Nobel Laureate Stiglitz Rips The Public-Private Investment Program

Nobel prize winning economist Joseph Stiglitz said that Public Private Investment Program(PPIP) is a recipe for disaster.

According to Bloomberg: ” The Public-Private Investment Program, PPIP, designed to buy bad assets from banks, “is a really bad program,” Stiglitz said. It won’t accomplish the administration’s goal of establishing a price for illiquid assets clogging banks’ balance sheets, and instead will enrich investors while sticking taxpayers with huge losses.

“You’re really bailing out the shareholders and the bondholders,” he said. “Some of the people likely to be involved in this, like Pimco, are big bondholders,” he said, referring to Pacific Investment Management Co., a bond investment firm in Newport Beach, California.

Bigger Losses

Stiglitz said taxpayer losses are likely to be much larger than bank profits from the PPIP program even though Federal Deposit Insurance Corp. Chairman Sheila Bair has said the agency expects no losses.

“The statement from Sheila Bair that there’s no risk is absurd,” he said, because losses from the PPIP will be borne by the FDIC, which is funded by member banks.

“We’re going to be asking all the banks, including presumably some healthy banks, to pay for the losses of the bad banks,” Stiglitz said. “It’s a real redistribution and a tax on all American savers.”

This seems to be a policy pattern for the Obama administration. Taxpayers that pay their mortgage on time, and bought homes within their means are being asked to pay for those who didn’t, and now healthy banks will need to pay the losses of bad banks. Kind of bizarre, no?

Tagged as: Corporate America, FDIC, government bailouts, healthy banks, Joseph Stiglitz, Public-private investment program