Saturday, April 4, 2009

Nassim Taleb: Geithner's Plan is Another Subsidy to the Wall Street

Nassim Taleb gave an interview to a Bloomberg television on April 1. Here are a few excerpts from it:

U.S. Treasury Secretary Timothy Geithner’s plan to remove toxic assets from bank balance sheets will fail to revitalize the financial system, “We’re heading in exactly the wrong direction,” “I want an overhaul, I want something drastic. This is going to fail, this is not it.”

Geithner has proposed to revive banks without resorting to nationalization through the Public-Private Investment Program that will buy difficult-to-value assets.

The Treasury’s plan is unfair to taxpayers and rewards the failure of banks that didn’t understand the risks they took when using debt to boost returns in the mortgage market.

“I don’t understand why I as a taxpayer need to subsidize those who failed, by giving them options so they can rebuild their balance sheets”. “Taxpayers take the downside and Wall Street as usual is going to take the upside, another classical problem of socializing the losses, privatizing the gains.”

It’s “shocking” that the government would allow banks to estimate the value of the toxic assets that remain on their books because there is effectively no market for the securities, making them almost impossible to value.

“I don’t understand letting banks mark to market, after all this incompetence.” “Why don’t we allow people to mark their house at what they think the value of their house is?”

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