Obama and Geithner's Ultra-Bullshit: Moral Hazard

Moral Hazard can be defined as "the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk."

Here's Joshua Holland on Geithner's less than brilliant plan:

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http://www.alternet.org/blogs/peek/134986/proof_that_geithner's_bank_plan_is_a_massive_giveaway_to_the_bastards_who_started_this_mess/

Recall the Geithner Bank Plan in a nutshell: private investors would buy those "toxic" assets off of struggling "zombie banks." The buyers would put about 7 percent of the purchase price down, and the Treasury Department would match that with another 7 or so percent. Then the FDIC would offer government-backed loans for the remainder.

If the assets were to recover their value and turn a profit down the road, the investors would split the profits with the government. But if they don't -- if their values continue to tank -- then you and I and everyone else who pays taxes will be on the hook for the lion's share of the losses.

In other words, we're limiting bargain-hunters' downside risk if they buy the banks' crap and it doesn't turn out well for them. It's a pretty sweet deal for those investors. And, as I wrote when Geithner first announced it, pretty much the definition of "moral hazard."

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And the countdown to nationalization continues...