Later today, we get the gritty details about the latest bank rescue plan. In the WSJ, Treasury Secretary Tim Geithner details his new toxic asset disposal program.

It is now nearly 18 months since the crisis erupted, and we are several trillion dollars into this, with little to show except a halting of sheer panic. The thought process seems to be, what’s another trillion dollars between friends?

Regular readers know my preferences: Nationalize the banks, eliminate the debt, clear out the toxic assets without saddling taxpayers with absurd costs.

Here is some of the specifics via Geithner:

“The Public-Private Investment Program will purchase real-estate related loans from banks and securities from the broader markets. Banks will have the ability to sell pools of loans to dedicated funds, and investors will compete to have the ability to participate in those funds and take advantage of the financing provided by the government.

The funds established under this program will have three essential design features. First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors. Second, the Public-Private Investment Program will ensure that private-sector participants share the risks alongside the taxpayer, and that the taxpayer shares in the profits from these investments. These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.

Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.

The new program starts at $500 billion dollar,s and ramps up to $1 trillion dollars. Creating a market for these thinly traded hard to value assets is harder than it appears. Hence, the massive outlay of cash.

>

Previously:
Nationalize Now (January 26th, 2009)

http://www.ritholtz.com/blog/2009/01/nationalize-now/

Sources:
My Plan for Bad Bank Assets
TIMOTHY GEITHNER
WSJ, MARCH 23, 2009

http://online.wsj.com/article/SB123776536222709061.html

Details on Public Private Partnership Investment Program
Treasury Department, March 23, 2009

http://treasury.gov/press/releases/tg65.htm

Obama Seeks Investors in Plan to Buy Illiquid Assets
Robert Schmidt and Rebecca Christie
Bloomberg, March 23 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=aT16m2FlyQRs&

U.S. Rounding Up Investors to Buy Bad Assets
ANDREW ROSS SORKIN, ERIC DASH and RACHEL L. SWARNS
NYT, March 22, 2009

http://www.nytimes.com/2009/03/23/business/economy/23toxic.html

Geithner Banks on Private Cash
DEBORAH SOLOMON
WSJ, MARCH 23, 2009

http://online.wsj.com/article/SB123776474431608981.html

Financial Policy Despair
PAUL KRUGMAN
NYT, March 22, 2009

http://www.nytimes.com/2009/03/23/opinion/23krugman.html

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

69 Responses to “Public-Private Investment Program”

  1. call me ahab says:

    another stupid idea

  2. call me ahab says:

    Here is Krugman’s assessment – despair- I agree.

    http://www.nytimes.com/2009/03/23/opinion/23krugman.html?_r=1

  3. Marcus says:

    Reinflate the housing bubble????

    When you add inflation to a problem that includes unemployment, dwindling international support for our debt, and consumer contradiction, you have the formula for a much bigger economic disaster. Congress will have to shoulder a large part of the blame for this mess, using the “recovery rubric” for Hogzilla pork barrel unparalleled in our history, and without reinstating Glass Steagall, look out below.

    As financial stocks go up (in the short run), and gold goes down; it will be a good time to buy gold company stocks.

  4. if they wanted Change/Transparency, they’d would have sent a sheath of those ‘assets’ to every mail-drop in the US.

    people, soon enough, would figure out what they were worth, in a hurry..

    the ‘leftovers’ could be used to pay off Lottery winners. yes, the ‘real’ Lottery–Cash5, Pick6, Powerball..

    the resultant delta in Lottery revs. would, well, key in, again, the ‘worth’ of this Trash..

    LSS: this is, yet, More of the Same, more Gifts to the connected y corrupt, paid for, at the barrel of a Gun, by U. Sucker..

  5. danm says:

    How am I supposed to know the value of that crap? And if these assets are bought at a low price, don’t these banks have to write them down?

    Evidently, only a few “private” players will be able to participate. Wonder if GS will be one of them…

    It makes me think of the early 90s when I kept on getting calls from Goldman Sachs asking if I wanted to participate in the IPO of a Russian oil firm… I think the price was something like 40 cents per barrell of reserves when Goldman first approached me. Of course, they would never send the prospectus I asked for. When I finally got it (1 or 2 yars later), the price was at 8$ per barrell of reserve. Hmmm… I wonder who pocketed that money!

  6. some_guy_in_a_cube says:

    This plan is sheer genius. Tell me, how did we not see this all along? A massive giveaway of taxpayer dollars so that bankers can continue to enjoy high-status high-maintenance lifestyles, and we can continue to pay them interest for the rest of our pathetic lives.

    The bottom is in, the crisis over. Now get out there and buy buy buy!

  7. CNBC Sucks says:

    Not just Krugman, but Galbraith and Baker, so far. Outside of the fashionable HuffPo parlor liberals, Obama’s true left is becoming despondent. The question is whether the true ideological right – I don’t mean Larry Kudlow and the opportunist, moneygrubbing CNBC right, but the Fox News red staters and the last, few genuine fiscal conservatives – will join and unite to stop this turkey.

  8. super_trooper says:

    You can complain as much as you want. But until you get your ass of the chair and actually do more than post blog comments, you’re a facilitator of the current policy. If you believe in democracy organize yourself, take to the streets, arrange for a bank nationalization protest. Stick your head out the window and scream “I’m mad as hell, I’m not going to take this anymore!”
    http://www.youtube.com/watch?v=QMBZDwf9dok&

  9. ottovbvs says:

    They are not going to nationalize the banks however much Krugman and Barry want them to…..After the AIG bonus hullabaloo does anyone think the admin and even worse congress should be managing the banks…..I’d say despite Krugman’s “despair” the plan has a fair chance of success and that’s reflected in the opening numbers from Asia….. This plan is clearly principally the product of Summers, Geithner and Bernanke two of whom are economists with credentials at least equal to Krugman’s or any of the other naysayers so using the “my econonomist is smarter than your economist” gambit seem a bit futile…..The proof of the pudding will as ever be in the eating.

  10. paulyarbles says:

    Is this a done deal or does the congress have to vote on it? I mean it’s directly or indirectly money from the public that’s being used so don’t the representatives of the people get a say? No one gave the Executive Branch and the Federal Reserve of Banker’s Whores this big a blank check. I think.

    For that matter, how is the revenue to fund this being raised? Then this has to be put in a bill originating in the House of Representatives. Section 7 of the Constitution and all that. What in the name of God is going on!!!??? What a freakin’ power grab! Why the doubleplusfuck is over $1,000,000,000,000 being spent to bailout dissolute gamblers? Jesus! $1,000,000,000,000! It takes me a while to type this number. Soon I’ll have to start using scientific notation!

  11. Greg0658 says:

    Geithner “Program will purchase real-estate related loans from banks and securities from the broader market” .. would like to see a fix come … but from understanding this situation .. 3 homesites from my town got money and MEWd and those 3 got 3 from the next county that probably MEWd and another 20 from Cook County that MEWd for a car and a vacation .. and that is 1 Instrument Vehicle on step One along the way to Wall Street. Good Luck Tim. Paper-pushers dream tho.

    for the newbees MEW = Mortgage Equity Withdrawl (hopefully it gets checked before this plans’ stage for InsuranceEW)

  12. jmf says:

    Moin from Germany,

    this sums Geithners plan up……

    “Assets will need AAA ratings at origination”

    I assume that not a single one would be rated AAA today and at the point when they hand it over to the taxpayer……

  13. call me ahab says:

    otto Says:

    “The proof of the pudding will as ever be in the eating.”

    too bad we’ll be choking on it otto

  14. paulyarbles says:

    ottovbvs writes: “After the AIG bonus hullabaloo does anyone think the admin and even worse congress should be managing the banks”

    Bonus hullabaloo! That’s a fucking laugh! After what AIG has done these past few years, after what the entire financial industry has done, does anyone think the private sector can manage?

  15. wally says:

    Throw that guy out.

    And his boss, Obama, seems more and more bent on arguing with the people who elected him, not serving them. This is not starting well.

  16. Marcus Aurelius says:

    otto:

    They might not call it “nationalizing the banks,” but I see government money (Ha ha, ha) on the line. The bankers obviously can’t manage the banks, either. The banks need to be let fail. The rally in Asia is irrational exuberance/wishful thinking, at best. Credentials are fiat paper. This ain’t pudding, and I’m not eating it.

    We might be in the middle of a bear market rally, and that rally might extend for a while. But the fundamentals (reality) are what they are, and they suck. The cure for getting drunk and crashing a car is not to get drunk and go for a drive.

  17. ottovbvs says:

    call me ahab Says:
    March 23rd, 2009 at 8:20 am
    too bad we’ll be choking on it otto

    …I doubt it….and the Asian markets don’t appear to agree with you either

  18. Greg0658 says:

    super_trooper Says: “take to the streets, arrange for a bank nationalization protest” your right about desk protesting but hope ya catch the Cops on a good day and there is not a sh!t-head in the crowd

    danm am curious to hear the rest of the story later today .. did it get nationalized ? (in truest sense .. like maybe 8/1/06)

    ps – the let em fail opposition to the so called nationalize concept …. realize all .. who is stocked up with CASH and other liquid assets to buy up the world as we know it and can then dictate the new lawfull gameplay

  19. ottovbvs says:

    ……All the Cassandra’s are just going to have to accept they are not going to let banks fail nor are they going nationalize them…..And yes this is a done deal…they don’t need congresses approval because they’re leveraging TARP funds.

  20. wally,

    it why it’s called “The Obama Deception”..seriously.

    btw, anyone ever figure out who, which firm, printed all that ‘cash’ for Zimbabwe? was it de la Rue?
    http://www.delarue.com/Display.aspx?MasterId=0ca820e0-0849-4ccb-883c-fdb9d114ab88&NavigationId=665

  21. Wes Schott says:

    …this from John Hussman

    http://www.hussman.net/wmc/wmc090323.htm

    “Make no mistake – we are selling off our future and the future of our children to prevent the bondholders of U.S. financial corporations from taking losses. We are using public funds to protect the bondholders of some of the most mismanaged companies in the history of capitalism, instead of allowing them to take losses that should have been their own. All our policy makers have done to date has been to squander public funds to protect the full interests of corporate bondholders. Even Bear Stearns’ bondholders can expect to get 100% of their money back, thanks to the generosity of Bernanke, Geithner and other bureaucrats eager to hand out the money of ordinary Americans. “

  22. otto,

    the BOJ’s been buying the NIKKEI like they’re afraid it was going out of style..

    catch a clue, or, if your glove-skills are lacking, maybe you could rent one..

  23. Bruce N Tennessee says:

    Karen,

    Macro Man says the Brits didn’t like their public-private collaboration either…I have enjoyed reading this guy…

    http://macro-man.blogspot.com/

    Here We Go Again….

    “Perhaps Geithner may wish to ask Londoners how well their version of a Public-Private Partnership has worked, both financially and service wise. (Hint: it rhymes with “not very.”)”

  24. danm says:

    Isn’t it opbvious? There are no easy way outs.

    Look at US during great depression: deflation and old people going to the poorhouse
    Look at Germany’s Weimar during the same period: hyperinflation and old people going to the poorhouse.

    No matter what, 55+ are going through the wringer.

    The difference is that during hyperinflation risky behavior is rewarded while savings and hard work is discouraged… which leads to despondency… which leads to dictators.

  25. rktbrkr says:

    The devil’s in the details but the banks and the vulture funds have been a mile apart on the valuation of these mortgage backed securities and every quarter produces lower prices for the homes that back these securities. So the government must concoct a plan that’s complicated enough to conceal the cost of absorbing the difference between the price that the vultures are willing to pay and the price the banks will sell at.

    The plan needs to be very complicated to conceal the ultimate cost of this to taxpayers.

    Remember Paulson and BB were initially confident that the US would recover the cost of it’s “investment” in AIG and more recently BB mumbled he hoped we’d recover” some” of the costs of the AIG stream of bailouts.

    The vulture funds will get insanely wealthy for walking point in this ball of confusion

  26. karen says:

    Bruce, comments at macroman are usually great as well. visit acrossthecurve.com, too.

    More on Quantitative Ease and the Treasury Market
    March 23rd, 2009 7:48 am
    Here is an excerpt from a morning note to customers by David Ader and Ian Lyngen of RBS Greenwich Capital. They think that the FOMC purchases in total will soak up about $1 trillion of supply. That is in 10 year equivalents.

    They also anticipate that the aforementioned purchases will spark an episode in which crazed convexity craving clients will clamor for more bonds creating more demand. It is good reading from the street:

  27. I wonder how many appearance on television geithner’s going to make this week touting this plan…

    sounds like a risk-free, taxpayer funded giveaway sweepstakes for JC Flowers et al.

    next bubble: Distressed Asset Funds

    even johnny upside is getting in on the action:

    http://thereformedbroker.com/2009/03/23/johnny-upside-im-all-about-distressed-assets-yo/

  28. ottovbvs says:

    Enough already….when someone mentions the Weimar Republic or Dictators with moustaches it’s time to leave……We’ll see how the markets react this week.

  29. dead hobo says:

    I am still utterly amazed that otherwise clear thinking people retain the head shaking stupid idea that all bad banks should be nationalized and the rot in the rest of the places should be left to decompose on it’s own. Somehow, this will fix everything.

    Ignored or simply discarded are the effects of this. Nationalizing banks isn’t free. That strategy will require the printing press to pump out as much e-money as today’s plan, and likely several times more. The credit markets will seize up totally. Layoffs would escalate far far far beyond today’s cry baby levels. The recession would turn into a Depression quickly.

    The recovery would takes a decade or more, as opposed to a couple of years. For anyone who disagrees, why not play a little game of cause and effect. When the concept of “a little pain” is encountered, please work out exactly what you mean by that and then explain the means to alleviate it without resorting to magic, prayer, or simply ignoring a lot.

    Only an idiot would believe that corruption wouldn’t take over that recovery In fact, that’s probably the idea. A plan to fix the economy by killing it would turn into a full employment act for financial criminals in a few months. People would be desperate for anyone to try anything to fix things.

    I’ve been pondering what the next big thing would be in financial crimes if the crooks were allowed to have their way. The eventual and easy to forsee cowboy atmosphere caused by an economy desperate to recover from a Depression caused by these idiots would be a path made of gold bricks, free fore the taking.

    BTW, gold would fall by half or more ultimately in this scheme, not rise. While a lot of cash would be flowing, nobody would be working. After that inflation, cash would take it’s rightful place as kindling. Perversely, gold would decrease in value because demand for it would ultimately decline a lot. You can’t eat gold. Gold is only a store of value because gold nuts all think like that. The rest of those who chase gold are playing with the greater fool’s theory. In fact, the greater fool’s theory probably explains the price of gold better than anything else. Fools use textbook economics to guess what bigger fools will pay for it.

    This toxic assets plan might work. It depends on if any of Uncle Stupid’s people designed it or if a wave of new thinkers has come to town and been put to work. Regardless, it couldn’t be worse than the idiotic idea that we have to kill the world economy in order to save it.

  30. CNBC Sucks says:

    The Great CNBC Sucks started watching Fox News again. Yup, you read that right: the anti-Republican Republican watched Faux News. When I tuned in, they interviewed Austan Goolsbee, and he talked about how Geithner’s turkey is a “partnership”. He neglected to mention that the USG will be putting in 97% of the capital and taking most if not all the risk. Probably, after fees and subsidies are taken into account, BlackRock and PIMCO are not really risking anything.

    The fact that Obama would get in bed with the likes of Bob Doll and that John Bolton look-alike from PIMCO is a bad sign, sort of a “Rosemary’s Baby” moment. We thought we were voting for a progressive savior and friend when behind that small bit of progressivism might be lurking Larry Kudlow evil even worse than a Republican.

    @otto: Talk to the hand. I could not give one rat’s ass how the “markets” react, ever. The Dow will probably still have a healthy valuation after an all-out nuclear war.

  31. Vega says:

    To ponder:

    Much of the toxic CDO and ABS paper that resides on bank balance sheets was initially marked at prices much higher than the real, fair market price at the time issuance. If you talk to quants who structured these products, they will tell you that there was big pressure to mark the prices of these bonds UP. Why? Management wanted the PnL, they wanted to get paid.

    So now many of the bonds have supposedly been written down. The problem with that statement is that much of the write-downs only take the initial inflated mark out of the PnL. The real loss, that which is due to the erosion of cash flows, hasn’t been taken yet in many instances. That’s why you see banks marking stuff at 80 and the market willing to bid 30. The market is not crazy. The market sees the assets backing the paper and the cash flows likely generated and it values them accordingly.

    There’s a big cover-up going on at C, BAC, and JPM, just to name the biggies. Subpenea the quants and give them immunity, they’ll tell you what’s really going on.

    Geithner is aware of what’s going on. It happened on his watch at the NY Fed. He has as much personal motivation to end this mess as do the guilty banks. It’s quite sad, IMO.

    Supposedly Andrew Cuomo has been notified about this latest ‘twist’. Regardless, I don’t thing you’ll see private capital lining up to overpay for crumby assets. Yes, govvy is gonna take most of the risk. But I don’t see private capital willing to eat the sliver they’d have to eat if they overpaid for assets. We shall see.

    Keep the faith.

  32. call me ahab says:

    Greg0658 Says:

    “the let em fail opposition to the so called nationalize concept …. realize all .. who is stocked up with CASH and other liquid assets to buy up the world as we know it and can then dictate the new lawfull gameplay”

    here here

  33. Stuart says:

    This is so proned to being gamed they have to be aware of this fact. One can only surmise then that the principle intent is simply to remove the toxic garbage off the bank’s balance sheet at the expense of anyone else. Again, Geithner demonstrates his belief that the banks are his constituency. What a total scam… MLEC has mutated into this cesspool.

  34. call me ahab says:

    CNBC Sucks Says:

    “The fact that Obama would get in bed with the likes of Bob Doll and that John Bolton look-alike from PIMCO is a bad sign, sort of a “Rosemary’s Baby” moment. We thought we were voting for a progressive savior and friend when behind that small bit of progressivism might be lurking Larry Kudlow evil even worse than a Republican.”

    Great rant! I agree.

  35. ottovbvs says:

    CNBC Sucks Says:
    March 23rd, 2009 at 8:56 am
    “@otto: Talk to the hand. I could not give one rat’s ass how the “markets” react, ever.”

    …….So why spend so much time at a blog that’s all about markets

  36. danm says:

    Look at Germany’s Weimar during the same period: hyperinflation and old people going to the poorhouse.
    —————-
    “same period” = WWI to WW2

  37. KidDynamite says:

    Everyone is missing two key points here:

    1) the purpose of the FDIC is to protect bank LIABILITIES, not to protect bank ASSETS
    2) the FDIC, which is the “funding vehicle” for this scam, does not HAVE the funds (they have less than $50B).

    it’s such an insanely fraudulent wool-over-the-eyes job by the administration, it’s sickening – what purpose does the FDIC involvement have? i think it’s to get around the fact that the Treasury can’t do it by itself, for lack of TARP funds remaining. so they throw someone else (FDIC) in the middle, who will get funds from the Treasury anyway. Might as well have been the FDA, FCC, FBI or CIA.

    and oh – don’t misread the program – it provides 12-1 leverage – not 6-1 leverage. the 6-1 is debt – equity, but the Treasury is putting up 1/2 the equity.

  38. danm says:

    Enough already….when someone mentions the Weimar Republic or Dictators with moustaches it’s time to leave……We’ll see how the markets react this week.
    ———–
    Too funny. That’s exactly how the crooks get into power… complacency.

  39. ottovbvs says:

    danm Says:
    March 23rd, 2009 at 9:12 am
    Too funny. That’s exactly how the crooks get into power… complacency

    ……..Actually it isn’t….it’s over emotionalism and over simplification

  40. CNBC Sucks says:

    otto, you are an even bigger fool than I previously thought if you think the only markets are public markets or American markets. I have busted Ritholtz’s chops on nearly every one of my comments recently (he loved it!), but I have found this blog and its mostly intelligent commenters – whether I agreed or disagreed with them – to be useful in thinking about the future of our lives, not just the movements of our piddling stocks and options trades. I have concluded it is a good thing that I have created options beyond those of the US mainstream.

    I don’t know about the women and children, but, sadly, it’s every man for himself.

  41. danm says:

    danm Says:
    March 23rd, 2009 at 9:12 am
    Too funny. That’s exactly how the crooks get into power… complacency

    ……..Actually it isn’t….it’s over emotionalism and over simplification

    ———————-
    I guess that’s what those who did not get out of Germany thought about those leaving for America in the 1930s.

    I’m not saying that the US will go there but it is going down a very slippery slope. Interestingly, when you look at all the countries where coups happen, the complacency of the people is appalling and people voicing concern get squished… just like you did to me.

  42. leftback says:

    A trillion here, a trillion there. Pretty soon, you’re talkin’ real money..

  43. batmando says:

    @ ottovbvs at 8:14 am
    “The proof of the pudding will as ever be in the eating.”
    and with the ‘funny’ taste already in our mouths, many of us are hesitant to open wide for this tidbit – prime rib or S.O.S.?
    @ ottovbvs at 9:12 am
    “over simplification”
    as in
    “……..Actually it isn’t….it’s over emotionalism and over simplification”

  44. danm says:

    Just a few months ago, a few billions were shocking, now government is throwing trillions and no one is batting an eye.

    And I’m called a nut!

  45. Transor Z says:

    @ MEH:

    Hey Mark — lay off the lottery! (AKA my new retirement plan) :p

  46. call me ahab says:

    leftback Says:

    “A trillion here, a trillion there. Pretty soon, you’re talkin’ real money..”

    my thoughts exactly- we must be looking at one hell of a slopped up nightmare of a mess to be throwing that much money around- they must be terrified in Washington – maybe it’s even worse than we think (or what they’ll tell us).

  47. karen says:

    guys, it’s only paper… if that… binary code, 1s and 0s more likely.

  48. Foghorn Longhorn says:

    call me ahab
    maybe it’s even worse than we think (or what they’ll tell us).

    Exactly how do they tell us that everything we have been taught since we were old enough to pee, is a fucking lie?

  49. leftback says:

    call me ahab
    maybe it’s even worse than we think (or what they’ll tell us).

    Everyone here knows that it is FAR WORSE than they are telling us. When Roubini and Faber become long-term bullish, I will pay attention.

  50. call me ahab says:

    karen Says:

    “guys, it’s only paper… if that… binary code, 1s and 0s more likely.”

    I like that laid back style

  51. karen says:

    I think if they called this plan what it really is, some of you would start to get it. It’s called a “Do Over.” Remember when you were a kid playing a game that got off track?

  52. mainstreet says:

    I wish I could have this deal to purchase my own toxic assets!!!!!

  53. Transor Z says:

    If recent history has taught us anything, it’s that it’s only a Ponzi scheme if people start cashing out. That should be the take-away.

    Social Security minus retirees equals solvent program. Tarp II as a program to warehouse immovable paper indefinitely equals great idea.

    @ Karen: Did we do do-overs in “kick the can”? ;)

  54. Lugnut says:

    Keynsian idiocy sold to you. Take another trillion dollar bite of the shit sandwich Mr Taxpayer, its all good. Liberal incompetance combined with a banker driven oligarchy pulling the Treasury’s strings doesn’t make for a winning formula. Our national Treasury has been effectively looted by bandits, who now wield more power than ever, but the media for some reason won’t allow it to be portrayed that way. Were it allow to be portrayed for what it is, we might have a revolution. As long as American Idle isn’t on that night….

  55. leftback says:

    Transor Z Says “Did we do do-overs in “kick the can”? ”

    Ha ha. Kick the Can is All About Do-Overs.
    Hanky Panky kicked it down the road and now Tiny Tim is having a few kicks.

    President Obama has instructed his guys not to go near that thing until Tim has finished.
    This is George’s can, after all.

  56. Ugh, my can’s getting kicked right now, thanks to this latest intervention :p

    This will not end well, must maintain the courage of my convictions…

    Incidentally, when you’ve got Paul Krugman “despairing” the candy-crapping unicorn and his merry elves, you’ve got some pretty serious buyer’s remorse.. I bet PK even has a signed pair of collectible Obama kneepads! (or am I thinking Jon Stewart?)

    (ugh, sorry for the diatribe, feel free to delete if you wish, I am “despairing” myself these days…)

  57. deanscamaro says:

    @Lugnut

    “Liberal incompetance combined with a banker driven oligarchy pulling the Treasury’s strings doesn’t make for a winning formula.”

    Neither did conservative incompetance combined with a banker driven oligarchy, the marriage that created this large pile of crap, make for a winning formula (keep in mind it all started on the Great Decider’s watch).

  58. call me ahab says:

    Dr. Kenneth Noisewater Says:

    ” I bet PK even has a signed pair of collectible Obama kneepads! (or am I thinking Jon Stewart?)”

    you think?

  59. dean,

    guess again..this muck-up started under Bush 41, through to the present-day..

  60. franklin411 says:

    Hmm…so what are the odds that someone will form a mutual fund type organization to allow small investors like myself to participate in this? I’d love to be able to buy a $1000 chunk of some of these “toxic assets.”

  61. Transor Z says:

    My understanding is that Tarp II implementation will be carried out by Matthew Lesko.

  62. linuswilson says:

    My paper “The Put Problem with Buying Toxic Assets” at http://ssrn.com/abstract=1343625 suggests that the gap between the price at which banks are willing to sell toxic assets and the price at which the private sector is willing to buy toxic assets may be large. The bid-ask spread will be larger for banks that are more insolvent. It will also be larger for banks that have more distressed or volatile toxic assets. My research shows that it is much better to buy toxic assets from troubled banks in receivership than before their assets are written down.
    http://www.linuswilson.com

  63. Foghorn Longhorn says:

    Hoffer,
    guess again..this muck-up started under Bush 41, through to the present-day..
    Sorry dude, this muck-up got rolling under the Late Great Best President Dumb Ass Ronald McDonald Reagan.
    He and judge green got the deregulation express going with the deregulation of the Telecom Industry.
    Without that, there is no WorldCon, no Enron, no Aig.

    Which is so ironic since he actually stepped in and saved Harley Davidson from the japs dumping their bikes here.
    Anything over 750cc was slapped with an import tax.
    He gave Willy G the cash to reorganize and held off the japs till the big V-Twin could compete.

    Strange times my friend.

  64. Scott F says:

    Hoisted from comments:

    I am SAC Capital. I get to be one of the bidders on bank assets covered by the program

    Citi holds $100mm of face-value securities, carried at $80mm.

    The market bid on these securities is $30mm. Say with perfect foresight the value of all cash flows is $50mm.

    I bid Citi $75mm. I put up $2.25mm or 3%, Treasury funds the rest.

    I then buy $10mm in CDS directly from Citi [or another participant (BOA, GS, etc)] on the bonds for a premium of $1mm.

    In the fullness of time, we get the final outcome, the bonds are worth $50mm

    SAC loses $2.25mm of principal, but gets $9mm net in CDS proceeds, so recovers $6.75mm on a $2.25mm investment. Profit is $4.5mm

    Citi writes down $5mm from the initial sale of the securities, and a $9mm CDS loss. Total loss, $14mm (against a potential $30mm loss without the program)

    U.S. Treasury loses $22.75mm

    Great program.

    It’s just a scheme to transfer losses from the bank to the taxpayer with an egregious payout to a middleman (SAC) to effectively money launder the transaction.

    You’ve also transmuted a $30mm economic loss into a $36.75mm economic loss because of the laundering. So its incredibly inefficient.

    How did fraud and money laundering become the national economic policy of the US?

    One would have to be a criminal to participate in this.

    Folks, this IS even worse than I thought, and you know I have a constitutional predisposition to take a dim view of things (although it was clear from the get-go that the introduction of private parties to give air cover to the Treasury would make the exercise more costly without adding any value).

    I suggest you write/e-mail your Congressmen, and more important, any of you who have MSM media contacts, call this to their attention. There will no doubt be useful further grist on this thread and onthe post on which this comment first appeared. But the analysis above is damning on its face. I’d like to have someone have Geithner try to explain why it WON”T work like that, and how this abortionsolution is in our collective best interest.

    AIG bonuses are a sideshow (as offensive as they are, don’t get me wrong on that one, the symbolism is awful). It is diverting attention from the real crimes and serving to get nay-sayers branded as populists, which is code for “jealous of their betters”.

    But this sort of thing in reality, as Paul Krugman points out today, is not a class issue (otherwise, why would the member of SAC Capital be so appalled) but a recognition that the program is so heinous that it represents a fundamental danger to an already damaged economy:

    … that these funds will have skewed incentives. In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities. For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem.

    Krugman’s comparison to the S&L crisis is actually too favorable. The losses then were only $100-$120 billion in total. The damage (as in losses to the taxpayer) on this one program are almost certain to be greater if the Administration gets its hoped-for take-up.

    Now that level of loss (ex the unnecessary subsidy) might well be warranted IF it were putting the markets on a sound footing, by providing a backstop while investors did price discovery on bad assets. Price discovery is a necessary part of this process. One could argue the reason the offer in the illustration above is $80 million and the bid is only $30 is that no one is interested in bidding when the sellers aren’t serious. If the banks really were to start unloading assets, the initial buyers would get a steal, but more capital would come forward. You might not see bids rising to the “fullness of time” $50 million level, but you would see bidding rise above the current level.

    With price discovery (or the equivalent via more realistic marking of their books), some banks would be toast and need to be put in a form of receivership. But pretending these banks are viable, keeping the incumbents in place (who have incentives to take risk with taxpayer money, if nothing else so they can try to show profits and slip the leash) is the worst of all worlds. Some of the big banks already have been nationalized from an economic perspective, yet we keep alive the dangerous and costly fiction that they are functioning, private concerns. The Japanese did a variant of this program via letting zombie banks grossly overvalue dead loans, and look how well it served them.

    There may also be a Constitutional issue, as another reader alleged:

    Geithner/Summers are willfully evading Congressional oversight. After the Tequila/Mexico financial crisis, the banks wanted 20 billion and Congress wouldn’t give it, so Summers/Geithner under Clinton evaded that buy misusing the government’s ESF, argually illegally. Now, given that Congress doesn’t want to authorize more money, Summers/Geithner are trying to misuse Fed/ DIC authority to hand out cash. This is illegal because the FDIC and Fed are authorized to lend, but not to hand out gifts/grants. Lending non-recourse undercollateralized is a gift/grant.

    I know we are all suffering from outrage fatigue, but this is a worthy target for your ire. I hope you find a productive outlet for it.

  65. Greg0658 says:

    ScottF “Some of the big banks already have been nationalized from an economic perspective, yet we keep alive the dangerous and costly fiction that they are functioning, private concerns”

    I am capturing for my files, that SAC scenario you played. This stuff is … simplification needed.

    I copied the line above to point as I see it .. nationalized = propped up .. not nationalized in the strict definition …. and “fiction” is a false injection because they are still “functioning private concerns”

  66. Pat G. says:

    “The Public-Private Investment Program”

    The public puts up the capital and cheap financing. Another trillion dollars? What is the private contribution or their downside? Profits are implied but not guaranteed and how are they “shared”? Better yet, who is in charge of this oversight? These are indeed historical moments, as we watch our government continue to devalue this country.

  67. Foghorn Longhorn says:

    Pat G.
    I believe it was ol Clayton Williams, who ended his aspiring political career with this little nugget.
    “if rape is inevitable, just lay back and enjoy it”
    Well here we are.

  68. Foghorn,

    it was, indeed, ol’ Claytie, in his run against Ann Richards–who, at the time was so far back in the pools, people thought she was running for Mayor of Austin..

  69. Foghorn,

    re: above, I was referring to “Derivatives” in specific, though, the whole de-reg craze was, actually, started under J.E. Carter Jr., aka #39..