Geithner Plan Robs Taxpayers, Empowers Geither and Obama, May Enrich Select Firms

“Quite frankly, this amounts to robbery of the American people. I don’t think it’s going to work because I think there’ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer.”

That’s from Nobel Prize-winning economist Joseph Stiglitz.  He is also a former World Bank chief economist.

“The Geithner plan is very badly flawed,” Stiglitz said.

Under the Geithner plan, the Federal Government would offer private investors with more than 90 percent of the funds to buy the troubled or toxic assets — that’s taxpayers’ money.

If the value of the assets goes up, the private firms make a profit and the taxpayers get their costs back.

If the value of the assets goes down, the taxpayers lose.

Either way, the money gets made not by taxpayers but by private companies.

The other problem with the Geithner plan is Geithner himself.  As he said today before the House Financial Sevices Committee, he wants to have more power to step in when big non-bank financial firms are in trouble.

No one man should have that kind of power over private businesses, in our opinion, and certainly Geithner has not earned any confidence to allow us to even seriously consider the idea.

If Obama did not like Geithner’s moves into private business, his only recourse would be to fire Geithner and get a new Treasury Secretary…..

House Republican leader John Boehner told reporters the Treasury’s request for authority to shutter non-banks sounded like “an unprecedented grab of power.”

But many Democrats like the Geithner plan.

“I welcome it,” Senate Banking Committee Chairman Christopher Dodd told reporters. “We’ve got to figure out a way to deal with this.”

President Obama said on Tuesday he hopes “it doesn’t take too long to convince Congress” to approve the kind of authority Mr. Geithner and Mr. Bernanke were talking about.

Stiglitz has long called for the U.S. dollar to be replaced as the only reserve currency.

Basing a reserve system on a single currency whose strength depends on confidence its own economy is not a good basis for a global system, he says.

“We may be at the beginning of a loss of confidence (in the U.S. dollar reserve system),” he said. “I think there is support for some sort of global reserve system.” 

Stiglitz was interviewed by Reuters.

http://www.cnbc.com/id/29848741

See also:
http://news.yahoo.com/s/nm/20090
324/ts_nm/us_financial_aig

*******************

From Geithner’s statement today:

The Administration proposes legislation to give the U.S. government the same basic set of tools for addressing financial distress at non-banks as it has in the bank context.

The proposed resolution authority would allow the government to provide financial assistance to make loans to an institution, purchase its obligations or assets, assume or guarantee its liabilities, and purchase an equity interest.

The U.S. government as a conservator or receiver would have additional powers to sell or transfer the assets or liabilities of the institution in question, renegotiate or repudiate the institution’s contracts (including with its employees), and prevent certain financial contracts with the institution from being terminated on account of the conservatorship or receivership.

This proposed legislation would fill a significant void in the current financial services regulatory structure with respect to non-bank financial institutions. Implementation would be modeled on the resolution authority that the FDIC has under current law with respect to banks.

Before taking any emergency action, the Treasury Secretary would need to determine that resolution authority is necessary upon the positive recommendations of the Federal Reserve Board and the appropriate federal regulatory agency.

Read the entire statement:
http://www.foxbusiness.com/story/marke
ts/business-leaders/read-treasury-secret
ary-tim-geithner-testimony/

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