Private-sector investors get subsidies from the government
in both leverage and insurance
and current bank shareholders get higher prices for their assets
via these subsidies
Thus the plan ultimately may cost the taxpayer more
than if the government had stepped in more aggressively
to take full ownership and pay low prices for these assets
More worrisome, this fix might only be temporary
The banks could still have too little capital…
Then we will just have to put capital into them again later
but after this money is squandered and the fiscal stimulus runs out
Adam Posen
Deputy Director
Peterson Institute for International Economics
If the Treasury department ran hypothetical simulations
with different levels of leverage when testing the PPIP
and found that lower prices may have been offered
coincident with fewer government incentives
and taxpayers pay relatively more for toxic assets then otherwise
who benefits and who pays the price?
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