So it's an admittedly Bad Bank...

(Over the sounds of gunfire and screaming)
Peter Griffin: Wow! So, you can really give me a loan?
Jim Kaplan: I sure can. You see, Mr. Griffin, what sets us apart from other banks is that other banks are banks. Now, I trust you have collateral.
Peter Griffin: Um, I got three kids.
Jim Kaplan: I'll take them. Just kidding. Or maybe I'm not. Sign this. Here you go. Good luck!

Call me a dullard, but I'm still trying to wrap my head around this Wall Street Journal article that leaked some of our distinguished new Administrative Assistant of the Treasury Timmy Geithner's plans about the new stimulus which is expected to pass in the Senate and then re-pass in the House.

The wunderkind Geithner is going to propose that the government and private investors are going to lock arms with one another and play red-rover with the economy, praying that this partnership broken and falling into an even greater recepression.

Geithner's plan is to buy these bad assets and put them all into one big bad bank, gently called an "aggregator bank." There the government, but mainly private investors, will buy these bad assets, put money into them, and watch them grow as they will be backed by grounded and certain tax-payer and private funds.

That's all well and good. Put all of the cancer in one place, and then pump enough good stuff in to fix it. Am I right?

Except for these few points, anyway:

The banks can't fix these bad assets themselves because of a fear of collapse in all of their interests, so the government/private investor group is going to take them off their hands for them. So these banks are left with only good assets, but do they have any claims once they flourish? What incentives might they have, as these fellows from J.P. Morgan might contend, to just keep these assets and try to weather the storm and turn them into better, flourishing assets on the other side?

Sure it looks bleak now, but let the other floundering banks sell their stakes, some banks might say. When it's all said and done, they'll be sorry, they might taunt. Going from having something to having nothing might sound like a good idea when that something is a bad asset, but it is something after all. Here's a pickle; what makes it a bad asset to begin with? If it's something that is so easily fixable by the government, why would someone want to part with it so easily?

But that question pales to the proposition outlined in the WSJ:

The Treasury's working theory for the government/private-sector partnership is that investors wouldn't overpay, because if they did, they'd stand to lose money; but they also wouldn't underpay, since the selling banks wouldn't be willing to part with their assets too cheaply.

Oh! Good! I thought we were going to be dealing with the incompetent bankers and Wall Streetrats that put us in this situation in the first place. I didn't know that we'd be dealing with people who would know to invest just the right amount at just the right time to make it all worthwhile.

The Treasury's working theory is the same working theory for free-market capitalism, which is just great, but it's supposedly guaranteeing through government-backed risk limits that these investors won't lose money, which isn't guaranteed in the free market.

Which brings us to the final point, which WSJ points out is quite a snag; How do you convince these people, upon which your whole plan hinges, to invest? Government incentives liiiiiike tax cuts? Pork? An etching of your companies logo on the lunar surface? That'd be some prime advertising.

The government is supposedly limiting the risk, but what if the risk is limitless? Wouldn't the government be going even further into debt than it already is and actively planning to do? How can the government, who clearly does not have a firm handle on the situation, guarantee that an investor buying an admittedly bad stock and putting it into an admittedly bad bank will be all okay?

Alas, I'm no economist. I only deal in quarters these days since the dollar insert in the Coke machine has been on the fritz. I'll go back to my mud-hut to tend to the daily pleasantries of destitution.