Geithner has finally got around to addressing the most vital issue last instead of first,the banks toxic assets.What a failure in waiting.Only when,not if.Just look at the facts.
He is using the failed S & L scandal as a template.Guarantee toxic bank assets with the Government printing press.It's just that simple.The Treasury is providing 50% of each capital fund equity.The Treasury has no money,it can only print it.The FDIC is also on the hook for a portion.The FDIC is woefully underfunded to secure the assets consumers have invested in banks right now.
These securities will be auctioned off on the secondary market at best offer prices.No one can tell you how much of a loss this will be.Look at what you're buying.Mortgages resold that will be taken over by new homeowners enticed by artificially low or even subsidized interest rates.So if housing values start to recover in these distressed areas,guess where we'll be?Back in the same derivative debacle with homeowners defaulting creating another pyramid loss scenario.
The other half is auto,student and credit card debts.Wow!Scary!You can buy security packages combined with these winners.Auto loans with the auto depreciating the moment you drive it off the lot.Credit cards and student loans that are unsecured and have zero value in a default.
All these toxic securities sliced and packaged and guaranteed by you the taxpayer.Sure,private investors are fronting investment capital to own them.But if the pyramid scheme defaults due to a lingering bad economy,say caused by too much Government spending,the taxpayers take the hit this time for the toxic loans because our Government guaranteed the investors against loss.
In the end,the taxpayer still owns all the bad debt from the banks with money we don't have.This is just kicking the can down the road to deal with it another day.More to come...