Monday, March 23, 2009

Treasury Unveils Details of Plan to Relieve Banks of Toxic Assets

The keystone feature of this plan: U.S. taxpayer guarantees

Treasury Secretary Geithner's long awaited $1 trillion "Public Private Investment Plan," whereby the U.S. government will offer hundreds of billions of dollars in equity and loan guarantees to investors who bid against one another to buy troubled (toxic) assets from banks, was unveiled this morning. The Washington Post has the story:
Treasury Unveils Details of Plan to Relieve Banks of Toxic Assets
The plan is apparently a big hit on Wall Street -- so far, at least. The Dow is up a full 327 points as we post this article. Similar "optimism" was evidenced earlier today in the global stock markets.

Other observers are not so sure. For example, the Wake Up America blog fairly well encapsulates the viewpoint of the skeptics:
This is similar in nature to fraudulent schemes that promise "what's inside the bag is worth $1 million, unless you open the bag".
In this case there may be a few "good bags" similar in nature to salting the mine schemes, but for the most part everyone knows what's in the bag is toxic garbage. What really makes no sense whatsoever is why the government would risk 97% with shared "upside" instead of just buying it all.
Somehow, Geithner (and Obama by implication) believes that igniting a bidding war between hedge funds and private equity over a bag of cow manure will inspire confidence that there's gold in the bag. Such insanity cannot possibly work, which means it won't.
The keystone feature of this plan is of course the U.S. taxpayer guarantees. Today, the markets seem to be anticipating a mad scramble by hedge funds and other private investors to pick up "assets" which were regarded as "poisonous" only yesterday.

So gentle readers, we'll pose the obvious questions: Will the implementation of this plan result in an Obama-Geithner triumph of public-private partnership collaboration; or will the taxpayers wind up holding the bag once again (to the tune of another $ 1 trillion or so)? If an auction of these troubled assets is actually held, will ANY bidders actually show up? Will the holders of these assets be willing to send them at auction, or will they continue to "sit" on them, as they're doing now?

The global blogosphere eagerly awaits our readers' ever-savvy comments.

5 comments:

Lonesome Cowboy Bert said...

The Big Takeover
The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution

Mr. Market said...

You better believe there will be a stampede by private investors to scoop up these garbage assets. Aside from administrative costs, the federal guarantees mean there's no downside for private equity investors.

summers eve said...

I'll put my order in for a few bags o manure, it is spring time and the flowers need a kick in the ass.

Britney Spears said...

So many questions; so few answers.

So many Wall Street Cowboys; so little time.

Honestly, I think we should just trust our president in every decision that he makes and we should just support that.

danny said...

I may be wrong, but in examining this deal(such info as there is), it looks like were a buyer to take these assets, the buyer would take the first loss, as well as the full upside. Of course, any loss beyond the wipeout of the investor would fall on the government. Also, there could be a very high annual interest yield to the investor.

Part of the goal seems to create a market where these "toxic waste" assets can actually be valued (propped up by gummint dough of course.)

But where does the legal authority exist to provide the government loans that are the crux of this deal? It doesn't exist! The gummint is totally out of control.

To witness pure arrogance, watch this video.

Bernie vs. Ben

Here is the Federal Reserve chairman basically saying it's up to him who he loans a trillion or two dollars to, not the Senate, not the public.

Like I said, Godfrey has the illness bad, but he's a little fish. Incompetent arrogance is a very widespread disease.

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