Is This Really How Geithner Plans To Keep Us From Falling Into Depression Or Further Into It? Or How He Thinks We'll Get Out Of It?

This morning's NY Times jumped the gun early on the unveiling on Geithner's plans for Toxic Assets. They report that his team was working all day yesterday rounding up his investor buddies to go into some kind of trillion dollar hedge fund partnership arrangement with the government (our money, in other words) to buy the shit pile so it's no longer on the books of the failed banks.

The plan relies on private investors to team up with the government to relieve banks of assets tied to loans and mortgage-linked securities of unknown value. There have been virtually no buyers of these assets because of their uncertain risk.

As part of the program, the government plans to offer subsidies, in the form of low-interest loans, to coax private funds to form partnerships with the government to buy troubled assets from banks.

But some executives at private equity firms and hedge funds, who were briefed on the plan Sunday afternoon, are anxious about the recent uproar over millions of dollars in bonus payments made to executives of the American International Group.

Some of them have told administration officials that they would participate only if the government guaranteed that it would not set compensation limits on the firms, according to people briefed on the conversations. The executives also expressed worries about whether disclosure and governance rules could be added retroactively to the program by Congress, these people said.

...Mr. Geithner faces a highly charged and politicized audience when he introduces the troubled-assets plan on Monday, after a week filled with vitriolic attacks over his handling of A.I.G. bonus payments.

Mr. Geithner and the Federal Reserve chairman, Ben S. Bernanke, are scheduled to testify to the House Financial Services Committee on Tuesday about the bonus payments.

Then Geithner jumped his own gun-- an 8:45 announcement-- with an OpEd in this morning's Wall Street Journal. The nation, he reminds us, "borrowed too much" and the levels of risk were "irresponsible" with much of the damage falling on "ordinary Americans and small-business owners who were careful and responsible. This is fundamentally unfair, and Americans are justifiably angry and frustrated." Not a whisper about the collusion between criminal banksters and their voodoo black boxes of derivatives and the bribes politicians who gave them the green lights with deregulations. OK, he's not looking to place blame-- I doubt even the Justice Dept will-- just to find a way out, to get "our financial system back to the business of providing credit to working families and viable businesses, and help[ing] prevent future crises."

[T]he financial system as a whole is still working against recovery. Many banks, still burdened by bad lending decisions, are holding back on providing credit. Market prices for many assets held by financial institutions-- so-called legacy assets-- are either uncertain or depressed. With these pressures at work on bank balance sheets, credit remains a scarce commodity, and credit that is available carries a high cost for borrowers.

Today, we are announcing another critical piece of our plan to increase the flow of credit and expand liquidity. Our new Public-Private Investment Program will set up funds to provide a market for the legacy loans and securities that currently burden the financial system.

The Public-Private Investment Program will purchase real-estate related loans from banks and securities from the broader markets. Banks will have the ability to sell pools of loans to dedicated funds, and investors will compete to have the ability to participate in those funds and take advantage of the financing provided by the government.

The funds established under this program will have three essential design features. First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors. Second, the Public-Private Investment Program will ensure that private-sector participants share the risks alongside the taxpayer, and that the taxpayer shares in the profits from these investments. These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.

Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.

The new Public-Private Investment Program will initially provide financing for $500 billion with the potential to expand up to $1 trillion over time, which is a substantial share of real-estate related assets originated before the recession that are now clogging our financial system. Over time, by providing a market for these assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets. The ability to sell assets to this fund will make it easier for banks to raise private capital, which will accelerate their ability to replace the capital investments provided by the Treasury.

This program to address legacy loans and securities is part of an overall strategy to resolve the crisis as quickly and effectively as possible at least cost to the taxpayer. The Public-Private Investment Program is better for the taxpayer than having the government alone directly purchase the assets from banks that are still operating and assume a larger share of the losses. Our approach shares risk with the private sector, efficiently leverages taxpayer dollars, and deploys private-sector competition to determine market prices for currently illiquid assets. Simply hoping for banks to work these assets off over time risks prolonging the crisis in a repeat of the Japanese experience.

It's a good deal for the investor class, of course, who will probably wind up owning immense amounts of valuable property over time with risk minimized by government guarantees. Pimco, the super-conservative bond fund-- the world's biggest-- is in and so is money management firm Black Rock. Neither would be if it wasn't a great deal. Yesterday Masaccio-- with a little help from James Galbraith-- at FDL explained why this is such a sweet deal for the banksters, or at least for the banksters who have money left to invest.

Geithner wants to solve the toxic waste problem by throwing enormous amounts of money at hedge funds. The idea is to set up funds called the Public-Private Investment Partnership, and use the money to buy junk from banks... Private investors, then, would be contributing as little as 3 percent of the equity, and the government as much as 97 percent... good to know that we still have enough money to throw at the rich, who seem to think a 25% return is just about right.

CNBC has a surprisingly lucid and straight forward account of their own interpretation of the plan.

There are two parts to the plan -- one to purchase securities, the other to purchase loans from banks, using a combined $75 to $100 billion of funds from the Troubled Asset Relief Program.

These people say the plan will begin with $500 billion, roughly divided between the two different parts, but officials hope to be flexible and adjust the size as markets develop. Taxpayers are potentially on the hook for hundreds of billions of dollars, but officials stress they have built in protections.

In the first part of the plan, the government will create around five separate public-private partnerships, with the government investing dollar for dollar along side private capital. These partnerships will bid for the mortgage-backed securities and other assets weighing down the balance sheets of the banks, creating a price through competition.

The Federal Reserve will open up its Term Asset-Backed Securities Loan Facility for non-recourse funding for these purchases. Additional funding will be available from the TARP for these purchase.

The second part of the program uses government and private funds to purchase loans off the books of the banks. Under this program, the Federal Deposit Insurance Corp. will offer guarantees to lenders who finance the purchase of these assets. The government will also invest side-by-side with private capital in the purchases.

A bank selling the assets could be likely to finance those assets, with government guarantees.

The Dow closed up 497 points today (6.8%) and the S&P was up over 7%

Wall Street seems to agree with the Firedoglake analysis: Geithner's plan is good for them, very good... even if it is less wonderful for the taxpayers who will be subsidizing it. Stock futures are way up here and overseas markets are soaring.