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The US government may be able to hold on to the devalued assets long enough to recover the value but will it?
The government may be between a rock and a hard place just like many of us with stock portfolios that have slipped 50% or more. Eventually you may need the cash and have to sell the devalued asset before it recovers.
Consider that just three years ago the tallest building in Boston, the John Hancock Building, sold for 1.3 billion but was auctioned at a bargain of $660.6 million just this week. Broadway Partners appears to have lost over $600 million on the deal. To make matters worse the winning, and only bidder, initiated the foreclosure - I can just see the grins on their faces.
Nobel laureate economist Joseph Stiglitz lambastes the Obama administration’s plan for ridding banks of toxic assets as a boon for Wall Street and a bust for Main Street.
“The Obama administration’s $500 billion or more proposal to deal with America’s ailing banks has been described by some in the financial markets as a win-win-win proposal,” Stiglitz writes in The New York Times.
But let’s face it; Bush started it.
“Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.”
The proposal is “marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency,” Stiglitz says.
“The government plan in effect involves insuring almost all losses. Since the private investors are spared most losses, then they primarily ‘value’ their potential gains.”
Stiglitz presents an example: “Consider an asset that has a 50-50 chance of being worth either zero or $200 in a year’s time. The average ‘value’ of the asset is $100,” he writes.
“Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses. Some partnership!”
"Perhaps the biggest scam ever - perpetrated on the US government by Wall Street "
Nope. That distinction is already defined by history -
The Federal Reserve Act.