Paying speculators to lose money

Calculated Risk links to this piece, demonstrating how the Treasury Department plan allows private speculators to make money while the Treasury loses money on worthless subprime assets under the Geithner Plan.

self-evident » The “Geithner Put”, part 1
The bank unloaded assets worth $5000 for $8400.  So the private investor gained $100, the Treasury gained $100, and the bank gained $3400.  Somebody must therefore have lost $3600…

…and that would be the FDIC, who was so foolish as to offer 6:1 leverage to purchase assets with a 50% chance of being worthless.   But no worries.  As long as the FDIC has more expertise in evaluating the risk of toxic assets than the entire private equity and banking worlds combined, there is no way they could be taken to the cleaners like this.  What could possibly go wrong?

As I said before, we should levy a 90% marginal tax on speculators who make money off this plan — especially if the Treasury loses money, too!

2 thoughts on “Paying speculators to lose money”

  1. This is, of course, highly unlikely to be the case.

    I was a shareholder in a company that built an IM Pei skyscraper for a few 100 million. Predictably, their sector of the market turned south. They had to raise cash – in a hurry. It just so happened that there was also a S&L crisis, and real estate in that city was in huge trouble. They sold their architectural masterpiece, from memory, for around 25 million – taking a significant loss.

    The company that bought it soon had a building that was worth 60 million, then 120 million, and then 240 million.

    The building was never ever worth 25 million dollars. According the wizards at calculated risk, it was. They should become accountants.

  2. sonofsamphm1c,


    Defend this assertion, or retract it.

    The rest of your comment concerns an anecdote, which of course is useful for illustrating a point but is worthless as a form of argument. There is a long history of speculators both winning and losing money from real-estate deals.

    The difference in this case, of course, is the Treasury has made as its objective that speculators should not be exposed to risk.

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