March 24, 2009

Biting The Hand That Feeds You

Krauth on the proposed new bank plan:

[T]he way I look at it is that the logic of the plan is there, but the problem is the execution. The logic makes sense. The reason the assets are toxic is because they carry a huge amount of risk and uncertainty.

The government by lending at very favorable terms to private investors and guaranteeing huge amounts of losses is taking a disproportionate share of the risk and the uncertainty out. So it creates a market and creates a chance of the banks offloading these assets.

The problem is the execution. After the performance of the president and the administration and the House and the Senate last week on AIG, it's hard to imagine anybody is going to want to be a partner of the government.

There's going to be either huge upside in these investments, or huge downsides. Either way, you can see the headlines attacking the vultures who made the money or the vultures who lost the money.

You can see Congress acting the way it did right now with the retroactive bills of attainder, punitive taxation, and notorieties that these people would inherit.

That doesn't mean nobody will join this, but it reduces the number of people who will. If you reduce the number of partners, that means the government is going to have to assume a lot more risk and give away a lot of the profits than it otherwise would had we not had the AIG hysteria.

Yup. It's often said that liberals love employment but hate employers. Seems to be the same case when it comes to investment.

Posted by Robert at March 24, 2009 10:15 AM | TrackBack