According to Nobel Prize-winning economist Joseph Stiglitz, the US plan to rid banks of toxic assets will rob Americans by exposing them to too much risk and is unlikely to work as long as the economy remains weak.
Stiglitz, in an interview, with Reuters says the plan is “very badly flawed”, offering “perverse incentives.” The economist feels the US government is basically using the tax payer to guarantee against downside risk on the value of the assets, while giving the upside, or potential profits, to private investors.
In a damning indictment Stiglitz says “Quite frankly, this amounts to robbery of the American people. I don’t think it’s going to work because I think they’ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer.”
The economist feels that even if the plan clears banks of massive toxic debt, worries about the economic outlook mean banks could still be unwilling to make fresh loans, while the prospect of a higher taxation burden to pay for various government stimulus plans could further undermine U.S. consumers.
