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The New Geithner Treasury Plan is so abominable that two radically divergent ideologies can agree to hate it. The Keynsians see in the Treasury Plan a massive giveaway to those that need it least and that this giveaway will not produce economic recovery or value. The Austrians see wasteful spending rewarding bad behavior to create a false government conjured price for assets that are worth zero dollars. This is an unusual agreement between the Krugman faction and the Paultard faction.

Geithner's plan is to create a reverse auction for the toxic assets by using taxpayer funded loans to convince investors that buying these toxic assets at inflated prices is worth it. This is the exact same plan Paulson initially had in October, and the same plan Geithner had in February. But this time the stock market loved it! The only difference I read was that this time instead of the treasury doing the buying at ridiculous prices, there would be loans to private parties who would bear almost no losses if the purchased toxic assets went bad.

However, these assets are already bad. Toxic assets have a price already, zero dollars. No one will buy them. These assets are mortgage contracts that are supposed to have money coming in on them, but the person who was supposed to pay stopped paying. No one wants to buy that. That is crap. That is why the banks are insolvent, because they are holding these pieces of paper as collateral for all their money changing games, but these pieces of paper are worthless. The Geithner plan gives huge FDIC backed loans to a narrow class of investors that promise to buy some of these toxic assets. This will get the assets off the books of the banks, and radically increase their value since the government is on the hook for 85% of the price paid for the asset if the asset turns out to the worthless. This is supposed to be a "market oriented" plan since private investors will set the price. But that price is created by government distortion! And what if the banks collude with shell companies to bid on their own assets and simply pocket the loan money and then let the shell companies implode? Enron did similar things and no new regulations have been passed under the Obama administration. The incentives created by this plan are horrendous.

The most dangerous thing about this plan is that it suggests that Obama's team thinks the banking crisis is merely a crisis of price, not of value. If this plan works, the only thing is accomplishes is massive government distortion of the price of assets the market has already determined are worthless. This has not affected the value crisis in this country. The value crisis is that homes really aren't worth as much money as we thought they were. And that companies that traded in such paper weren't really producing any value to anyone. There is a common refrain amongst the economiclly angsty, "America doesn't produce anything anymore". That is better stated as "America doesn't produce anything of VALUE anymore". Toxic mortgage trading, credit default swaps, collateralized debt obligations, stocks, mutual funds, all these things were price games. There was no value behind what they represented, merely the promise that someone else would one day pay more for that piece of paper you bought than you did. That is a price game. A thing of value is something like a car, or a toaster. A car saves the human effort of having to walk to work. A toaster saves the human effort of having to make a fire to make a piece of toast. There is value in those objects, and the price of those objects directly links to their value. There is no damned value in a credit default swap. I am going to spend more posts trying to make this value / price distinction a fuller concept.