Price Discovery in Public-Private Partnership Toxic Asset Purchase Plan
There's a good math example in an article in today's Financial Times about the new public-private toxic asset purchase plan. The announcement of that plan sparked the 500-point stock market rally on Monday. The author of the article is Jeffrey Sachs, director of the Earth Institute and professor of health policy and management at Columbia University.* Professor Sachs wrote:
The plan’s essence is to use government off-budget money to overpay for banks’ toxic assets, perhaps by a factor of two or more. This is done by creating a one-way bet for private-sector bidders for the toxic assets, then cynically calling it "private sector price discovery".
Link: Obama’s bank plan could rob the taxpayer
The article showed how a pool of toxic assets that would normally sell for $360k would now sell for $714k under the new Geithner-Summers plan. I agree. If the point is overpaying banks for their toxic assets, fine, let's come out and say it with a straight face. Don't employ smoke and mirrors and reward some private partners along the way. Buying them directly from the banks without this partnership will probably be cheaper too.
* TIE: He's in your field. Do you know him?
P.S. After following one link after another, I landed on this blog post with a much more elaborate math model together with charts and all.
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Comments
One Comment on Price Discovery in Public-Private Partnership Toxic Asset Purchase Plan
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TIE on March 27, 2009 |
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I have a lot to say about economists' reaction to Geithner's bank rescue plan, most especially Krugman. I don't want to give anything away now. 
You'll see it in my Tuesday post.
I don't personally know the prominent macro-economists who have gone on record about the plan. I've only read their words.
-TIE
Tell me what you're thinking, but please don't spam. See comments moderation policy.
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