But the real problem with this plan is that it won’t work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.
But I think the problem with any sort of plan is that there just isn't enough money to pay off the lost bets which bore no relation to actual assets or their value. Our economy isn't even big enough to cover the losses without extreme pain, short and long term.
And I still don't have a clear (or even a fuzzy) picture of what would happen if we didn't make these gamblers whole.
So far I haven't heard anything about legislation to reverse the horror that is the Commodity Futures Modernization Act. One would hope banks would have learned their lesson and wouldn't jump back into the gambling that got them here, but until Congress addresses it I have no faith that there's any real problem-diagnosis and problem-solving going on.
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