> The Treasury will match the equity the private hedge funds put in
> dollar for dollar. And all leveraging is applied will apply to both
> equity returns proportionately. So whatever upside they make, we'll
> make.
>
> The private investors will have an incentive to bid as low as possible
> to make the most amount of money, and we'll make the same.
>
> What am I missing?
You're missing the fact that most of the purchase price is not financed by those dollar-for-dollar, public-private equity investments. Most of the price is financed by *non-recourse* loans from the Treasury, secured by the bad assets. So yes, if the assets perform great, the taxpayer will profit along with the hedge funds. But if the assets decline in value, the hedge funds will default on the loans and all the Treasury gets is the bad collateral. So the hedge funds' downside exposure is limited to their small equity investments, whereas the Treasury's downside exposure equals its small equity investments *plus* the entire value of the loan (minus the recovery value of the bad assets). The only way it's not a giant give away to Obama's hedge fund donors is if the assets all perform great, which is precisely the premise of Geithner's plan. However, if, as informed people believe, the assets do badly then the Treasury will be on the hook for lots of money while the hedge funds get off almost unscathed.
SA