Private lenders are extremely wary of having the federal government as a partner. And this phobia about government money could actually cripple Geithner's plan for public-private partnerships to buy up toxic mortgage securities. After the public flaying of AIG executives' bonuses, financial CEOs became wary of taking P-PIP loans -- fearing that they would be attacked as profiteers or morons, depending on whether they made or lost money. Many analysts predict P-PIP will have few big-name players.
Fear of federal funds has become so acute that leading bankers are competing to see how quickly they can pay back last year's capital infusions from the Treasury.
What if the mistake of the 1990s was that we strapped a casino to our economy, and let the roulette wheel take control? Summers and Geithner may want a better-regulated casino, but is that really the right way to build a new foundation for the economy?
But the future of securitized lending will be decided, in the end, by the markets.
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