Administration To Unveil Toxic Debt Plan

It’s getting worse.

The Obama administration’s latest attempt to tackle the banking crisis and get loans flowing to families and businesses will create a new government entity, the Public-Private Investment Program, to help purchase as much as $1 trillion in toxic assets on banks’ books.

The new effort, to be unveiled Monday, will be followed the next day with release of the administration’s broad framework for overhauling the financial system to ensure that the current crisis — the worst in seven decades — is not repeated.

A key part of that regulatory framework will give the government new resolution authority to take over troubled institutions that would pose a threat to the entire financial system if they failed.

Given the actions of the federal government lately, I can’t imagine any private business willingly going into a partnership with them.  There’s no way of knowing whether the government will just change the deal midstream (“pray I do not alter it further”).  I’d be hesitant to invest in any bank that gets into this.  Some people may make a fortune off of these toxic assets if they prove to be not so toxic, but who knows if the fed will allow anyone to keep the money?  Furthermore, where is this money going to come from?  We’re already talking about trillions and trillions of dollars in debt and the capital available in the private sector has been halved through market declines and looming tax increases.

That last sentence is downright scary.  The federal government is looking for command authority to take over any business that it thinks is “too big to fail.”  But who gets to decide which companies count?  And who gets to decide when the business is in enough trouble to justify nationalization? 

Scary stuff, folks.  We are in the process of abandoning capitalism.