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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."

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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." (Read more TALF stories.)

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