Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Keep CounterPunch ad free. Support our annual fund drive today!

The Geithner Put


Timothy Geithner is putting the finishing touches on a plan that will dump $1 trillion of toxic assets onto the US taxpayer.  The plan, which goes by the opaque moniker the “Public-Private Investment Fund” (PPIF), is designed to provide lavish incentives to hedge funds and private equity firms to purchase bad assets from failing banks. It is a sweetheart deal that provides government financing and guarantees for illiquid mortgage-backed junk for which there is no active market. As one might expect, the charismatic President Obama has been called in to generate public support for this latest addition to the TARP bailout. In this week’s address to Congress he said:

“This administration is moving swiftly and aggressively to restore confidence, and re-start lending.

“We will do so in several ways.  First, we are creating a new lending fund that represents the largest effort ever to help provide auto loans, college loans, and small business loans to the consumers and entrepreneurs who keep this economy running.”

The Obama administration is clearly afraid to use the shifty Geithner to sell this boondoggle to the American people. Geithner’s last performance put the equities markets into a swan-dive.

Details of the plan remain sketchy, but the PPIF will work in concert with the Fed’s new lending facility, the Term Asset-Backed Securities Loan Facility, or TALF, which will start operating in March and will provide up to $1 trillion of financing for buyers of new securities backed by credit card, auto and small-business loans. Geithner’s financial rescue “partnership” will also focus on cleaning up banks balance sheets by purging mortgage-backed securities (MBS).

In Monday’s New york Times, Paul Krugman summed up the Geithner plan like this:

“Now the administration is talking about a “public-private partnership” to buy troubled assets from the banks, with the government lending money to private investors for that purpose. This would offer investors a one-way bet: if the assets rise in price, investors win; if they fall substantially, investors walk away and leave the government holding the bag. Again, heads they win, tails we lose.
Why not just go ahead and nationalize?”

Why not, indeed, except for the fact that Geithner’s and his boss’s main objective is to “keep the banks  in private hands” regardless of the cost to the taxpayer. The Treasury Secretary believes that if he presents his plan a “lending program” rather than another trillion dollar freebie from Uncle Sam, he’ll have a better chance slipping it by Congress and thereby preserving the present management structure at the banks. Keeping the banking giants intact is “Job 1” at the Treasury.

The PPIF is a way of showering speculators with subsidies to purchase non-performing loans at bargain-basement prices.  The Fed is using a similar strategy with the TALF which, according to the New York Times, could easily generate “annual returns of 20 percent or more” for those who borrow from the facility.

From the New York Times:

“Under the program, the Fed will lend to investors who acquire new securities backed by auto loans, credit card balances, student loans and small-business loans at rates ranging from roughly 1.5 percent to 3 percent.

“Depending on the type of security they are borrowing against, investors will be able to borrow 84 percent to 95 percent of the face value of the bonds. Investors would not be liable for any losses beyond the 5 percent to 16 percent equity that they retain in the investment.

“In the initial phase, the Treasury will provide $20 billion and the Fed will provide $180 billion. Treasury Secretary Timothy Geithner said last week that the Treasury could increase its commitment to $100 billion to allow the Fed to lend up to $1 trillion.”

This is a ripoff, which is why the plan is being concealed behind abstruse acronyms and complex explanations of how the transactions actually work. The only way investors can lose money is if they hold on to the securities after they fall below 16 percent of their original value which, of course, is unlikely, since the buyers can bail out at any time leaving the taxpayer holding the bag. Call it the “Geithner Put”, another gift from Uncle Sugar to Wall Street land-sharks.

Geithner thinks that by obfuscating the details of his plan, he’ll be able to carry it off with no one the wiser. But he’s mistaken. His credibility has already been badly battered by his chronic evasiveness. Now the pundits are blaming him for falling consumer confidence and the plummeting stock market.

It is no surprise that the Fed announced its expansion of the TALF on the same day that Geithner presented his outline for a “public-private partnership”. The two plans represent the Obama Team’s strategy for “squaring the circle”, that is, for keeping the big banks in private hands while purging their balance sheets of worthless assets at the public’s expense. Here’s how it’s presented on the Fed’s website:

“Under the TALF, the Federal Reserve Bank of New York will provide non-recourse funding to any eligible borrower owning eligible collateral… As the loan is non-recourse, if the borrower does not repay the loan, the New York Fed will enforce its rights in the collateral and sell the collateral to a special purpose vehicle (SPV) established specifically for the purpose of managing such assets… The TALF loan is non-recourse except for breaches of representations, warranties and covenants, as further specified in the MLSA”

Non-recourse funding? In other words, the loans will be like mortgages, where if the homeowner finds that he is underwater, he can just walk away and leave the bank to cover the losses? In this case, it is the taxpayer who will be left taking the loss.

The PPIF is basically the same deal,  90 percent government-funded “no risk” financing offered to the same speculators who just blew up the financial system. It’s a scam. The process allows Geithner to avoid assigning a market value to these garbage assets that no one wants. That means that he’s planning to pay inflated prices–up to $1 trillion– to keep the banks happy. Once their balance sheets are scrubbed clean, the banks can begin engineering their next swindle. Meanwhile, the hedge funds and private equity firms will demand refunds for the toxic waste they bought but cannot offload on skeptical investors. Once again, the government will pick up the tab.

Does Geithner really think he can sneak this through?

The markets aren’t going to like the idea of recapitalizing the banks through the backdoor. Wall Street will see right through the smoke n’ mirrors and hit the “sell” button. If the banks need recapitalizing, they will have to do it the old fashion way. They’ll have to restructure their capital, which means that shareholders get the ax, bond holders get a haircut, management gets the door, and the American people become majority shareholders. That’s how it works in a free market. When businesses are insolvent; they file for bankruptcy and the debts are written down. Geithner could save us all a lot of trouble by just doing his job and nationalizing them now.

The Baseline Scenario’s Simon Johnson put it perfectly when he said:

“Above all, we need to encourage or, most likely, force the large insolvent banks to break up.  Their political power needs to be broken, and the only way to do that is to pull apart their economic empires. It doesn’t have to be done immediately, but it needs to be a clearly stated goal and metric for the entire reprivatization process.”

MIKE WHITNEY lives in Washington state. He can be reached at



MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at

More articles by:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine


October 25, 2016
Hiroyuki Hamada
Fear Laundering: an Elaborate Psychological Diversion and Bid for Power
Kathy Deacon
Plus ça Change: Regime Change 1917-1920
Priti Gulati Cox
President Obama: Before the Empire Falls, Free Leonard Peltier and Mumia Abu-Jamal
Robin Goodman
Appetite for Destruction: America’s War Against Itself
Richard Moser
On Power, Privilege, and Passage: a Letter to My Nephew
Rev. William Alberts
The Epicenter of the Moral Universe is Our Common Humanity, Not Religion
Dan Bacher
Inspector General says Reclamation wasted $32.2 million on Klamath irrigators
David Mattson
A Recipe for Killing: the “Trust Us” Argument of State Grizzly Bear Managers
Derek Royden
The Tragedy in Yemen
Ralph Nader
Breaking Through Power: It’s Easier Than We Think
Norman Pollack
Centrist Fascism: Lurching Forward
Guillermo R. Gil
Cell to Cell Communication: On How to Become Governor of Puerto Rico
Mateo Pimentel
You, Me, and the Trolley Make Three
David Swanson
Halloween Is Coming, Vladimir Putin Isn’t
Cathy Breen
“Today Is One of the Heaviest Days of My Life”
October 24, 2016
John Steppling
The Unwoke: Sleepwalking into the Nightmare
Oscar Ortega
Clinton’s Troubling Silence on the Dakota Access Pipeline
Patrick Cockburn
Aleppo vs. Mosul: Media Biases
John Grant
Humanizing Our Militarized Border
Franklin Lamb
US-led Sanctions Targeting Syria Risk Adjudication as War Crimes
Paul Bentley
There Must Be Some Way Out of Here: the Silence of Dylan
Norman Pollack
Militarism: The Elephant in the Room
Patrick Bosold
Dakota Access Oil Pipeline: Invite CEO to Lunch, Go to Jail
Paul Craig Roberts
Was Russia’s Hesitation in Syria a Strategic Mistake?
David Swanson
Of All the Opinions I’ve Heard on Syria
Weekend Edition
October 21, 2016
Friday - Sunday
John Wight
Hillary Clinton and the Brutal Murder of Gaddafi
Diana Johnstone
Hillary Clinton’s Strategic Ambition in a Nutshell
Jeffrey St. Clair
Roaming Charges: Trump’s Naked and Hillary’s Dead
John W. Whitehead
American Psycho: Sex, Lies and Politics Add Up to a Terrifying Election Season
Stephen Cooper
Hell on Earth in Alabama: Inside Holman Prison
Patrick Cockburn
13 Years of War: Mosul’s Frightening and Uncertain Future
Rob Urie
Name the Dangerous Candidate
Pepe Escobar
The Aleppo / Mosul Riddle
David Rosen
The War on Drugs is a Racket
Sami Siegelbaum
Once More, the Value of the Humanities
Cathy Breen
“Today Is One of the Heaviest Days of My Life”
Neve Gordon
Israel’s Boycott Hypocrisy
Mark Hand
Of Pipelines and Protest Pens: When the Press Loses Its Shield
Victor Wallis
On the Stealing of U.S. Elections
Michael Hudson
The Return of the Repressed Critique of Rentiers: Veblen in the 21st century Rentier Capitalism
Brian Cloughley
Drumbeats of Anti-Russia Confrontation From Washington to London
Howard Lisnoff
Still Licking Our Wounds and Hoping for Change
Brian Gruber
Iraq: There Is No State
Peter Lee
Trump: We Wish the Problem Was Fascism
Stanley L. Cohen
Equality and Justice for All, It Seems, But Palestinians