Taxpayers Lose in Treasury's Toxic Asset Plan

Nobelist Stiglitz blasts Obama adminstration for 'perverse' program

By Jason Farago, Newser Staff

Posted Apr 1, 2009 6:48 AM CDT

(Newser) – The Obama administration's massive public-private investment plan is good news for banks, good news for investors—and bad news for the taxpayer, writes Joseph Stiglitz. In an op-ed for the New York Times, the Nobel Prize-winning economist accuses the Treasury of "replicating the flawed system" that caused this crisis, and says that the plan is "far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses."

The problem in the market for "toxic assets" like mortgage-backed securities is not a lack of liquidity; rather, the banks have lost their capital, and only forcing investors to overpay will make up the losses. But investors won't mind; they have the government to absorb the cost. "In other words," writes Stiglitz, "the Geithner plan works only if and when the taxpayer loses big time."

[Images (3)]

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US Treasury Secretary Timothy Geithner arrives before the start of a joint news conference with President Barack Obama and British Prime Minister Gordon Brown at the Foreign and Commonwealth Office in... (AP Photo/Charles Dharapak)

Treasury Secretary Timothy Geithner appears during the taping of "Meet the Press'" Sunday, March 29, 2009, at the NBC studios in Washington. (AP Photo/Meet The Press, Brendan Smialowski)

Joseph E. Stiglitz participates in a session at the World Economic Forum in Davos, Switzerland, Saturday, Jan. 31, 2009. (AP Photo/Keystone/Alessandro Della Bella)

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This is a “partnership” in which one partner robs the other. And such partnerships — with the private sector in control — have perverse incentives, worse even than the ones that got us into the mess. - Joseph Stiglitz

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Taxpayers Lose in Treasury's Toxic Asset Plan