Public-Private Partnerships in Which Making Bad Deals Are Part of the Plan.

Public-Private business partnerships are usually a bad idea.

An unintended consequence of such partnerships is that most of the gains are privatized, while most of the losses are borne by the public. With the Treasury's new plan, this bad result is INTENDED, not unintended.

If the Treasury plan works as it's designed to work, the government will bear most of any losses and the private hedge funds will enjoy most of any gains. Indeed, that's its goal, all in service of a larger goal: to get the riskier parts of the credit markets moving.

Tom Maguire's has a wonderful post analyzing the returns to private investors under the new plans leaked this weekend (tip to Instapundit).

There is one thing that I'd add to Tom's analysis: If the returns to investors really are 12-99% with the downside risk borne by the government, then once this becomes clear, the prices paid to purchase the troubled assets should rise to above the market rate, thus making the underlying deal an even worse one for the government and increasing the downside risk (it should also raise the interest paid to the government on the deal, but, as Tom notes, the interest expected to be charged will probably not come close to compensating the government for the downside risk).

Tyler Cowan's analysis is here.

It seems unlikely that President Obama would stop Secretary Geithner from implementing the Treasury plan, since Obama's commitment to public-private partnerships appears to exceed even former Secretary Paulson's.