The effectiveness of the Treasury’s Public Private Investment Program hinges upon whether private investors will take the carrot that the Treasury is offering them. In order to buy into the program, not only do private investors need to be confident that the assets will appreciate in value, but also that the U.S. government will not rescind on their offer or create some surprising rule like the retroactive tax on bonuses. Also, banks have to be willing to part with the assets, which may not make sense if they have already written them off. How Currencies are Reacting to the Treasury’s Toxic Asset Plan.
Nonetheless, it is clear that along with the Federal Reserve’s Quantitative Easing program, the U.S. government is throwing everything including the kitchen sink at the U.S. economy and it could finally work. The only catch is that the program will probably not begin until the end of the third quarter because applications are not due until May.
Remember the words of Jean-Baptiste Say (1803), one of the world’s greatest economist:
“In times of political confusion, and under an arbitrary government, many will prefer to keep their capital inactive, concealed, and unproductive, either of profit or gratification, rather than run the risk of its display. This latter evil is never felt under a good government.”