The Geithner Plan: Billions More for Failed Banks

The last-ditch effort to save Wall Street will hurt taxpayers and still require another big bailout down the line

by Dean Baker

Treasury secretary Timothy Geithner's latest bank bailout plan is another Rube Goldberg contraption intended to funnel taxpayer dollars to bankrupt banks, without being overly transparent about the process. The main mechanism is a government guarantee that would allow investors to buy junk with a 12-to-1 leverage ratio, where they only risk the downside on their own investment, not the borrowed money.

Ostensibly, this is supposed to reveal the "true" price for junk assets, as investors compete at auctions to buy assets under the new rules. But this story doesn't pass the laugh test. All we will really learn is what price investors are willing to pay for these junk assets when they are given a large subsidy from the government to buy them. In reality, this plan is a way to use taxpayer dollars to get investors to pay far more than these assets are worth in order to give more money to bankrupt banks.