Marshall Auerback here.
I do not like the Geithner Plan because it is needlessly expensive. Nevertheless, it could well work. My main objection is that it constitutes the most regressive transfer of wealth in history and it’s being done BY A DEMOCRAT ADMINISTRATION!!!! Unbelievable.
It has to be done this way in terms of securing funding for the banks because after AIG, there is no way Congress would give them the money. As I predicted in a post I wrote here a week ago, the 1994 Mexico rescue package, where Robert Rubin raided the Exchange Stabilisation Fund to get the money to Mexico (or, more accurately, the Wall Street banks who lost a fortune playing the Tesobono market in Mexico) is the template here.
Sorry, Ed, I know you like Rubin.
Now, the market has gone up (rationally in my opinion) because they are aware that the Wall Street interests have triumphed. If the FDIC does 80 percent and treasury does 80 pc of remaining 20 pc then private sector only on hook for 4 pc. Does anyone report that FDIC is out of money — so, it is all treasury? By using different agencies here, there is this façade that government is on hook for less (feigned laughter). Maybe. The bond market is figuring this out?
Do you realize that various government programs may now be north of $5 trillion, while the total market cap of us equities is $8 trillion. Basically fed and treasury have already nationalized banking and shadow bank system without saying so. And there was no reason to do this (as my friend Warren Mosler says) because: “We already have a regulated banking system. We just have to regulate them!!”
Equities are seeing this and ready to vault. Meanwhile, the furore over AIG is very similar to the 1933 Pecora hearings which began in January 1933. The Dow went up over 100 percent as the hearings disclosed terrible behavior. AIG is very similar.
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Take the Steering Wheel out of Geithner’s Hands – Huffington Post