Creative Destruction

Wow:

The proposal, which was announced officially on Monday, has provoked many responses and questions. Can banks that received government bailouts use taxpayer money to bid on toxic assets, in the hope of making a profit? Would that be bad, given that the point of the exercise is to stir up a bit of greed and animal spirits, the lack of which has been holding the economy back?

via Dissecting Bank Plan for a Way to Profit – DealBook Blog – NYTimes.com.

I posted a little while back a scheme whereby a bank could commit fraud by buying up assets via this new program. I had assumed that it would be fraud, because I assumed that the program would naturally prevent banks from buying these assets, and that they’d have to create some sort of seperate vehicle to do so in order to get around whatever restrictions had been put in place to prevent them from buying the assets and artificially bidding up the price (past the already artificially-high price caused by the non-recourse loan side of the equation). I had no idea that it was actually possible that banks could take part in this program completely open and non-fraudulently?

This is so obviously a scheme to allow the banks to transfer the assets to the taxpayer at their current holding value rather than their actual value, so that we see yet another massive transfer of wealth from ordinary Americans to the people who caused this mess in the first place.

And what does Geithner have to say: “It is not a question of ability, it is a question of will.”

Close your eyes and click your heels and repeat after me Timmy.