The Public-Private Partnership

Now that the treasury secretary, Geitner has revealed details of rendering good the bad financial assets clogging the lines of credit, how will the revaluation of these bad assets lead to economic recovery when the fundament, their underlying value, is still losing value?

That will be by government subsidy.

The difference between what the return on one dollar of the public sector purchase will bring and what a private sector purchase will bring gives value to the bad assets by the public sector subsidizing the private sector. This defines the "partnership."

Given the distribution of the benefit and the possible detriment, the relationship of this public-private mix is better described as a hierarchical subordination of value.

The private sector's dollar is considered more valuable because the public sector has the power (the value) to change the rules ex-post-facto and apply bills of attainder that will require legal action to prevent or reverse. Keep in mind, however, that these possible public acts would likely be reaction to public detection of the private sector's usurpation of value and to replevin the value.

Since government is considered to be THE absoute power that needs to be contained and checked, the object of distrust, despite the constitutional limitations, its dollar is discounted to reflect the possible detriment to the value of the private sector's dollar. Thus, the subsidy is considered by the treasury to be a necessary condition for economic recovery, and it is the model of political economy that made the assets to be cured bad to begin with.

If the public sector cannot be considered trustworthy, and with the private sector proving untrustworthy without close government regulatory accountability, this partnership is doomed to a marriage of primal, fundamental discontent. It is the formula for volaility, not stability. For the trageur, it is an arranged marriage made in heaven. For the taxpayer, it is a marriage made in hell.

The positive valuation for financial equities will be short lived. The previous resistance of 7500 on the DOW is likely to hold, being overbought beyond that, because the treasury plan to subsidize the bad assets does not support the fundamental value of the assets directly, but is likely to be the stimulus for short term trage on the assets as the value trickles down. The dollar will lose value and the price of commodities will rise to support the deflationary trend.