Geithner’s Plan … Yet Again

Forgive me for festering over this one, but any time taxpayer money is thrown around with abandon something inside me wants to know why. So many people have tried to take a shot at explaining the Geithner Plan [a.k.a. PPIP] and those, who like me are critics, all end up asking the same question: why are the loans that are being used to entice private investors to put up capital non-recourse? Here, via the blog Self-Evident, is the question most clearly put: self-evident : Stating the obvious.

This should be easy. Advocates and supporters of the plan have to answer that one simple question. The entire economics of the plan revolve around the non-recourse feature so it must be there for a reason.

Hopefully the reason is a bit more complicated than ‘we want to fork over tons of cash to private equity firms’, which is what the outcome appears to be on the surface.

A non-recourse loan insures the borrower against losses. The lender picks up any losses accruing from the assets the loan was used to buy. So Geithner is, in effect, giving the private equity firms [think Goldman Sachs and the Carlyle Group] he hopes will participate in the plan unlimited play money.

Why?

Until someone in the administration answers that question we have to keep asking it.

Without an adequate explanation the plan just stinks.

And that just annoys me.