Sunday, April 5, 2009
Nobel laureate economist Joseph Stiglitz lambastes the Obama administration’s plan for ridding banks of toxic assets as a boon for Wall Street and a bust for Main Street.
“The Obama administration’s $500 billion or more proposal to deal with America’s ailing banks has been described by some in the financial markets as a win-win-win proposal,” Stiglitz writes in The New York Times.
“Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.”
The proposal is “marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency,” Stiglitz says.
“The government plan in effect involves insuring almost all losses. Since the private investors are spared most losses, then they primarily ‘value’ their potential gains.”
Stiglitz presents an example: “Consider an asset that has a 50-50 chance of being worth either zero or $200 in a year’s time. The average ‘value’ of the asset is $100,” he writes.