Pretzel Logic: Bailed Out Banks to Buy Toxic Assets

It makes sense in the the brave new world of Obamanation I guess:

US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals under the Treasury’s $1,000bn (£680bn) plan to revive the financial system.

The plans proved controversial, with critics charging that the government’s public-private partnership - which provide generous loans to investors - are intended to help banks sell, rather than acquire, troubled securities and loans.

I get it, the banks who had to be bailed out because they possessed toxic assets are now going to but more toxic assets that got us to the point we are now at where we keep pumping money into their coffers. This is approved by the government that forced banks to give loans that resulted in the toxic assets in the first place. Makes sense.

Rep. Spencer Bachus sums it up thusly:

Mr Bachus added it would mark ”a new level of absurdity” if financial institutions were ”colluding to swap assets at inflated prices using taxpayers’ dollars.”

It's a shell game all right. The toxic assets are still, in fact, toxic and no amount of selling, buying or trading will change that fact.

So how does the esteemed Obama economic team expect this to work?

Officials want banks to sell risky assets in order to cleanse their balance sheets and attract new investments from private investors, limiting the need for the further government funds.

Many experts think it is essential to take these assets from leveraged institutions such as banks that are responsible for the lion’s share of lending, into the hands of unleveraged financial institutions such as traditional asset managers, where they will have much less impact on the flow of credit to the economy.

So the "risky assets" will be sold to unleveraged firms and that's expected to fix the system how? They're still out there and still bad but just in someone elses hands now.

We should have let them all fail and whoever was left standing would be the winner. The Obama administration is rewarding firms filled with cronies by helping them weather this hurricane while banks and other firms who played by the rules and didn't dabble in toxic assets are getting screwed. Just like that percentage of the US population who bought above their heads and now can't pay for it are rewarded.

Until taxes are cut on business allowing them to hire again and employ people, this issue will never be resolved and we'll continue to throw bad policy after bad paper.

The amateur hour continues apace.

Update: More here. The taxpayer had better be ready to bend over repeatedly.