Geithner's backing of toxic asset investments with FDIC protection will screw us all.

AgentDrazenPetrovic · Apr 7, 2009

A bit of old and forgotten news but it was front page of today's NY Times. See, the consequences for this not working are tremendous now.....if the FDIC runs out of funds, your bank is not ensured in failure.....

http://www.nytimes.com/2009/04/07/business/07sorkin.html?_r=1&scp=2&sq=fdic&st=cse

The Federal Deposit Insurance Corporation was set up 76 years ago with the important but simple job of insuring bank deposits.

Now, because of what could politely be called mission creep, it’s elbowing its way into the middle of the financial mess as an enabler of enormous leverage.

In the fine print of Treasury Secretary Timothy F. Geithner’s plan to lend as much as $1 trillion to private investors to help them buy toxic assets from our nation’s banks, you’ll find some details of how the F.D.I.C is trying to stabilize the system by adding more risk, not less, to the system.

It’s going to be insuring 85 percent of the debt, provided by the Treasury, that private investors will use to subsidize their acquisitions of toxic assets. The program, extraordinary in its size and scope, is the equivalent of TARP 2.0. Only this time, Congress didn’t get a chance to vote.

These loans, while controversial, were given a warm welcome by the market when they were first announced. And why not? The terms are hard to beat. They are, for example, “nonrecourse,” which means that if an investor loses money, he owes taxpayers nothing. It’s the closest thing to risk-free investing — with leverage! — around.

But, as we’ve learned the hard way these last couple of years, risk-free investing is an oxymoron.

So where did the risk go this time?

To the F.D.I.C., and ultimately, to us taxpayers.
Click to expand...

Log in or Sign up

Geithner's backing of toxic asset investments with FDIC protection will screw us all.

AgentDrazenPetrovic Anyone But the Lakers

Share This Page

Log in or Sign up

Geithner's backing of toxic asset investments with FDIC protection will screw us all.

Moderators

AgentDrazenPetrovic Anyone But the Lakers

Share This Page

Useful Searches