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June 04, 2009

Geithner's Plan Dies; No Bank Wanted to Participate

And who could blame them?

In a move that confirmed the suspicions of many analysts, the agency called off plans to start a $1 billion pilot program this month that was intended to help banks clean up their balance sheets and eventually sell off hundreds of billions of dollars worth of troubled mortgages and other loans.

Many banks have refused to sell their loans, in part because doing so would force them to mark down the value of those loans and book big losses. Even though the government was prepared to prop up prices by offering cheap financing to investors, the prices that banks were demanding have remained far higher than the prices that investors were willing to pay.

In a statement, the F.D.I.C. acknowledged that it had not been able to get banks interested in its so-called Legacy Loans Program. Scheduled to start later this month, the pilot program was aimed at selling off $1 billion in troubled home mortgages.

This was one part of Geithner's big Public Private Investment Program. The other part hasn't been implimented yet.

Remember when it was absolutely essential to get this stuff done immediately? That's why the chief financial officer of the United States is a former tax cheat.

More: The fundmental problem with the Democrats, ironically, is that they do not understand the concept of choice. Unless you force the banks to take a bad deal, they aren't going to take it.

So frequently Democrats avoid this problem by mandating participation (e.g. the coming health care sanctions for employers who opt out). But they didn't mandate participation in this program, probably because it didn't occur to them that the financial industry they'd just bailed out would be ungrateful enough to demand value in return for the loans.

And, as the Times' article obliquely notes, the Administration just got through saying that all the banks are basically "okay." If that's true then there's no problem if they take a pass on Geithner's plan, right?

Congrats, Secretary Geithner, the program either wasn't needed or was too much trouble to use.


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posted by Gabriel Malor at 12:58 PM

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