Geithner and His Evil Minions&trade Go Back to the Bad Bank

Yep, it's back to bad bank, only this time Geithner has created the fig leaf of private investors to cover up the fact that there will be gross overpayment.

The idea is the government would lend investors the money at sub market rates (ding, subsidy), for non recourse loans (ding, subsidy) to buy the big sh$#pile.

A non recourse loan is, "secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable," so the if you buy a piece of the big sh$#pile, and it goes bad, you don't have to pay the loan back.

As a mental exercise, let's assume that you buy 10 CDOs for $1 million each, and the government loans you 90% of the money to do so. 9 of the 10 are worthless, and you thus lose $900,000.00, with the US government losing $8,100,000.00, but that the 10th, which you bought at 33¢ on the dollar, pays off in full, so your $1million purchase is worth $3,000,000.00, so you pay back the US government, leaving $2,100,000.00, and then split the proceeds, so you and Uncle Sam each get $1,050,000.00.

This means that you cleared $50K on a $1 million investment, and Geithner and His Evil Minions^™ just lost $7,050,000.00 of taxpayer money.

Not great, but considering the fact that $10 million was put in, and $7 million of that was lost, it's pretty good for you.

As Calculated Risk notes it's another attempt to overpay for bad assets.