The latest leak from the WSJ about the details of the Geithner plan should sound very familiar to readers of the "long post". Even the numbers are the same as the long post. To quote:
These private investment managers would run the funds, deciding which assets to buy and what prices to pay. The government would contribute money from the $700 billion bailout, with additional financing likely coming from the Federal Reserve and by selling government-backed debt. Other investors, such as pension funds, could also participate. To encourage participation, the government would try to minimize risk for private investors, possibly by offering non-recourse loans.The public-private partnership grew out of the "bad bank" concept, an idea popular among some economists that would have required the government alone to buy up the troubled assets.
Maybe they read me in Washington - even if it is only briefly.
Calculated Risk thinks its a bad idea - but say 100 billion of private money lying in front of public losses is a real capital injection into the banking system. Big money too.
That seems better to me than all the capital coming from the goverment. If you are ideologically hooked to the nationalisation solution then private money is bad.
Calculated Risk's objection is that the money is non-recourse. But all banking capital is non-recourse with the taxpayers - through the FDIC bearing the downside. As long as a fair bit of capital is required (as it should be required for banks) this is not dissimilar to new private money starting banks.
I doubt Calculated Risk would have an objection to that. The issue is not non-recourse - it is the ratio of private to public money because if only a slither of private money is required there is little real risk transfer to the private sector. If a lot of private money is required there is real risk transfer and this plan is the real-deal, but would reduce the chance that the private money could be found.
I gave ratios of 6.5 to one or 7 to 1 because those were about a third where banks were allowed to operate and these funds will hold what on average will be riskier assets. Numbers - not the concept - should be the realm of debate.