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Yes, it is a huge subsidy for both investors that participate in the government's plan and for the banks. Investors will need to be given a huge subsidy to be motivated to participate and pay something close to the price on the banks' books, and to get to a price that the banks are willing to sell. And the taxpayer bears all the risk. This plan is even worse than the original bad bank proposal.

So once Reggie asked, is Obama for Wall Street or Main Street? I guess we have our answer.

Yet it's hard to tell how this will affect markets, because it's not entirely certain the plan will get through. The first two bad bank proposals did not get through (but this one doesn't depend on Congressional funding, as the Fed plans on providing huge, non-recourse loans).

Although, since this proposal is designed so that few would understand it, it may have a better chance of succeeding. But I think it will come back to bite Obama in the ass. Even the Progressive (a very liberal news outlet) posted an editorial on how the PPIP is an awful idea:

It's also not clear how eager hedge funds will be to participate, even with the government offering such attractive returns. The government is proving itself to be an unreliable partner when push comes to shove (unless of course you are Goldman Sachs or another big bank).

I have to believe if this gets through, the fallout would shift the House from Democrat to Republican in the next election.

Interestingly, FDR was an aristocrat and he had no problem shutting down insolvent institutions. Obama comes from humble beginnings and has no problem selling out the average American.