Worthwhile Reading - Mar 24th (PPIP) Edition

Lots of material in the blogosphere about the the Geithner plan, aka the PPIP, aka the Geitner put. Much of it focuses primarily on how the plan is a subsidy from the taxpayer to both the selling banks and the private buyers; some of it focuses on why, despite the incentive to get the private buyers to bid up for the assets, it may not be enough to close the gap to where the banks want to sell; some focuses on how the plan can be gamed; some note that if the objective is to clean up the banks, this plan could work, but if the objective is to re-initiate a new credit cycle by getting lending flowing again, then its a pipe-dream; some discuss the unfairness of it all:

Geithner's plan extremely dangerous, economist Galbraith says. Henry Blodget, Yahoo! Finance.

The PPIP: its not the liquidity, stupid; its the marks. Roger Ehrenberg, Information Arbitrage.

The Geithner put, part 1. Nemo, self-evident.

Geithner plan arithmetic. Paul Krugman, NYT.

Some positive comments on the Geithner toxic plan. Calculated Risk.

Felix Salmon misrepresents me. John Hempton, Bronte Capital.

More musings on Geithner plan. Yves Smith, naked capitalism.

Geithner's plan isn't money in the bank. Simon Johnson and James Kwak, LA Times.
key excerpt:

The problem in the market today is that the prices demanded by the banks are much higher than the prices that private buyers (hedge funds, private equity firms, sovereign wealth funds) are willing to pay.

The government has no way to bring down the banks' minimum sale prices, especially without the threat of receivership. So the only option is to induce buyers to pay more than they think the assets are worth in today's generally risky climate, and the only way to do this is through subsidies.

The Geithner plan offers private investors incentives to participate. Those who put up funds will be eligible for government-guaranteed loans to purchase larger shares of the toxic assets. Because these loans do not have to be paid back, investors cannot lose more than the money they invested, even if the value of the assets plummets. At the same time, there is no limit on the amount they can make if things turn out well.

see the article for much more, including three reasons to be concerned the plan won't work

Dark musings. Steve Waldman, interfluidity.
key excerpt:

I am filled with despair, not because what we are doing cannot "work", but because it is too unjust. This is not my country.

The news of today is the Geithner plan. I think this plan might work very well in terms of repairing bank balance sheets.

Of course the whole notion of repairing bank balance sheet is a lie and misdirection. The balance sheets we should want to see repaired are household balance sheets. Banks have failed us profoundly. We want them reorganized, not repaired. A world in which the banks are all fixed but households are still broken is worse than what we have right now. Too-big-to-fail banks restored to health are too-big-to-fail banks restored to power. The idea that fixing legacy banks is prerequisite to fixing the broad economy is a lie perpetrated by legacy bankers.