Toxic Flaws In The Toxic Asset Plan

There are at least three serious flaws in the financial rescue plan that the Treasury Department has put forward for the banking system that financial expert and Institute for America's Future board member Rob Johnson lays out in an interview with Jane Hamsher of FireDogLake.

Johnson, who was a fund manager for Soros Fund Management and a chief economist for the Senate Banking Committee, says that the Public-Private Investment Program, which Treasury Secretary Timothy Geithner has proposed to get so-called "toxic assets" off of bank balance sheets, appears to favor a subset of Wall Street cronies over other financial institutions, does not address the need for restructuring "too-big-to-fail" institutions, shifts dollars to Wall Street that will be needed for health care and other needs, and fails to alleviate the concerns of creditor nations such as China about the country's long-term fiscal soundness.

The Geithner plan envisions having private financiers buy up "toxic assets" from banks and other financial institutions in partnership with the federal government, with the expectation that the assets will eventually increase in value and can be resold at a profit. If that proves true, taxpayers will benefit, but private investors stand to gain even more; if that proves untrue, federal guarantees will shift much of the risk from private investors to taxpayers.