On the Geithner-Obama Toxic Assets
Professor of Political Economy and Economics
Author: Epic Recession and Global Financial Crisis
(forthcoming Pluto Press/Palgrave 2009)

"The final details of the Obama-Geither bank bailout plan, announced March 23, amount to a trillion dollar (with several trillions more to come) reward to the speculative investors who created the current financial crisis in the first place with their excessive leveraging and securitization of essentially worthless assets over the past decade.

Now the US Government--Treasury and Fed together--become their biggest co-speculator, co-conspirator and co-partner. Now the Treasury-Fed provides those same wealthy investors and bankers--who parked their speculative winnings in hedge funds, private equity funds, and similar shadow banking venues the past two years--yet another opportunity to speculate on an even vaster scale than before. This time the speculative opportunity is even sweeter. This time, at virtually no risk to themselves, they get to speculate on the speculation. Now they get to borrow at essentially no cost (free money) from the government to buy back the bad assets they initially created. Now the Government subsidizes the price of the bad assets they will re-buy. And now the Government will insure them against any future losses as well.

It's a 'win they win' vs. 'lose they win' proposition--i.e. free money with which to leverage to make even more money, in the process being directly paid by the Government to entice them to buy, and then even insured against future losses. No wonder the stock market was ecstatic with the news of the details of the plan. It was more than even they expected. And far more generous than any Paulson-Bush TARP plan ever envisioned, whether in the totals or the terms of the arrangement. In short, it was an offer that no capitalist speculator could ever refuse.