The Daily Parker

Politics, Weather, Photography, and the Dog

Heads I win, tails the Fed loses

Via Krugman, a clear and convincing description of why the Geithner plan may save the economy and make a few bankers even richer, at the modest expense of a few dollars per family:

Half of the [iunvestments of $100] wind up worthless, so the investor loses $300 total on those. But the other half wind up worth $100 each for a $16 profit. $16 times 50 pools equals $800 total profit which is split 1:1 with the Treasury. So the investor gains $400 on these winning pools. A $400 gain plus a $300 loss equals a $100 net gain, so the investor risked $600 to make $100, a tidy 16.7% return.

The bank unloaded assets worth $5000 for $8400. So the private investor gained $100, the Treasury gained $100, and the bank gained $3400. Somebody must therefore have lost $3600…

...and that would be the FDIC[...].

Warms the heart, it does. And it convinces me I'm in the wrong profession.

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