Where's the Private Money Going to Come From?

Secretary Tim Geithner has announced plans for a public-private partnership in buying and disposing of the toxic assets from failing banks. There were no cameras allowed at the announcement. I'm guessing the administration was worried about the market's reaction since the last time Geithner was supposed to announce something like this the market dropped 400 points.

WASHINGTON -- The Obama administration, striving to ease lending in the struggling economy, moved Monday with private investors to sop up bad bank assets.

The administration said the program could grow to $1 trillion in purchases eventually, if it proves successful in attacking the bad-books problem that has been at the heart of the banking crisis.

In a lengthy fact sheet, the administration said it plans to use $75 billion to $100 billion from the government's existing $700 billion bailout program for this purpose, and it predicted participation from a broad array of investors ranging from pension funds and insurance companies to hedge funds.

To achieve the goal of freeing up more lending, the program would entice private investors with low-cost loans provided by the Federal Deposit Insurance Corporation and the Federal Reserve. The government would also shoulder the vast bulk of the risk.

In one example used in the fact sheet, the purchase of a batch of bad mortgage loans would see the private investor put up 6 percent of the cost with the rest provided by the government, with the FDIC covering 84 percent of the cost with a loan and the remaining 6 percent coming from funds from the $700 billion bailout program.

One minor problem - for the last week we've seen Congress demonizing AIG executives who received retention bonuses as part of their employment contract, and saw the House pass a 90% tax on future bonuses to firm receiving bailout dollars. Why would any private firm want to get involved with the government in this program and risk becoming the next target?

Whatever the eventual profit might be, it's not worth the hassle.