BusinessWeek has a rundown of loopholes in Geithner's bank plan. The first one is:
Banks may be able to finance the sale of their own troubled loans, lending money to the public-private partnerships that buy the assets. A bank's loan to the partnership would be buttressed by an FDIC guarantee. Administration officials confirm that the Treasury may allow such seller financing.
There is clearly some misunderstanding here -- not necessarily on the part BusinessWeek, but on the part of ... someone. The kind of self-dealing described above is actually dealt with in the Treasury's original white paper on the bank plan, but it's confusing as hell. To wit:
Private Investors may not participate in any [public private investment fund (PPIF)] that purchases assets from sellers that are affiliates of such investors or that represent 10% or more of the aggregate private capital in the PPIF.
Good luck making sense of that. When I asked for some critical exegesis, a Treasury official told me that this meant (1) Investors cannot bid on their own assets unless they are less than 10% of the fund that's doing the bidding; and (2) Even when they are less than 10% of the fund, there will be anti-fraud provisions to prevent the sort of self-dealing that BusinessWeek describes.
The administration obviously doesn't want a situation in which banks can use FDIC-backed loans to bid up the price of their own toxic assets. But nor does the administration want a situation in which the composition of public-private investment funds is hamstrung by some teeny overlap between the assets of the buyers and sellers. So it creates a rule: the overlap can't be more than 10%, and even when it's less than 10% there will be some anti-fraud provisions.
But that rule requires some elaboration. (Like, off the top of my head, "What are the anti-fraud provisions they have in mind?") You would think this would be pretty easy to clarify, but the no one from Treasury is willing to speak on the record about this sort of thing. Why is that? I refer you again to the administration's all-star public affairs line-up. Unchanged since last week, and the week before.