Friday, March 27, 2009

The Geithner plan - how the scam works

Here is an excellent 12 minute clip explaining the fatal flaw in the Geithner plan.


  1. It took a while to get going, but towards the end, it was fascinating.

    Well done, Mr. Khan.

  2. Interesting. Who is this man?

  3. That was one of Chris' better presentations... I've very mixed feelings about the guy - most of the topics he picks are interesting, but I frequently find that I see a flaw in his reasoning.

    In this video, the flaw is that he assumes that no officials will be involved in the implementing the plan and that it will not affect future government policy with respect to legislation or the formation of state bodies.

    Private investors are speculating that the Fed know what they're doing... This is significant because the Fed has access to better information about the operation of banks than mere mortals.

    The idea of new off-balance sheet entities being formed to generate profits for the banks at the expense of the taxpayer is a real risk - and, I agree, in the context of this plan, it would be difficult to legislate against. However - if purchases under the plan are at the discretion of the Fed, it might be realistic to trust the judgement of those tasked with implementing the plan. It is a huge responsibility - but it isn't the same as a free for all - necessarily.

    I also think that the government is several steps ahead... it is already talking about legislating for the regulation of hedge funds... and, I strongly suspect, there will be far more stringent regulation with respect to off-balance-sheet accounting in future. There's always a risk arising from corrupt bankers - but this risk is somewhat mitigated by active management of the plan.

  4. "the Fed has access to better information about the operation of banks than mere mortals": could be. But I remember Toni Blair's claim to have more information about Iraq than the rest of us. Turned out that all he did was ignore what the Intelligence people told him and lied to the rest of us. I still have hopes that we'll get to hang him.

  5. Yeah , aSteve regulated the hedge funds. Never mind that the actual frauds - as opposed to imaginary ones you claim - have occurred in the regulated sector. It is as usual a pathetic sop to public opinion which no practical effect but helps to offload blame onto an unpopular group - no wonder Crash Gordon came up with it

    But in terms of what you are talking about this link, what you are suggesting is precisely the point. No one in their right mind is going to invest in these products unless they have an ulterior motive and the people who have an ulterior motive are the holders of the banks. So either the Geithner plan will fail - because the banks won't sell and the cost of conforming with the Fed regulation to prevent the scam will outweigh any upside for legit investors - or more likely it will simply sail through and this arbitrage will occur.