bank bailout is a continuation of a massive redistribution of wealth to bank shareholders and top executives"?

who have the temerity to criticize his financial program from the left. You know that pile... Paul Krugman is currently on the bottom of it :eyes:

It has nothing to do with screaming that Obama should fire his economic team.

There are people making the case for nationalization without pronouncing the Obama administration a failure.