The deep cultural issue with the plan-of-the-week for detoxing bank assets is the sad commentary it makes on the social attitudes of bankers overall. The Geithner plan is a "public-private partnership" that, like most PPPs, is skewed in favor of the private side. In this case, risk is 85-15 public-to-private, as not stated candidly by Treasury, but as calculated here and here, but the contracted profit split, if any, is 50-50.
Why the hell can't bankers rejoin society with a one-to-one risk-to-reward split? Every six-year-old on earth understands the concept of 50-50. Why not bankers? Why the double standard? Why always a bigger take for them than for everybody else? Why a bigger split for them NOW, when they have torpedoed the entire global economy and we could buy most of them for less than the bailout money they already have? Why now, when most of us want bankers to shut up, not to mention to cut these overpriced, grotesquely overpaid, unaffordable bankers out of the financial system, kind of like we should do with HMOs.
The answer is that unless their win is a lock, and their extra cut is guaranteed, the banks won't even show up.
The Obama administration is at least as eager to show the world's bankers that the US is "not Sweden" as they are to fix the economy. They believe that keeping bankers in charge is the prerequisite to fixing the economy. They know bankers, so they know this means that they have to give banks the farm they already foreclosed on once, after they rolled the farm's subprime mortgage into a toxic security they sold to your retirement fund.
Bankers wonder why they are being singled out. They have singled themselves out by demanding special deals before they are willing to roll out of bed - after they burned the house down, went next door, took over your bed, cashed in your insurance policy and asked you to sleep on your couch.
In the midst of this forlorn exchange of big economists about the plan, see Mark Thoma's comments about the privates getting " free insurance against downside risk." I wish he'd gone on to say that this is going to be an orgy of asset-flipping. People will own the toxic waste long enough to flip it to another sucker. If the Chinese government doesn't line up this time, who will? If there's no sucker in sight, no one will buy.
Why don't we just nationalize the banks? Answer 1: because Sweden did it once. Answer 2: because nationalizing banks would be cheap now. Citigroup's market capitalization is about $16.5 billion today. We've already given them three times that amount in bailout money ($50 billion). So we have to wait until nationalization will cost us everything, so the banks can have all the money.
Too cynical? Well a couple of trillion later, do we yet have a functioning banking system? How much more is it going to take?
All the dollars and cents you can make.
There's plenty of economic unworkability in this latest public-private skewed subsidy plan. If you need huge bribes of public money to get asset scavengers to buy toxic waste they won't touch with their own unsubsidized money, they why will these securities' "market value" float on their own?
But more deeply, at the cultural bottom, it will be impossible to fix an economic system that has been eroded by its own gross unfairness with another round of gross unfairness.