A Six Percent Down Payment? What About an 80-20 Plan Instead?
The plan announced this week by the Obama Administration to use a public-private partnership to purchase toxic assets is nothing more than a re-hash of the same plan introduced by Henry Paulson just a few months ago. What’s changed since then? Well, the Administration has committed trillions of new taxpayer dollars while falling short on the President’s promise for an “unprecedented” level of oversight, transparency and accountability. While news of the Paulson-Geithner plan resulted in a 500 point increase, it’s still 2000 points below where it was when this plan was originally announced as the Hank Paulson plan.
Sure it’s being heralded as good for the stock market, but leveraging with 94% your money as a taxpayer and 6% hedge fund money (isn’t good policy). Of course, the hedge funds say they will come into it, because if they win, they win big and if they lose, they lose only 6% of the principle. Essentially, this plan encourages the government to engage in activities that got us in this problem.
First of all, these assets are going to be marked down to a certain extent so everyone has an opportunity to say what they are worth. When I bought a house for the first time, I paid 20% down. There’s no reason in the world why private investors allowed to mark down their bid to what they think the portfolio is worth shouldn’t be willing to put 20% into it of real money they can lose. The government can put in 80%, but if we put in 94%, what we are doing is setting ourselves up for the situation in which we’re going to end up owning these assets and are auctioning them again, because, ultimately, when the 6% disappears, we own 100% of the asset again, and we’re back to selling the same toxic assets a second time.
Adopting more laws, to replace laws that were not enforced will never be the answer. That is why transparency and oversight is the answer.
Rep. Darrell Issa is a Ranking Member of the House Committee on Oversight and Government Reform.