The reality is that the market will not be pricing the toxic assets themselves, but options on those assets.
– Joseph Stiglitz, “Obama’s Ersatz Capitalism”, The New York Times, April 1
I’m not a fan of Columbia Economics Professor Joseph Stiglitz, but his editorial in today’s New York Times on the PPIP is right on. Because private investors will only have to put up 8% of the money, they will value these assets as call options. The government will be putting up the real money and taking the real risk and it’s really just an attractive way for private investors to speculate on big gains.