Obama and his economic team have proposed a new initiative to jumpstart the economy and make borrowing easier for families and businesses. Many believe that the fundamental problem with the financial institutions is that their balance sheets are inundated with worthless and toxic assets. These toxic assets are choking the productive assets in these companies that are profitable.
As the recession continues to worsen, the administration continues to create new programs to eliminate or quarantine these toxic assets. Many economists are fearful with these new programs, because they alter and change the primary function of many government programs. The creation of a private-public partnership to purchase bad assets is a risky initiative.
Obama administration’s complex plan to resolve the toxic asset problem has been named “The Public Private Investment Program for Legacy Assets.” This latest initiative is extremely complicated, because it is dependent on loans and guarantees from the Federal Deposit Insurance Corporation (FDIC) and $100 billion from TARP. Obama is the major salesman for this plan and he is going around the country drumming up support for his worthless and toxic assets program.
The FDIC operates the government insurance fund that insures bank deposits up to $250,000. It provides a guarantee to depositors if a bank is unable to cover their deposits, because they are insolvent. This federal insurance fund is being stretched with the recent increase of bank failures.
Obama’s plan is changing the original purpose of the FDIC from an insurance fund to a loan guarantee agency. This fund is already under-funded and its resources are expected to be further depleted. Many are concerned with Obama’s PPIP program, because it will jeopardize the stability of FDIC.
There are also oversight issues, because the FDIC will be given the responsibility to administrate the program. The Treasury, The Federal Reserve, and FDIC will have potential conflicting roles in executing the PPIP. It is not clear which government agency will be watching and controlling the allocation of funds.
It is extremely difficult to access the effectiveness of a program because next week the plan can be changed to a new set of acronyms. Some TARP money will be involved, so that will include a congressional oversight committee and an inspector general. Nevertheless, there still appears confusion on which government agency will have final authority with the dispersion of funds.
Again, Obama is considering spending a trillion dollars on a program that has limited accountability and transparency. At the rate which the new administration has introduced new programs, last month’s program will be forgotten or discarded. At some point, enough is enough and it is time to implement and execute the programs that already exist.
The government’s track record is poor if we used Katrina as a barometer for the government’s level of accomplishment, organization, and planning. The new administration is proposing to spend a trillion dollars in the creation of public-private partnerships to back purchase of bad assets by private investors. This appears to be a losing proposition for the American taxpayer because the assets are worthless.
The administration is attempting to wipe the slate clean as if the toxic assets never existed. For some reason they believe that, they have a large eraser and they can start over with a clean slate.
Obama is the master salesman and he will be held responsible if, “the Public-Private Investment Program for Legacy Assets” is unsuccessful. Obama is asking Americans to buy worthless assets with no collateral. With the financial sector on the verge of collapse, he may be accelerating the reality of the economy with this new program.
It would be better for Obama to tell Americans the truth about the economy and make the hard choices at the beginning of his administration. It would be a tragedy to create a paradigm where the money is worthless and the economy has collapsed.
Is Obama and his economic advisors telling us the truth, when they try to sell us worthless and toxic assets?
