Happy Financial Fools day

That's right, rather than today be called April Fools day, it might be more appropriate if the day is labeled Financial Fools day. At least that is what the Treasury Secretary hopes that we all are: 'financial fools'. Economics Nobel winner Joseph Stiglitz's analysis of the bad asset bailout plan unveiled late last week by the Obama administration calls it a win-win-lose proposal: the banks win, investors win — and taxpayers lose.

From here: Consider an asset that has a 50-50 chance of being worth either zero or $200 in a year’s time. The average “value” of the asset is $100. Ignoring interest, this is what the asset would sell for in a competitive market. It is what the asset is “worth.” Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses. Some partnership! Assume that one of the public-private partnerships the Treasury has promised to create is willing to pay $150 for the asset. That’s 50 percent more than its true value, and the bank is more than happy to sell. So the private partner puts up $12, and the government supplies the rest — $12 in “equity” plus $126 in the form of a guaranteed loan. If, in a year’s time, it turns out that the true value of the asset is zero, the private partner loses the $12, and the government loses $138. If the true value is $200, the government and the private partner split the $74 that’s left over after paying back the $126 loan. In that rosy scenario, the private partner more than triples his $12 investment. But the taxpayer, having risked $138, gains a mere $37.

Even the Wall Street Journal, long a voluptuous cheerleader for capitalism does not like what it sees in this plan.

We have no idea if Treasury is playing favorites, but it certainly doesn't look good. All the more so given that some of these big players may have consulted informally with the Obama Administration as it was writing the plan. Not to mention that the big asset management companies that are most likely to land plum fund-management jobs are also the ones that have been most vocally praising the Treasury plan.

Recent photographs from a visit to see Barnaby Whitfield's pastel works in an exhibition titled 'Ah For A Man to Arise in Me / That the Man I Am May Cease to Be' currently on view at the Stefan Stux Gallery, Chelsea. More information here.