Stiglitz: PPIP Assets = Call Options

The reality is that the market will not be pricing the toxic assets themselves, but options on those assets.

- Joseph Stiglitz, “Obama’s Ersatz Capitalism”, The New York Times, April 1

I’m not a fan of Columbia Economics Professor Joseph Stiglitz, but his editorial in Wednesday’s New York Times on the PPIP is right on. Because private investors will only have to put up 8% of the money, they will value these assets as call options. The government will be putting up the real money and taking the real risk and it’s really just an attractive way for private investors to speculate on big gains.

Comments

[chennian:]

I read an article about how PPIP will work, but I can't understand how. It seems to me that it is just a scheme that the government is responsible for all the cost and losses, but pretends the private sector helps to shoulder some of them.

Apr 02 05:19 AM

[morph366:]

Think of the PPIP as a political figleaf for Tim Geithner. When, as will almost certainly be the case, the taxpayers end up having overpaid for the assets the Treasury can claim that it was all done through a "price discovery" process with their private sector partners.

Apr 02 06:39 AM

[monday1929:]

The Great thing is that virtually everyone but the hopelessly corrupted see right through this. If this goes through the People may finally rise from their slumber. How many will pay their Taxes in full to a Geithner led treasury?


On Apr 02 06:39 AM morph366 wrote:

> Think of the PPIP as a political figleaf for Tim Geithner. When,
> as will almost certainly be the case, the taxpayers end up having
> overpaid for the assets the Treasury can claim that it was all done
> through a "price discovery" process with their private sector partners.

Apr 02 03:50 PM