Sheila Bair wants to paper over the black hole

Now I actually like Sheila Bair better than just about anyone else at the Treasury, FED and FDIC combined, but the talking points on this public-private partnership that the feds are trying to sell are full of more holes than swiss cheese.

“The thing that really makes people gulp about this is the size of the hole”

No Ms. Bair, the thing that makes people gulp, or perhaps spew, is that we’re recycling the same moral hazard ridden policy over and over again.

From AIG to TARP, then Geithner’s bad bank float, and now this latest rehash- the ‘public-private partnership’, each plan equates to privatizing the profits and socializing the losses of the bad actors.

The public-private partnership amounts to a de facto guarantee against loss via non-recourse loans from the Fed for, according to this article, 80% of the asset value?

It is no wonder that “banking executives have questioned why they should sell assets at a loss rather than simply hold them and wait for prices to improve.”  They know that the government plans to overpay.

Please also see Paul Krugman’s column from a few days ago, The Big Dither:

“Why do officials keep offering plans that nobody else finds credible? Because somehow, top officials in the Obama administration and at the Federal Reserve have convinced themselves that troubled assets, often referred to these days as “toxic waste,” are really worth much more than anyone is actually willing to pay for them — and that if these assets were properly priced, all our troubles would go away.”