Since Secretary Geithner announced his $1 trillion plan for combating the economic crisis, there has been a surplus of critics and a shortage of defenders. The whole thing looks like a boondoggle to most of us. But I was able to find one intelligent defense of the package that is worth a read for Conservatives and Liberals alike.
Q: Where does the trillion dollars come from?
A: $150 billion comes from the TARP in the form of equity, $820 billion from the FDIC in the form of debt, and $30 billion from the hedge fund and pension fund managers who will be hired to make the investments and run the program's operations.
Q: Why is the government making hedge and pension fund managers kick in $30 billion?
A: So that they have skin in the game, and so do not take excessive risks with the taxpayers' money because their own money is on the line as well.
Q: Why then should hedge and pension fund managers agree to run this?
A: Because they stand to make a fortune when markets recover or when the acquired toxic assets are held to maturity: they make the full equity returns on their $30 billion invested--which is leveraged up to $1 trillion with government money.
1 comment:
So, tell me again why the government couldn't just hire some people to run this program? Is there anyone who believes that the government hasn't guaranteed the hedge fund managers that they won't lose their money? Just another example of the government helping us not to trust them.
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