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Treasury Secretary Geithner's plan to invite private equity and hedge fund investors to a fire sale of bank assets is a return to the very same policies and practices that triggered the financial crisis in the first place.



Secretary Geithner's proposal for the Term Asset-Backed Securities Loan Facility (TALF) would enable private equity firms and hedge funds to buy up higher quality loan securitizations, including auto, consumer, student and small business loans. The Federal government would provide low-cost financing for up to 95% of the purchase price, with private firms putting down as little as 5% and the securitizations as collateral. The hope is then to expand this proposal to include toxic mortgage-backed securities.



Each of these programs could cost taxpayers up to $1 trillion. If the private firms make a profit from the deal, they keep all of it. If they end up losing money, they are only on the hook for the nickel or two of equity they put in. The taxpayers would then assume the rest of the losses. Even worse, subsidizing the purchase up to 19-to-1 will drive up the price of the assets, which would be yet another gift to the same banks that caused this crisis while at the same time putting taxpayers at a much greater risk of bearing huge losses.



You do not need to be an economist to see the flaws in this proposal.



1. Leverage-fueled speculation is a bad risk. We cannot forget that leverage-fueled speculation got us into this economic crisis. It just doesn't make sense for the taxpayers to provide up to 20-to-1 leverage to the same speculators who helped create the crisis in the first place. If it didn't work before, why will it work now?

2. Privatized profit and socialized risk hurt working families and the economy. To entice private capital, Secretary Geithner wants to give private entities the chance to make enormous profits with very little risk. And the best taxpayers can hope for is to get their initial investment back, plus below-market interest payments, without any possibility of sharing in any profits. Wouldn't it make more sense for those who shoulder the greatest risk - taxpayers - to reap the profits?

3. There are no strings attached. Like so many other bailout programs, this proposal would require little of the recipients. Secretary Geithner's theory is that recipients of TALF money will use it to make new auto, consumer, student and small business loans. But given our experience with bank bailouts, there is no reason to believe that taxpayers' money will actually be used to make new loans. We know that lending will only increase if the Treasury requires it as a condition for banks that avail themselves of the program.

Americans want real change - not more of the same failed policies. That means that we must reject the "fast money" schemes that spiraled our economy into crisis. We need to overhaul the financial system by restructuring and recapitalizing our major banks. Moreover the Administration should establish a set of standards that will ensure that all beneficiaries of the federal bailout programs operate in the public interest, contribute to a sustainable economic recovery and deal fairly with consumers, workers and investors.



It is time to build an economy that works for everyone - not just the few at the top.