Andrew Ross Sorkin in the NYT says (we added the emphasis):

“…the F.D.I.C is trying to stabilize the system by adding more risk, not less, to the system.

It’s going to be insuring 85 percent of the debt, provided by the Treasury, that private investors will use to subsidize their acquisitions of toxic assets.

These loans…are, for example, “nonrecourse,” which means that if an investor loses money, he owes taxpayers nothing. It’s the closest thing to risk-free investing — with leverage! — around.

So where did the risk go this time?

To the F.D.I.C., and ultimately, to us taxpayers.”

So if there is no risk of loss, then why won’t private investors buy the assets without FDIC gaurantee? The FDIC is effectively answering that private investors perceive risk where there is none.  To substantiate their claim, they have asked their accountants  to carefully evaluate these non-existent risks.

” “We project no losses,” Sheila Bair, the chairwoman, told [Sorkin] in an interview. Zero? Really? “Our accountants have signed off on no net losses,” she said.”

Sounds like famous last words to us…

Nobel Prize winning, self-described liberal economist Paul Krugman said on his blog Saturday:

“…it’s just horrifying that Obama — and yes, the buck stops there — has decided to base his financial plan on the fantasy that a bit of financial hocus-pocus will turn the clock back to 2006.”

Basically, Dr. Krugman says the banks have to be taken over in a way similar to the way the Swedish did and we did with our S&Ls and that Geithner’s plan will not be accepted. Krugman refers to Yves Smith’s blog in Naked Capitalism:

“The New York Times seems to have the inside skinny on the emerging private public partnership abortion program. And it appears to be consistent with (low) expectations: a lot of bells and whistles to finesse the fact that the government will wind up paying well above market for crappy paper….Dear God, the Administration really thinks the public is full of idiots. But there are so many components to the program, and a lot of moving parts in each, they no doubt expect everyone’s eyes to glaze over.”

It appears we will have to look harder for a thoughtful supporter of this new plan.  We expect Obama’s press secretary, Robert Gibbs to be supportive…if he can quit stammering long enough.  Sadly, this extremely complex “set-up” is intended to whitewash the fact that if assets move off the books of banks under this plan, the taxpayer is going to pay virtually the entire difference between their current market value and the amount the banks are currently carrying them on their books. As Krugman says, “the Obama administration has apparently made the judgment that there would be a public outcry if it announced a straightforward plan along these lines”, so they instead wrap it up in this dribble for camouflage.  Remember too –it’s the taxpayer who pays this difference in Geithner’s plan, private investors really are just window dressing and  bank bond holders remain completely unscathed! We think the Obamunists have just begun to here the public outcry..