Reacciones ante el Plan Geithner

Obama and Geithner gambling with their country's financial reputations

Barack Obama and his Treasury secretary, Tim Geithner, are starting to look like gambling addicts.

By Damian Reece
Last Updated: 5:48AM GMT 24 Mar 2009

Having seen the worst elements of casino capitalism ruin Wall Street and generate billions in losses, the pair have stepped back to the roulette table and plan to place up to $1 trillion (£690bn) on black to try to win back the banks' losses and restore America's financial credibility. All they can do is hope the spin doesn't end in the red.

Even the name of their latest bail-out plan – the Public Private Investment Program – sounds like the sort of financing partnership we have seen fail here all too often when applied to infrastructure investments such as the spectacular train wreck that was Metronet, the bust public private partnership (PPP) for parts of the London Underground. The UK Government's often flawed attempts at clever infrastructure funding and Geithner's plan have a lot in common.

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The Americans want private investors both big and small to join with it and bid for banks' toxic assets to get lending and capital markets moving again.

But what price will be bid? Just as British PPPs such as Metronet failed because the bid pricing was too low, undermining the project from the start, there is absolutely no certainty that private investors in the US will bid a price that makes it worthwhile for American banks to sell their toxic assets.

Geithner's plan is on an impressive scale but that's not enough. Who will police these partnership agreements and guarantee that the rules don't change with a change in White House incumbent, for instance? If the profits soar for private investors who buy toxic assets with government help, what guarantee will there be that these super returns won't be clawed back by a deeply embarrassed Capitol Hill, or that their share of losses aren't increased if things go badly?

These political risks are all too familiar to British PPP companies and will make pricing US toxic assets under Geithner's plan all the more fraught. This extra layer of complexity and uncertainty will slow the financial detox down – not something President Obama, or any of us, can afford.

The incentive for banks to sell their dodgy assets into this scheme is far from compelling because they will immediately have to write off their value and take even more losses which may exacerbate the credit squeeze, not improve it.

Much of the funding for Geithner's plan was passed by a shaken Congress back in the autumn, but only now are we getting the details. The scheme is at least five months late and while it might look clever by involving private investors and the potential for profits, in reality it's ponderous, uncertain and slow. The UK's alternative of insuring banks' toxic assets comes at the price of more state ownership and greater potential taxpayer losses but it has the infinite advantage of delivering much greater certainty in a deeply uncertain world.

Ultimately, President Obama's partnership plan is a test of his government's credibility among American investors and frankly it's not a test he can afford to fail. For such a young administration this is a massively risky bet to be taking within 100 days of taking office.

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