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From the WSJ:

However, the financial system as a whole is still working against recovery. Many banks, still burdened by bad lending decisions, are holding back on providing credit. Market prices for many assets held by financial institutions -- so-called legacy assets -- are either uncertain or depressed. With these pressures at work on bank balance sheets, credit remains a scarce commodity, and credit that is available carries a high cost for borrowers.

Today, we are announcing another critical piece of our plan to increase the flow of credit and expand liquidity. Our new Public-Private Investment Program will set up funds to provide a market for the legacy loans and securities that currently burden the financial system.

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 Public-Private Investment Program will initially provide financing for $500 billion with the potential to expand up to $1 trillion over time, which is a substantial share of real-estate related assets originated before the recession that are now clogging our financial system. Over time, by providing a market for these assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets. The ability to sell assets to this fund will make it easier for banks to raise private capital, which will accelerate their ability to replace the capital investments provided by the Treasury.

This program to address legacy loans and securities is part of an overall strategy to resolve the crisis as quickly and effectively as possible at least cost to the taxpayer. The Public-Private Investment Program is better for the taxpayer than having the government alone directly purchase the assets from banks that are still operating and assume a larger share of the losses. Our approach shares risk with the private sector, efficiently leverages taxpayer dollars, and deploys private-sector competition to determine market prices for currently illiquid assets. Simply hoping for banks to work these assets off over time risks prolonging the crisis in a repeat of the Japanese experience.

.....

We cannot solve this crisis without making it possible for investors to take risks. While this crisis was caused by banks taking too much risk, the danger now is that they will take too little. In working with Congress to put in place strong conditions to prevent misuse of taxpayer assistance, we need to be very careful not to discourage those investments the economy needs to recover from recession. The rule of law gives responsible entrepreneurs and investors the confidence to invest and create jobs in our nation. Our nation's commitment to pursue economic policies that promote confidence and stability dates back to the very first secretary of the Treasury, Alexander Hamilton, who first made it clear that when our government gives its word we mean it.

Let's move through this paragraph by paragraph:

1.) First -- I like the term "legacy assets".  It's a nice and polite way of saying, "we're stuck with some really old garbage".

Now -- let me back up a bit further and provide a bit of a history lesson here.  Securitization -- the process of taking single loans, pooling them with other loans of similar qualities (same interest rate, maturity date etc..) has been around for about 30 years now.  For anyone who wants to really delve into this process, read any of the fixed income books by Frank Fabozzi.  In other words, the problem hasn't been the system of securitization.  Instead the problem has been the "lend to securitize" market of mortgage lenders that sprung up over the last 15 years like weeds. These lenders had no incentive to make quality loans because they sold the loans off faster then the loans would go bad.

These are essentially mortgage related assets who's value is depressed right now thanks to the housing market.  There are a lot of questions related to these assets.  Let's start with the big one: what are they worth?  The problem is most of these assets are "thinly traded" -- meaning there aren't enough trades to determine an "average price".  And therein lies the real problem with most of these bonds -- we can't figure out what they are worth.

Secondly, is their price unrealistically low right now because of the problems in the housing market?  That is, are prices unrealistically depressed?  There is no answer to this question.  Most owners would say yes -- which explains why they are arguing for a relaxing of the mark to market rules.  In general I would agree with this sentiment, but only by adding this very important caveat: prices are depressed if the owner's intention is to hold the asset to maturity.  Finally, will these assets increase in value over time to where a profit can be made?  No one really knows the answer to this question either, although assuming the maturity date is far away enough (say 10+ years) the answer is probably yes.

Here are the underlying principles:

Three Basic Principles: Using $75 to $100 billion in TARP capital and capital from private investors, the Public-Private Investment Program will generate $500 billion in purchasing power to buy legacy assets – with the potential to expand to $1 trillion over time. The Public-Private Investment Program will be designed around three basic principles:

* Maximizing the Impact of Each Taxpayer Dollar: First, by using government financing in partnership with the FDIC and Federal Reserve and co-investment with private sector investors, substantial purchasing power will be created, making the most of taxpayer resources.

* Shared Risk and Profits With Private Sector Participants: Second, the Public-Private Investment Program ensures that private sector participants invest alongside the taxpayer, with the private sector investors standing to lose their entire investment in a downside scenario and the taxpayer sharing in profitable returns.

* Private Sector Price Discovery: Third, to reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program.

Here are the advertised merits:

The Merits of This Approach: This approach is superior to the alternatives of either hoping for banks to gradually work these assets off their books or of the government purchasing the assets directly. Simply hoping for banks to work legacy assets off over time risks prolonging a financial crisis, as in the case of the Japanese experience. But if the government acts alone in directly purchasing legacy assets, taxpayers will take on all the risk of such purchases – along with the additional risk that taxpayers will overpay if government employees are setting the price for those assets.

So -- the government provides some funding, to be matched by the private sector.  The plan states this will "maximize the impact of each taxpayer dollar" and "share the risk", both of which are fundamentally true assuming, of course, there is a desire by the private sector to participate.  Assuming that is true, then the two propositions are true.

Here's how it would work:

   * Banks Identify the Assets They Wish to Sell: To start the process, banks will decide which assets – usually a pool of loans – they would like to sell. The FDIC will conduct an analysis to determine the amount of funding it is willing to guarantee. Leverage will not exceed a 6-to-1 debt-to-equity ratio. Assets eligible for purchase will be determined by the participating banks, their primary regulators, the FDIC and Treasury. Financial institutions of all sizes will be eligible to sell assets.

 * Pools Are Auctioned Off to the Highest Bidder: The FDIC will conduct an auction for these pools of loans. The highest bidder will have access to the Public-Private Investment Program to fund 50 percent of the equity requirement of their purchase.

* Financing Is Provided Through FDIC Guarantee: If the seller accepts the purchase price, the buyer would receive financing by issuing debt guaranteed by the FDIC. The FDIC-guaranteed debt would be collateralized by the purchased assets and the FDIC would receive a fee in return for its guarantee.

* Private Sector Partners Manage the Assets: Once the assets have been sold, private fund managers will control and manage the assets until final liquidation, subject to strict FDIC oversight.

All of this hinges on two points:

1.) The banks wanting to sell an asset, and

2.) Private bidders arriving at a price the banks are willing to take.

These two points are critical.  There is nothing forcing banks to participate in the program.  And that is the real problem.  And there is a big reason keeping the banks from participating: finding out that various assets aren't worth anything.

However, assuming banks are willing to play this isn't bad.  I would change a few things -- the most important being the government provided leverage.  I think the private sector should pony up a whole lot more.  But that's just my opinion which is completely unsolicited.

In addition, no plan is perfect.  There are no guaranteed solutions to any of our problems right now.  Specifically, nationalization has a ton of problems associated with it.  However, overall I think this is workable.

Originally posted to bonddad on Mon Mar 23, 2009 at 07:28 AM PDT.

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Comment Preferences

    •  That Is All That Matters (104+ / 0-)

      I am unemployed, on a strict budget, and depleting my savings.  I want to give anything and everything I can to millionaires and billionaires.  I'm ready to write a check right now.  If hedge fund managers won't accept the check, this program might do otherwise.

      You can call me "Lord Bink Forester de Rothschild."

      by bink on Mon Mar 23, 2009 at 07:33:34 AM PDT

      [ Parent ]

      •  And Just How Is This Better Than (43+ / 0-)

        Bernacke/Paulsen?

        Stop feeding Wall Street Weasel Colonies!

        RMD

        The Bushiter's Iraq 2004 - 1268 Dead, about 25K Medivacs and 9000 Maimed... It's the Bushiter Way, wasting other people's money and lives. And it's worse now.

        by RedMeatDem on Mon Mar 23, 2009 at 07:45:39 AM PDT

        [ Parent ]

        •  This time... (70+ / 0-)

          the private sector investors are actually taking the risk first.  It's a clever three-way trap to get the very same financial high-rollers who helped drive (even though most did not make) the speculative bubble that's hit us to fix the liquidity problems in the credit markets it's created.  This is using a fairly modest chunk of change (only about $200b total in the expanded program) to push the entire upper Wall Street class into putting in the rest, but with the taxpayers' money having priority.

          The banks and many of the potential investors really aren't going to have a choice but to participate; they'll all need this to save their hash, one way or another, so I'll bet there won't be any shortage of participants.  The program is structured so that overpricing is highly discouraged, as is failure to successfully manage the purchased loan pools.  

          It's the exact opposite of the Paulson "let's throw'em some more cash and see what happens" plan.

          Conservito delenda est pro is deleo orbis terrarum!

          by Stwriley on Mon Mar 23, 2009 at 07:57:29 AM PDT

          [ Parent ]

            •  For once I agree with you (22+ / 0-)

              Even calling them investors is too nice.  This is more like protection money.

              •  That's crazy! This is not a (12+ / 0-)

                good situation to be in but this plan is actually pretty good.  That's assuming that you agree that something needs to be done.  If you think we should just let it all go - that's a different arguement.  The only big mistake that can be made here is overpaying for assets.  If the private sector partners buy the assets right, then money will be made and the TARP program will get its money back.  It may take 5 years, but it's all in what you pay for the assets.  This needs BILLIONS in private equity to go a long way so the goverment leverage is a smart way to make that happen.

              •  It is protection money. And this plan is good. (5+ / 0-)

                Why?

                Well, everyone knows the Treasury is totally in hock to the big banks anyway. Treasury by itself can't stand up to Goldman even if it wanted to.

                So if they did this plan on their own they'd mos def be overpaying.

                BUT: call in some hedgies at your back and alla sudden the Goldman boys don't look so intimidating anymore. You can pay a more reasonable price for the assets, thanks to your protection money.

                IMF Timmy gets pushed around at the lunchyard by Goofus Goldman. He gets pushed around by Hulk Hedgie in th'other direction. So he calls in both of them to push him at the same time and thereby attains equilibrium.

                If we had any sort of democratic control over macroeconomic policy in this country, such a payoff wouldn't be necessary. But for now it is.

                I think Timbo 'n Summers should be awaiting trial at the Hague right now for their actions at the IMF and World Bank. But given the lay of the land this plan isn't half bad.

                Which just shows how important it is for us to change the lay of the land from below.

                Bottom Line: We do not run this thing. Banks and hedge funds do. Under present circumstances the best course of action for IMF Timmy is to set them off against each other.

                The Enemy ('08): McCain/Palin........The Enemy ('09): Geithner/Summers

                by slaney black on Mon Mar 23, 2009 at 01:36:46 PM PDT

                [ Parent ]

            •  Yeah, they are (21+ / 0-)

              only looking at 3% of the risk. It's a ridiculous calculus leaving the taxpayer with 97% of shit.

              And that last word is exactly the problem. As bondad correctly points out this plan fails if the banks don't think the assets are worth anything.

              What's a fucking CDS worth now? Those billions of dollars of unleveraged bets on mortgages to default or not? Anyone?

              NOTHING.

              NOT. A. FUCKING. THING.

              The only one stupid enough to buy this plan is apparently the American taxpayer. I don't even think Timmeh believes in the shit he is trying to sell.

              DelicateMonster a slightly left of center reading experience

              by DelicateMonster on Mon Mar 23, 2009 at 08:58:58 AM PDT

              [ Parent ]

              •  Apparently, they're worth (7+ / 0-)

                whatever the government will pay to keep the European banking system stable...

                "All governments lie, but disaster lies in wait for countries whose officials smoke the same hashish they give out." --I.F. Stone

                by Alice in Florida on Mon Mar 23, 2009 at 09:35:44 AM PDT

                [ Parent ]

                •  Gee, whiz. A new Marshall Plan.... (3+ / 0-)
                  Recommended by:
                  Kimberley, sapper, DelicateMonster

                  How nice of us.

                  Droogie is as Droogie does....

                  by vets74 on Mon Mar 23, 2009 at 09:51:27 AM PDT

                  [ Parent ]

                  •  Ya know, (13+ / 0-)

                    if it was a new Marshall plan for Europe (or America)I wouldn't mind so much because at least someone nominally deserving would get something out of it.

                    But this is a plan designed to prop up a casino culture which is corrupt from top to bottom and leaves all the rest of us that much poorer for it. Not only do we lose a fortune for the next few generations but we continue to keep on life support a corrupt system that is busy destroying the environment and is entirely unsustainable anyhow.

                    It's the ultimate 'fuck you' from the plutocrats. And what's worse, it will seal the fate of the progressive movement for the next century if it goes through because Obama will OWN this piece of shit.

                    DelicateMonster a slightly left of center reading experience

                    by DelicateMonster on Mon Mar 23, 2009 at 09:55:35 AM PDT

                    [ Parent ]

                    •  So what is the alternative? (1+ / 0-)
                      Recommended by:
                      Yoshimi

                      I agree with you that this does aide the very people who got us in this mess, but the alternative was politically a third rail. "Let them fail" should have been our mantra from the beginning. It would have flushed out the system of these toxic assets the natural way plus it would have allowed us to decentralize the banking system so no company is called "too big to fail".

                      But that position was called irresponsible and politically a non-starter. Given that, what could Obama do, but what he is doing now?

                      http://www.democraticfreedomcaucus.org/dfc-platform/

                      by Common Cents on Mon Mar 23, 2009 at 10:18:13 AM PDT

                      [ Parent ]

                      •  He can still do the (6+ / 0-)

                        'let them fail'

                        Why can't he? Wouldn't it be more irresponsible to continue to let them exist in their current corrupt and corrupting form?

                        Vet74 had a good post on an alternative: it's called Chapter 11.

                        Besides, it's arguably true that critters like AIG are NOT too big to fail.

                        Even so, I think we should be treating these things like trusts and come in like Teddy Roosevelt and the trust busters--if they're too big to fail, they're too big to exist.

                        Break them up.

                        DelicateMonster a slightly left of center reading experience

                        by DelicateMonster on Mon Mar 23, 2009 at 10:25:26 AM PDT

                        [ Parent ]

                        •  What about the money already invested? (1+ / 0-)
                          Recommended by:
                          Yoshimi

                          We've already invested billions in these companies, and much of it before Obama was elected. So to walk away is to walk away from an investment. President Obama is attempting to do what he can to recoup the money already invested by taxpayers. This might be a matter of the sunk-cost fallacy, but he is trying and the plan is plausible.

                          I'm with you though. I think "let them fail" should be our policy. The government could use the billions to ease the fall for taxpayers when jobs are lost and credit freezes while the toxic people and assets are flushing.

                          http://www.democraticfreedomcaucus.org/dfc-platform/

                          by Common Cents on Mon Mar 23, 2009 at 10:33:11 AM PDT

                          [ Parent ]

                          •  An intervention or (7+ / 0-)

                            chapter 11 IS NOT walking away. It's stripping them over whatever assets they have, firing the staff and letting them think about what bad morons they've been.

                            The elitist like to use the term 'moral hazard' in describing the rules they set up to keep little people (us) frightened and fearful, but apparently they are too important to have it applied to their own incompetence. I think we need to revisit the term and see how it can be applied to some of the biggest assholes on earth.

                            DelicateMonster a slightly left of center reading experience

                            by DelicateMonster on Mon Mar 23, 2009 at 10:46:05 AM PDT

                            [ Parent ]

                          •  moral hazard is not elitist, it is real and means (1+ / 0-)
                            Recommended by:
                            DelicateMonster

                            when rewards grow too high, obvious risks are not addressed or accounted for (either consciously or subconsiously).  Little people (as you call them) are largely immune given they haven't received jack shit in the way of reward, at least sufficent enough to blind their eyes to the glaring risks.  Everyday people don't typically own buildings they can torch for the insurance payout.

                            This whole clusterfuck from the top down is from a society that largely ignored the reality of moral hazard and convinced itself the "markets" would correct themselves, hence, needed no government intrusion via regulation and enforcement.  $$$ eased the guilt from knowing this was bound to blow to fuck up eventually.  In the end, NO ONE is immune to moral hazard.

                            Further, moral hazard has nothing to do with social or financial standing.  It addresses a fundamental flaw in human nature that when enough gold is placed on the table, man is fully capable of acting against his own self interest (if the price is right).  It's also why most of us know that Ayn Rand is full of shit.

                            Ignoring maintenance to improve profit is just one example of moral hazard.  Anybody ever told you "we cannot afford to fix XYZ, as it will impact the bottom line"?  If yes, they just violated moral hazard.

                            Democracy becomes a government of bullies tempered by editors. Ralph Waldo Emerson [So where have all the editors gone? rolling thunder]

                            by rolling thunder on Mon Mar 23, 2009 at 02:05:57 PM PDT

                            [ Parent ]

                          •  Same fallacious argument used to prolong wars, (4+ / 0-)
                            Recommended by:
                            maracucho, denise b, lotlizard, chrome327
                            even when the wars are illegal and hopeless.  

                            "We can't pull out now, we've already invested a lot of blood and treasure."

                            We must investigate where our money went in the last bogus bail-out and recoup as much of it as we can.

                            This new "plan" has been devised by the same people, Geithner & Summers, who thought deregulation and a lack of transparency was a good idea, which got us into this economic tailspin, and, as would be expected, doesn't benefit We the People.  

                            We need to press the pause button (which is what I said about the last bail-out) and listen to the nobel laureates, Stiglitz and Krugman, who advocated  for regulation and transparency, and were right.

                            This plan is full of confusing twists and turns, and I do not see that it rectifies the problem with transparency or regulation.  It's just more of the same gambling, but according to the NY Times, We the People, will cover the losses of the investors, but the investors get to keep their winnings.
                            U.S. Details Plan to Buy Up to $1 Trillion in Risky Assets

                            If the mortgage pool turns bad and runs big losses, the private investors will be able to walk away from their F.D.I.C. loans and leave the government holding the soured mortgages and the bulk of the losses.

                            Information is the currency of democracy. ~ T.J.

                            by CIndyCasella on Mon Mar 23, 2009 at 12:34:27 PM PDT

                            [ Parent ]

                          •  Econ 1a: Sunk cost. (0+ / 0-)

                            To avoid starting dumb wars, punish the dumb people who vote for them.

                            by joesig on Mon Mar 23, 2009 at 07:04:55 PM PDT

                            [ Parent ]

                    •  The Democratic Party Already Owns (0+ / 0-)

                      if it goes through because Obama will OWN this piece of shit

                      TARP and the auto bailout program. In for a penny, in for a pound.

                      <div style="font-size:10px;text-align:center;background-color:#ffd;color:#f33">If the terriers and bariffs are torn down, this economy will grow - G. Bush

                      by superscalar on Mon Mar 23, 2009 at 12:14:35 PM PDT

                      [ Parent ]

                    •  look on the bright side! (1+ / 0-)
                      Recommended by:
                      DelicateMonster

                      Mother nature will make all this moot very soon anyway.  

                      We still have no real plan to address climate change which is a diesel powered express train headed straight for us at top speed with no brakes.

                      Yes, I am psychic...or was that psycho? I always forget which.

                      by Farradin on Mon Mar 23, 2009 at 03:16:29 PM PDT

                      [ Parent ]

              •  Let's be informed ... (15+ / 0-)

                Brad DeLong, a left-leaning economist, has an extensive FAQ on the Geithner plan.

                As opposed to the name calling that predominates here, he takes a "on the one hand" and "on the other" approach to the plan.

                Q: What is the Geithner Plan?

                A: The Geithner Plan is a trillion-dollar operation by which the U.S. acts as the world's largest hedge fund investor, committing its money to funds to buy up risky and distressed but probably fundamentally undervalued assets and, as patient capital, holding them either until maturity or until markets recover so that risk discounts are normal and it can sell them off--in either case at an immense profit.

                Q: What if markets never recover, the assets are not fundamentally undervalued, and even when held to maturity the government doesn't make back its money?

                A: Then we have worse things to worry about than government losses on TARP-program money--for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition.

                Q: Where does the trillion dollars come from?

                A: $150 billion comes from the TARP in the form of equity, $820 billion from the FDIC in the form of debt, and $30 billion from the hedge fund and pension fund managers who will be hired to make the investments and run the program's operations.

                Q: Why is the government making hedge and pension fund managers kick in $30 billion?

                A: So that they have skin in the game, and so do not take excessive risks with the taxpayers' money because their own money is on the line as well.

                Q: Why then should hedge and pension fund managers agree to run this?

                A: Because they stand to make a fortune when markets recover or when the acquired toxic assets are held to maturity: they make the full equity returns on their $30 billion invested--which is leveraged up to $1 trillion with government money.

                Q: Why isn't this just a massive giveaway to yet another set of financiers?

                A: The private managers put in $30 billion and the government puts in $970 billion. If we were investing in a normal hedge fund, we would have to pay the managers 2% of the capital and 20% of the profits every year. In this case, the private managers' returns can be thought of as (a) a share of the portfolio's total return proportional to their 3% contribution, plus (b) a "management incentive fee" of (i) 0% of the capital value and (ii) between 0% (if the portfolio returns 3% per year) and 9% (if the portfolio returns 10% per year)--much less than hedge-fund managers typically charge.

                Please feel free to call Geithner names, but maybe understanding the constraints for the administration will help illuminate why they're doing what they're doing ...?

                "Self-regulation is to regulation as self-importance is to importance." Willem Buiter

                by Bronxist on Mon Mar 23, 2009 at 09:58:08 AM PDT

                [ Parent ]

                •  Sorry Bronxist (12+ / 0-)

                  Brad delong blew it in the first graph:

                  probably fundamentally undervalued assets

                  That's just a bullshit guess and I think it's dramatically, horribly wrong.

                  Fundamentally we know it's wrong because every single sharp sharp person in the market won't touch these things with a ten foot pole--why should they?

                  They're fucking worthless bets that shouldn't get paid off. The term 'assets' itself is a LIE. I don't call my Uncle Teddy's bet on his last ten horses an asset--especially if I don't know if the last horse wins or not. I call it a risk. Pure and simple.

                  He get's worse the more you read. This whopper for example:

                  What if markets never recover, the assets are not fundamentally undervalued, and even when held to maturity the government doesn't make back its money?

                  A: Then we have worse things to worry about than government losses on TARP-program money--for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition

                  Is a pure scare tactic. We only have to worry about that if government is stupid enough to continue to fund this monstrosity. Just because wall street takes a big shit doesn't mean mainstreet has to die on the vine. All the money being spent to keep this house of cards from tumbling should be sent out in the form of stimulus --government infrastructure projects, environmental projects, etc., to the broader economy.

                  We are exactly where we were in the Great Depression and Roosevelt's funding of public works project is what managed to save the day. He nationalized the banks and reregulated them and dumped money into the broader economy where it could do some good.

                  The only way we get to "a world in which the only things that have value are bottled water, sewing needles, and ammunition" is precisely if all the money we spend is to aide the fucking banksters and plutocrats who might never reinvest it anyhow.

                  There's no reason to help these assholes. They're already toasts--they just won't admit it.

                  Fuck them and forget them. Invest in the broader economy and let the banksters have a bake sale.

                  DelicateMonster a slightly left of center reading experience

                  by DelicateMonster on Mon Mar 23, 2009 at 10:42:20 AM PDT

                  [ Parent ]

                  •  Funny thing ... (7+ / 0-)

                    Krugman says the same in a cover-my-ass kind of an aside slipped into his morning's jermiad in the NY Times...

                    Yes, troubled assets may be somewhat undervalued.

                    So, we're really arguing whether they are somewhat undervalued (Krugman) or fundamentally undervalued (DeLong) or substantially undervalued (Geithner).

                    And only one of these three has access to the contracts that define these assets (Geithner). The other two are guessing.

                    "Self-regulation is to regulation as self-importance is to importance." Willem Buiter

                    by Bronxist on Mon Mar 23, 2009 at 10:53:30 AM PDT

                    [ Parent ]

                    •  Trouble is Geithner (4+ / 0-)
                      Recommended by:
                      mithra, lightfoot, MrJayTee, Johnny Q

                      has a very strong motivation to suggest their undervalued --even if they're not.

                      In fact, I'd be really afraid of this clown if he even hinted that they were NOT undervalued--he thinks it's in his job description to keep this monstrosity  running. As you note, Krugman is doing this by way of professional CYA--I bet in his heart of hearts he thinks it's a shit pile too.

                      IN fact, your delicately lifted quote left up some hefty opinion--which is pretty much in line with my own:

                      If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the "cash for trash" plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.

                      This is more than disappointing. In fact, it fills me with a sense of despair.

                      And the sad truth is, Krugman's despairing because he like most every other sentient being on this planet knows it's just a big pile of worthless shit.

                      But he's got some advice you should read:

                      Right now, our economy is being dragged down by our dysfunctional financial system, which has been crippled by huge losses on mortgage-backed securities and other assets.

                      As economic historians can tell you, this is an old story, not that different from dozens of similar crises over the centuries. And there’s a time-honored procedure for dealing with the aftermath of widespread financial failure. It goes like this: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books.

                      That’s what Sweden did in the early 1990s. It’s also what we ourselves did after the savings and loan debacle of the Reagan years. And there’s no reason we can’t do the same thing now.

                      But the Obama administration, like the Bush administration, apparently wants an easier way out. The common element to the Paulson and Geithner plans is the insistence that the bad assets on banks’ books are really worth much, much more than anyone is currently willing to pay for them. In fact, their true value is so high that if they were properly priced, banks wouldn’t be in trouble.

                      And so the plan is to use taxpayer funds to drive the prices of bad assets up to "fair" levels. Mr. Paulson proposed having the government buy the assets directly. Mr. Geithner instead proposes a complicated scheme in which the government lends money to private investors, who then use the money to buy the stuff. The idea, says Mr. Obama’s top economic adviser, is to use "the expertise of the market" to set the value of toxic assets.

                      But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets.

                      The likely cost to taxpayers aside, there’s something strange going on here. By my count, this is the third time Obama administration officials have floated a scheme that is essentially a rehash of the Paulson plan, each time adding a new set of bells and whistles and claiming that they’re doing something completely different. This is starting to look obsessive.

                      But the real problem with this plan is that it won’t work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.

                      You might say, why not try the plan and see what happens? One answer is that time is wasting: every month that we fail to come to grips with the economic crisis another 600,000 jobs are lost.

                      Even more important, however, is the way Mr. Obama is squandering his credibility. If this plan fails — as it almost surely will — it’s unlikely that he’ll be able to persuade Congress to come up with more funds to do what he should have done in the first place.

                      All is not lost: the public wants Mr. Obama to succeed, which means that he can still rescue his bank rescue plan. But time is running out.

                      Footnote: If you're going to cherry pick quotes, maybe you should read the whole fucking piece.

                      DelicateMonster a slightly left of center reading experience

                      by DelicateMonster on Mon Mar 23, 2009 at 11:05:37 AM PDT

                      [ Parent ]

                      •  I did ... (3+ / 0-)
                        Recommended by:
                        Phoenix Woman, askew, Stwriley

                        But I think he's wrong.

                        Brad DeLong came out saying so as well. So did a few others ...

                        I am not emotionally invested in this ... I think there's a good chance that Krugman is right and a good one that Geithner is too.

                        The only way we'll find out is to give it a few months to see what the economy does.

                        I'm very suspicious of people (like Krugman) that pretend to have complete and utter visibility into what will happen. Much of the future depth of the recession/depression is unknown.

                        Krugman says:

                        But the real problem with this plan is that it won’t work.

                        Well at least that's a testable statement. We'll just have to wait and see ...

                        "Self-regulation is to regulation as self-importance is to importance." Willem Buiter

                        by Bronxist on Mon Mar 23, 2009 at 11:47:23 AM PDT

                        [ Parent ]

                        •  Read the comments in the DeLong piece (1+ / 0-)
                          Recommended by:
                          lotlizard

                          Krugman points out the default rate on the minority of the underlying loan portfolios where we know what is in them is vastly higher than the official estimates

                          so there's no reason to suspect that they are 'undervalued' -- that's just wishful thinking. But there are some very good reasons to suspect they are over valued...

                          This is what Krugman knows in his heart of hearts--and I know it, and you probably know it, too.

                          Find me a few examples of this crap being 'undervalued' --those examples don't exist, they are purely the hallucination of Geithner, et al.

                          So we're fucking around with Timmeh's bullshit, burning through a trillion dollars and six months when we should be nationalizing the banks and getting money to the broader economy for stimulus.

                          In the long run, testing quaint theories with little or no basis in reality might be fun if you are a macroeconomist with nothing better to do and a cozy tenure track. For all the rest of us, 6 months without a job spells live's savings squandered, the loss of homes, the loss of property and real health problems that go untreated.

                          There is no 'long run' to play with here. That's probably why you sense a certain 'emotional investment' in the way some folks are responding.

                          DelicateMonster a slightly left of center reading experience

                          by DelicateMonster on Mon Mar 23, 2009 at 12:57:58 PM PDT

                          [ Parent ]

                          •  Regarding "undervauled" (1+ / 0-)
                            Recommended by:
                            DelicateMonster

                            I'm not a finance professional, so I'm wondering why, if there is a pool of genuinely undervalued assets, there isn't a recognizable trend of at least some experienced and respected investors buying them, knowing how undervalued they are.

                            I know these are uncertain times, but isn't making shrewd decisions in such times part of the game?  If nobody in the private market thinks there is enough of a significant pool of undervalued assets to invest in now without the government's massive help, doesn't that just confirm that we really are standing on a pile of shit?

                          •  Exactly (1+ / 0-)
                            Recommended by:
                            MrJayTee

                            Those investors do exist, and they aren't 'taking advantage' of these so called 'undervalued' funds because their actual 'value' only exist in Geithner's wishful mind.

                            DelicateMonster a slightly left of center reading experience

                            by DelicateMonster on Mon Mar 23, 2009 at 01:46:55 PM PDT

                            [ Parent ]

              •  Something. Lots. Of. Something. (0+ / 0-)

                Krugman and Atrios have gone too far in calling these assets shit, and now many commenters here are deeply misled.

                Think about the math.  90% of mortgages are still performing fine.  That means enormous sums of money are pouring in to the holders of these troubled assets.

                Many of the assets truly are shit -- the ones that are overexposed to the subprimes -- and all are worth less than the banks once hoped.

                Geithner is right that the assets are currently undervalued.

                •  Your missing the boat entirely (2+ / 0-)
                  Recommended by:
                  lotlizard, ChuckInReno

                  it's not the mortgages that are a pile of shit. They may have some residual value. The pile of shit is the bet on the bets on the bets (calmly referred to as CDSs by astute macroeconomists) that are insanely overleveraged gambles on whether these mortgages would sink or swim.

                  The mortgage market by itself is probably not a drop in the bucket. The problem is the fucking casino products these erstwhile banksters made of their banking system. The money bet on the mortgages is exponentially more than anything these mortgages might have ever been worth. Paying OFF those fucking bets is what this trillion dollar loan is all about.

                  It's a fucking confidence game, at bottom--or since I prefer truth in advertising: it's a con game.

                  DelicateMonster a slightly left of center reading experience

                  by DelicateMonster on Mon Mar 23, 2009 at 01:58:01 PM PDT

                  [ Parent ]

                  •  I'm sunbathing on the deck of the boat (0+ / 0-)

                    It's true that many of the MBS are weird derivatives that can be described as bets on bets. But even at an enormous leverage factor, if the underlying mortgages have value, so does the complicated side bet on it.

                    It's not clear to me that the Geithner plan even involves CDSs.  Regardless, the fact that many securities are nearly worthless does not mean that all or even most of the mortgage-related securities are worthless.

                    Bank of America just turned a nice profit in part because of revenue from their MBS.  The shit is shit but it aint worthless shit.

              •  Bonddad also forgot a critical part of this... (1+ / 0-)
                Recommended by:
                lotlizard

                ...the underlying documentation for the securities is either nonexistent or woefully incomplete.

                They're going to have these funds looking through the assets/securities and realize there really is nothing there from a legally-enforceable perspective.

                They are giving another $1 trillion away to the crooks.

                It IS extortion, plain and simple.

                Send your old shoes to the new George W. Bush library.

                by maxschell on Mon Mar 23, 2009 at 05:44:31 PM PDT

                [ Parent ]

            •  This Was Krugman's Exact Take (5+ / 0-)

              two weeks ago when he got wind of Geithner's "plan".

              Now people here are attacking Krugman.

              weak.

              "The most dangerous thing in any economic crisis is denial". Simon Johnson, MIT

              by Superpole on Mon Mar 23, 2009 at 10:00:05 AM PDT

              [ Parent ]

              •  You know what, this is assinine (3+ / 0-)
                Recommended by:
                Phoenix Woman, askew, malharden

                People are allowed to not like Krugman, just as people are allowed to not like Obama. Krugman has been very critical of Obama lately, and I do like Krugman, but if he can't take it he shouldn't dish it out and I think he gets that people are going to be critical of his writing. People are just annoyed at those who are quoting Krugman without actually knowing what he is saying and acting like Krugman is the authority on everything.

                •  Don't confuse that for dittohead (10+ / 0-)

                  I don't quote Krugman because I think his writing is gospel; I quote Krugman because what he's saying fucking makes sense.

                  I'm rooting for Geithner's success with CDSes exactly the way I'm rooting for Bush's war in Iraq.  America wins if it goes well but it's a horribly stupid and corrupt plan drafted with such dumbass assumptions that I feel obligated to criticize it as a matter of civic duty.

                  As for what the "assets" are worth, Eisman -- the guy who made billions betting against them -- had many colorful four-letter words in describing exactly what they're worth.  They had geniuses analyzing the CDSes and no one could figure out just what the fuck they were.  That was the point.  That's why they pushed for deregulation:  The entire thing was fraud.

                  If they were worth something, people would buy them.  If they were undervalued, people would scramble to buy them.  Every second of Wall Street is spent by hordes of traders looking for undervalued assets; it's Rule #1 in how to make money as a trader:  buy low, sell high.  Yet no one will touch these things.

                  Maybe because the traders know exactly what they sold the first time around.  They're not going to buy back the very bags of dog poop they flooded the market with!

                  We're in this together you idiot. No wonder this country hasn't improved; it's filled with idiots who wave around "Dem" and "GOP" like they're baseball teams.

                  by Dragonchild on Mon Mar 23, 2009 at 11:10:57 AM PDT

                  [ Parent ]

                  •  Umm I wasn't talking about you then obviously (1+ / 0-)
                    Recommended by:
                    askew

                    I was talking about the people who do that. I didn't  respond to you, I responded to superpole, who is all upset because somebody is being critical of Krugman.

                    I don't know why you assumed I was talking about you...

                    •  It's a public forum (2+ / 0-)
                      Recommended by:
                      freakofsociety, chrome327

                      I speak in generalities.  It's not about me, and it's not about you.

                      We're in this together you idiot. No wonder this country hasn't improved; it's filled with idiots who wave around "Dem" and "GOP" like they're baseball teams.

                      by Dragonchild on Mon Mar 23, 2009 at 11:20:01 AM PDT

                      [ Parent ]

                      •  I mean my comment wasn't targeted at you (0+ / 0-)

                        You gave the impression that you thought I was talking about you. I wasn't. I'm just clearing that up. I didn't mean that everyone who quotes Krugman has no clue what they are talking about. Sorry if it came off that way. :o)

                        •  NP, hope I didn't ruffle any feathers myself (1+ / 0-)
                          Recommended by:
                          freakofsociety

                          I don't pull punches with my rhetoric, but trolling ain't my goal.  Hopefully, this all gets us somewhere.

                          We're in this together you idiot. No wonder this country hasn't improved; it's filled with idiots who wave around "Dem" and "GOP" like they're baseball teams.

                          by Dragonchild on Mon Mar 23, 2009 at 12:01:56 PM PDT

                          [ Parent ]

                  •  Exactly (3+ / 0-)
                    Recommended by:
                    magnetics, lotlizard, Johnny Q

                    the CROOKS have again gamed the system, BUT people like freakofsociety are MORE concerned about how the mainstream media is framing this issue, then they are
                    about getting an equitable solution from the very guy who stated "change" is coming to Washington.

                    where's the change?? this is exactly how McCain would have handled Wall St.!

                    "The most dangerous thing in any economic crisis is denial". Simon Johnson, MIT

                    by Superpole on Mon Mar 23, 2009 at 12:04:49 PM PDT

                    [ Parent ]

                  •  Krugman has been right on the money (1+ / 0-)
                    Recommended by:
                    lotlizard

                    in most of his public pronouncements, ever since he started writing for the Times, back around the turn of the new century.

                    As Dragonchild eloquently puts it, he 'fucking makes sense.'

                    The hungry judges soon the sentence sign, And wretches hang, that jurymen may dine.

                    by magnetics on Mon Mar 23, 2009 at 12:51:47 PM PDT

                    [ Parent ]

                    •  He doesn't make sense to me (0+ / 0-)

                      But then again I don't have any clue about any of it. lol There are indeed people here that just quote him because he's Krugman. That's what my comment was about, you don't seem to have gotten the point. I like Krugman myself but people seriously need to get a life if they are all upset because some people don't. Superpole just lashed out because people were "attacking" him. He's put his work out in public, he should expect that not everyone is going to agree with what he says!

                  •  Traders don't invest in undervalued assets (0+ / 0-)

                    Traders mostly trade based off of market action, trying to take advantage of momentum.  Some others may engage in arbitrage trades, taking advantage of mispricing between different linked securities.  For the most part people who are called traders do not go around looking for undervalued assets to buy.  That sort of venture takes a much longer term outlook and a corresponding attitude.  

                    Your take on how the market works, with people buying securities immediately because they are undervalued is incorrect.  Things become undervalued because people are shunning them or afraid to buy them in the first place.  When something is priced cheaply that corresponds to the least interest in purchasing it, and conversely something is pricey you'll find many people clamoring to buy it.  Undervalued assets can also remain undervalued for quite some time.  

                    Don't like XOM and OPEC? What have YOU done to reduce your oil consumption? Hot air does NOT constitute a renewable resource!

                    by Asak on Wed Mar 25, 2009 at 02:54:13 AM PDT

                    [ Parent ]

                •  Here's What Is Asinine: (3+ / 0-)
                  Recommended by:
                  magnetics, lotlizard, Johnny Q

                  for YEARS here columnists like Frank Rich and Krugman were considered heroes, often quoted and diaried, because of their criticism of smirky.

                  but now that there's a new administration, and clearly congress and Obama are stumbling badly, Rich and Krugman are supposed to remain silent?

                  what a Load. it's called hypocrisy.

                  but this is what I expected here in political dreamland.

                  "The most dangerous thing in any economic crisis is denial". Simon Johnson, MIT

                  by Superpole on Mon Mar 23, 2009 at 11:59:08 AM PDT

                  [ Parent ]

                  •  You can be for Obama and still think he's wrong. (1+ / 0-)
                    Recommended by:
                    lotlizard

                    Full disclosure:  I was never for him; supported Hillary; left DKos during the primaries 'cause I thought the place was drowning in Kool-Aid.  Voted for Obama in the general only because Palin scared me so badly.

                    That said -- he's a Democratic president, and I'm a yellow dog Democrat ('Lower than that ye shall not drag me...'); I am therefore invested in his success.

                    And I believe strongly that his success will come from following a simple mantra:

                    No taxpayer cash for Wall St. trash!

                    The hungry judges soon the sentence sign, And wretches hang, that jurymen may dine.

                    by magnetics on Mon Mar 23, 2009 at 12:57:04 PM PDT

                    [ Parent ]

                    •  That's fine that's not what I was saying (0+ / 0-)

                      My comment was about people getting so damn protective over Krugman. And if he's so right, please provide me with an example of how one of his plans has been proven to be correct!

                    •  Atrios at Eschaton blog calls the Wall St. trash (1+ / 0-)
                      Recommended by:
                      magnetics

                      … the "Big Shitpile" and encourages everyone else to do the same, so that people stay focused on the reality and aren't mesmerized by the euphemistic and opaque labels the con artists are trying to attach to the stuff.

                      The Dutch children's chorus Kinderen voor Kinderen wishes all the children of the world a happy holiday season!

                      by lotlizard on Mon Mar 23, 2009 at 06:37:48 PM PDT

                      [ Parent ]

                      •  How is that any more realistic? (0+ / 0-)

                        It's just taking the opposite view, it's not anywhere closer to reality.  

                        Don't like XOM and OPEC? What have YOU done to reduce your oil consumption? Hot air does NOT constitute a renewable resource!

                        by Asak on Wed Mar 25, 2009 at 02:55:22 AM PDT

                        [ Parent ]

                •  Here's What Is Asinine (1+ / 0-)
                  Recommended by:
                  Jay

                  for years here columnists like Rich and Krugman were criticizing smirky,and they were considered heroes, often quoted and diaried.

                  but now that there's a new administration with Obama and congress clearly stumbling badly on a major financial crisis, and Rich and Krugman are supposed to remain silent?

                  what a Load. it's called hypocrisy-- but it's totally what I expected here after the election of Obama.

                  "The most dangerous thing in any economic crisis is denial". Simon Johnson, MIT

                  by Superpole on Mon Mar 23, 2009 at 12:02:26 PM PDT

                  [ Parent ]

          •  Um no (24+ / 0-)

            its not clever at all... and obviously you dont see what they are doing

            its free profit with no risk.,.. you must have missed the part about FDIC backed non-recourse loans

            •  Don't we want to minimize risk right now? (1+ / 0-)
              Recommended by:
              rweba

              Going to people and telling them they have to shoulder the risk while the government (using their tax money as well) will reap the reward is not a path to investment from the private sector. If the government is to get involved in things it is supposed to be the risk taker because it is the entity most able to take losses. Hell, our government has taken a loss most of the years of its existence.

              http://www.democraticfreedomcaucus.org/dfc-platform/

              by Common Cents on Mon Mar 23, 2009 at 09:20:41 AM PDT

              [ Parent ]

              •  The "government reaps the reward"? (2+ / 0-)
                Recommended by:
                James Kresnik, Johnny Q

                That's a bizarre statement.

                Explain to me how the "government reaping the reward" is different from "taxpayers getting their money back" again?

              •  What the hell? (7+ / 0-)

                Going to people and telling them they have to shoulder the risk while the government...will reap the reward is not a path to investment from the private sector.

                If the government is to be involved, then IMO that means that the private investors need the government involved.  For some reason, you seem to think it's the other way around.  It's not- there are plenty of private investors, it's just that the Big Banks don't want to accept the prices they're offering.  And Geithner is giving the Big Banks a way out, at the expense of the taxpayer.

                If the government is to get involved in things it is supposed to be the risk taker because it is the entity most able to take losses.

                This is just silly.  'The government should take all the risk because it's the government'?!?!?  WTF?  It is that type of "lose all you want, we'll just print more money" attitude that makes most independent voters not trust liberals on economic policy either.  That kind of recklessness will earn no support.

                Civic spirit drowns in a hurricane of mere survivalism - McKenzie Wark

                by cfaller96 on Mon Mar 23, 2009 at 10:00:19 AM PDT

                [ Parent ]

                •  RE: (1+ / 0-)
                  Recommended by:
                  lotlizard

                  Actually that is not the case. It was the government that declared things "too big to fail" and it is the government saying they need to bail them out. In fact, we could let those that cheated and made terrible business investments fail and then the government could simply help direct the acquisition of assets by other companies. The government did not have to pour money into the system. Allowing the vipers to go bankrupt would have flushed out the system and we could be left to deal with those in the industry that are reliable, decent people.

                  I don't advocate the government pouring in money, but if they are going to do so it is because they are most able to take losses. That is the rationale right now. The government is taking the risk because with the government risk is not a problem. Don't forget also that those we are bailing out also pay taxes and the investors also pay taxes, so they will be doubly risking because they pay on both ends.

                  http://www.democraticfreedomcaucus.org/dfc-platform/

                  by Common Cents on Mon Mar 23, 2009 at 10:15:02 AM PDT

                  [ Parent ]

                  •  You ignore Moral Hazard, then? (2+ / 0-)
                    Recommended by:
                    lotlizard, DrFitz

                    I don't advocate the government pouring in money, but if they are going to do so it is because they are most able to take losses. That is the rationale right now. The government is taking the risk because with the government risk is not a problem.

                    Surely you would agree that in an extraordinary scenario where the government has to get involved, the government involvement must avoid enabling and creating a Moral Hazard problem?  Surely you would agree that preventing investors from being allowed to fail creates newer problems down the road?

                    By blithely saying that 'government should take all the risk', you do realize that you are creating a Moral Hazard, don't you?

                    Civic spirit drowns in a hurricane of mere survivalism - McKenzie Wark

                    by cfaller96 on Mon Mar 23, 2009 at 10:29:48 AM PDT

                    [ Parent ]

                    •  Great point. (2+ / 0-)
                      Recommended by:
                      lotlizard, cfaller96

                      I think the Moral Hazard problem is why the government should avoid intervening whenever possible. I think this is why we should have let the toxic assets take down the serial gamblers that invested in them. But we did not do that.

                      Given where we are, with billions invested already in these companies, and a desire to maintain a market economy, we have to encourage private investment in banks and companies that no sane investor would invest. So, the government will have to take most of the risk to make that possible. To the extent the government can regulate and maintain a watchful eye on investors this can work. But the risk will have to be on the side of government if there is any desire to encourage private investment because otherwise there is no incentive to buy up toxic assets.

                      http://www.democraticfreedomcaucus.org/dfc-platform/

                      by Common Cents on Mon Mar 23, 2009 at 10:38:15 AM PDT

                      [ Parent ]

                      •  One way to do that... (1+ / 0-)
                        Recommended by:
                        lotlizard

                        ...we have to encourage private investment in banks and companies that no sane investor would invest. So, the government will have to take most of the risk to make that possible.

                        I agree, I just think that the need to get private investment moving again is not the biggest or the first problem here.  Also, if the government is going to intervene by absorbing risk, it should get a greater amount of the reward as compensation for this risk- i.e., receivership/nationalization/whatever will make Glenn Beck institutionalize himself.  Receivership will also wash out previous investors and thus eliminate the Moral Hazard.

                        There's nothing new or exotic about receivership.  The FDIC has been doing this for decades.

                        Civic spirit drowns in a hurricane of mere survivalism - McKenzie Wark

                        by cfaller96 on Mon Mar 23, 2009 at 11:53:46 AM PDT

                        [ Parent ]

          •  How will these assets regain value (26+ / 0-)

            without simply perpetuating the problems that created the crisis?

            If we assume that the assets are real estate, and the objective of this plan is to stabilize the value, doesn't that also assume there is a real life market for the property? The problem is that the people are not an abstraction, they either have the ability to buy these overpriced properties or they don't. Income is declining, the properties cost too much, there is no market unless the liar loans are returned.

            Repeat.

            •  It all boils down to this question: (7+ / 0-)
              Recommended by:
              ferg, pletzs, odum, kck, J Royce, lgcap, HKPhooey

              Is there something fundamentally wrong with the deregulate-everything market fundamentalism that has guided most "serious" politicians from both parties since 1978 or so and that really took off in the 1990s, or do we just need to blow a little more hot air into the bubble to see it float up high again?

              Summers, Geithner, and bonddad unsurprisingly take the second point of view, as does our President.

              I doubt very much that Summers, Geithner, bonddad and their fellow true believers can be budged from this view.

              Let's hope President Obama can be.

              Self-styled progressives who call for balanced budgets are not merely parroting conservatives; they are parroting dead conservatives. - James Galbraith

              by GreenSooner on Mon Mar 23, 2009 at 09:17:49 AM PDT

              [ Parent ]

              •  Bite your tongue (16+ / 0-)

                bonddad may not be perfect, but he does not deserve to be grouped with Summers or Geitner...either ideologically or in terms of influence. He has never been a "true believer," he has been one of those voices in the wilderness warning that a clusterf*** was immiment for many years now.

                "All governments lie, but disaster lies in wait for countries whose officials smoke the same hashish they give out." --I.F. Stone

                by Alice in Florida on Mon Mar 23, 2009 at 09:39:08 AM PDT

                [ Parent ]

              •  I'd characterize that a little differently... (9+ / 0-)

                Firstly, yes they ARE trying to reinflate the bubble, at least a bit. It gives them room to breathe. It's hard to beat Wall St. about the metaphorical head and shoulders while they're lying on the ground. It makes sense to pick them up by their collar, then apply the right cross.

                Secondly, the economy needs credit to flow again. We could build a completely new banking system from scratch, but its much quicker to jump start the old one to get us moving again, THEN shop for a new engine. Also, no amount to future reform is simply going to make these assets disappear (and if they did, all the banks would really be broke). We have to deal with them, regardless what else we do.

                Thirdly, we can't see for sure that it will be different this time, yet. We definitely need to keep the pressure on so that once the bubble starts to revive, the regulations we need to keep the economy from spiraling out of control again are enacted. So keep sounding that alarm horn.

                ...we reject as false the choice between our safety and our ideals.
                -- Pres. Barack H. Obama, Jan. 20, 2009

                by davewill on Mon Mar 23, 2009 at 10:05:58 AM PDT

                [ Parent ]

                •  good luck getting that new engine (2+ / 0-)
                  Recommended by:
                  GreenSooner, lgcap

                  If past experience is any guide, once the financial markets stabilize (if they do), most decision-makers will stop right there, idling the system until the next crisis, by which time a new, more courageous generation may have taken their place.

                  •  That's where I'm expecting Obama to be different. (3+ / 0-)

                    But I'm not only counting on that, we have to push and push hard. That's why I gratified to see the outrage against AIG, etc... We're going to need that outrage to help force tough regulation through Congress.

                    ...we reject as false the choice between our safety and our ideals.
                    -- Pres. Barack H. Obama, Jan. 20, 2009

                    by davewill on Mon Mar 23, 2009 at 11:10:46 AM PDT

                    [ Parent ]

            •  That's exactly the problem with (2+ / 0-)
              Recommended by:
              lgcap, HKPhooey

              Obama's approach - all it is is a desperate bid to bring back the perpetual-growth, free-trade fantasy where the middle class and the poor get screwed and rich get richer.  

            •  This comment assumes (1+ / 0-)
              Recommended by:
              3goldens

              that the price of the "assets" that are being purchased will settle in at level of the inflated mortgages on the "overvalued properties." The Obama plan (and it is ultimately the Obama plan) allows the market to set the value, which theoretically will be at a level well below that upon which the bad loans were based.

              The real problem with the plan is that it is a payoff to the banks (ultra-wealthy) who are holding a gun to their own head and saying, "if you don't allow us to continue to make obscene amounts of money, we'll pull the trigger."  I say let them pull the trigger, but I'm not the president (thank God).

              •  How do the subsidies (1+ / 0-)
                Recommended by:
                lotlizard

                (let's call them what they are) allow the market to set the value? If "the market" participates in the plan it will be because the market determined the honest value of the assets to be the amount they are willing to risk. Obviously, the new, artificial, value is not an honest valuation or the government money would be unnecessary.

          •  Also, significant upside for the taxpayer (20+ / 0-)

            See Brad Delong:  http://delong.typepad.com/...

            If the economy recovers, the taxpayers make a lot of money on this deal.  If it doesn't, we're all screwed anyway.

            •  Why take this risk? (4+ / 0-)

              If it doesn't, we're all screwed anyway.

              Why not spend the money directly on helping citizens, rather than propping up assets that have no market value?

            •  The economy will not merely have to recover (7+ / 0-)

              The "value" of these assets, as far as the banks are concerned, is what the banks paid for them. As bonddad points out, no other known value exists and the banks have been desperately fending off efforts to find out what their value is ("mark to market"). As Ezra Klein points out, they are only concerned with valuation as it relates to profit and loss, in this case against the money they put up to buy their piece of Big Shitpile.

              But those pieces were paid for at prices set during a completely unsustainable real estate bubble. We are now falling into a deep recession, and we have to let housing prices fall to some sane multiple of average income—which has been suppressed for 30 years. So for the assets to be valued at anything like their purchase price we will need either massive increases in employment and in wages or inflation or both, because the alternative—inflating another bubble—is both impracticable and undesirable to anyone who was not caught with "legacy assets."

              In short, we have to radically restructure the entire economy to become a high-wage, high-property-ownership economy, more like the New Deal than anything else, in order for anyone to make a profit on these investments. Now, perhaps, this is all part of a Cunning Plan to yoke Wall Street to Main Street. But it seems more likely, given the rabid opposition that Big Finance will have to any such restructuring, that in fact that reverse will happen and we'll be trapped in a recession by Big Finance's refusal to give up all their hard-earned gains in deregulation (not just here, but in London, Dubai, Cayman, etc.) and leveraging and degradation in wages and labor and environmental laws. It's going to be ugly.

              [F]or too many, the cruelty of our system is part of its appeal. - eightlivesleft

              by oldjohnbrown on Mon Mar 23, 2009 at 09:30:23 AM PDT

              [ Parent ]

              •  They don't participate? (1+ / 0-)
                Recommended by:
                oldjohnbrown

                If banks choose not to sell or investors choose not to buy, then no money gets spent and it's time for Plan B (in the midst of a populist uproar).  

                2009: Year of the Donkey. Let's not screw it up.

                by Yamaneko2 on Mon Mar 23, 2009 at 09:54:27 AM PDT

                [ Parent ]

                •  They can participate (4+ / 0-)
                  Recommended by:
                  Kimberley, 3goldens, lotlizard, HKPhooey

                  at least enough to keep the torches and pitchforks at bay.

                  What they will not do is allow the fundamental economic restructuring that is necessary to make the taxpayers whole on this investment, and never even mind a profit. This plan just kicks that can down the road a few years, assuming that there's a recovery.

                  The layoffs haven't ended. Housing prices haven't finished falling in all regions. bonddad's 10 year estimate is, in my opinion, generous. Especially since the only way to get there is to undo all the legislation that the financial markets have been working toward since the ink was still drying on the New Deal.

                  [F]or too many, the cruelty of our system is part of its appeal. - eightlivesleft

                  by oldjohnbrown on Mon Mar 23, 2009 at 09:58:15 AM PDT

                  [ Parent ]

              •  There's another alternative to this: (1+ / 0-)
                Recommended by:
                oldjohnbrown

                In short, we have to radically restructure the entire economy to become a high-wage, high-property-ownership economy, more like the New Deal than anything else, in order for anyone to make a profit on these investments.

                Credit-worthy Boomers will respond to the disappearance of their 401ks by abandoning the stock market to buy up the foreclosures to rent out.  

                At the bottom price range, homes sold in 1993 for $100k, 2005 for $350k - $400k (sold to gardeners and housekeepers), foreclosed in 2008 selling for $125k - $138k, now-next $90k - $100k.

                There's a huge market ready to consume these foreclosed assets at the bottom pricing rung, ready to fix up and rent to the growing market for rental homes. As much as half of the banks, however, are holding out in denial. They need to get off their duffs and see what blight their empty inventory is in these low cost but beautifully cared for neighborhoods.  

                So, "for anyone to make a profit on these investments" it depends on who you mean by "anyone". The banks? No. The retirees trying to replace their 401ks? Yes. Absolutely, with 60% of the rent being cash flow. The renters (and previously foreclosed owners)? Yes, they're delighted for the stability and affordability. Jobs? Some, a few, in upgrading the homes. Home prices? Settling at the lower end - a good thing imo as they were too high before. Hurts the Boomers who need to sell with diminishing options, helps the younger people.  

                HR 676 - Health care reform we can believe in - national single-payer NOW.

                by kck on Mon Mar 23, 2009 at 10:25:14 AM PDT

                [ Parent ]

          •  Any plan that assumes a "liquidity problem".... (32+ / 0-)

            ...is DOA. There are a lot of flaws in this plan, but the major one is that the credit market is frozen not because of a lack of "liquidity," but because of a lack of SOLVENCY. Consumers and businesses have waaaayyy too much debt on their balance sheets. They are not going to borrow more -- or at least nowhere near the level they were borrowing pre-2008 -- for decades. And banks realize this, which is why they are tightening credit standards and only lending to the most prime of prime borrowers.

            If the plan involved massive debt forgiveness, then it might have some rationality behind it.

            In addition, the whole credit bubble was ultimately fueled by the housing bubble -- the idea of infinitely and exponentially soaring home values which provided an ever-expanding asset foundation for securing new debt. But the housing bubble has burst. Housing prices will fall even more and eventually stabilize at a much lower equilibrium, but there will not be a new housing bubble in the foreseeable future. That's as certain as the law of gravity.

            But, hey, if we all wish hard enough, it just might work.

            -7.75, -7.64 www.politicalcompass.org "In the conservative lexicon, 'freedom' means the right to starve to death without anyone giving a shit." -- Me

            by scorponic on Mon Mar 23, 2009 at 08:52:54 AM PDT

            [ Parent ]

          •  I don't see (2+ / 0-)
            Recommended by:
            costello7, Man from Wasichustan

            how they are required or forced to participate.

            Rise like lions after slumber in unvanquishable number. Shake your chains to earth like dew, which in sleep had fallen on you. Ye are many - they are few.

            by cruz on Mon Mar 23, 2009 at 08:56:18 AM PDT

            [ Parent ]

          •  So essentially all these investors have (12+ / 0-)

            heaps and heaps of cash they're sitting on waiting for the government to make the first move and take most of the risk?

            How's this for a plan instead. Tax, tax and more tax where ever their money is hidden but give them the option of avoiding these taxes if they invest in the American economy by buying up the bad assets and even more as they put them to use by filling the commercial real estate aspect of it with newly employed Americans?

            It would be a win/win for the common folk for a change.

            Unlike FDR, this government seems either afraid to take on the aristocracy, or is too much trusting in it.

            I am a liberal - I question authority, ALL authority.

            by Pescadero Bill on Mon Mar 23, 2009 at 08:58:32 AM PDT

            [ Parent ]

          •  Private sector "contribution" is 3% (16+ / 0-)

            Taxpayer is on the hook for 97%.  Partnership indeed.  It's the kind of partnership where you put up all the money and do all the work and your "partner" takes all of the profits.

            The plan should be called Wall Street's "Money For Nothing and Chicks For Free" enrichment program.

          •  Do you think that tax law (0+ / 0-)

            should be structured to control the "gambling" on dangerously leveraged "investments" (bets) by too-big-to-fail investment banks?
            For example, "investments" could be rated for income tax purposes based on the degree of leverage they embody.
            There'd be a sliding scale of income tax rates, increasing with the degree of leverage involved.

            So, for example, purchasing a UST Note with cash has zero leverage and would carry the lowest "level 1" tax rate - say 15% on income/profits.
            whereas purchasing a credit default swap which may have, say, 50 times leverage associated with it, would have a high, say "level 10" tax rate - maybe 90% on any profits.

            This might work to substantially dampen dangerous bets in the financial markets.
            And this year, it would work to compensate the taxpayer for AIG bailout money that immediately went out the door to pay off counter parties on AIG's losing CDS.

            The justification for this tax policy is that these hugely leveraged bets inherently destabilize our financial markets. This tax policy, I think, would strongly discourage but not inhibit highly risky behavior at too-big-to-fail financial institutions.

          •  But taxpayers guarantee investment losses. (1+ / 0-)
            Recommended by:
            Johnny Q
            So, if they toxic assets go up, investors win,
            and if they go down, we pay the investors.

            No matter what, we the taxpayers end up holding the bag.

            It's a kind of clever shell game.  It's the same plan, but with the investors thrown in to confuse and obfuscate.

            I give up.  They are too clever at selling their toxic ideas, wars, and rip-offs by halves:  they control the mainstream media, and the public is too gullible, having swallowed mushroom clouds, yellowcake, deregulation, trickle down economics, star wars, FISAAA, torture, the surge, Saddam Hussein being behind 9/11, the bail-out or the sky will fall meme, ...

            Just shake us down.  Take all of our money.  Take our healthcare coverage.  Take our kids' education.  Take our homes.  Take our jobs.

            It's just too exhausting to try to warn people to stop allowing the deregulators who got us into this mess (Geithner, Summers, et al.) to make up the "recovery plan," which will further bilk us.

            I think I'll just go live my life to the fullest now, because my life expectancy is going to go down after I lose my healthcare coverage and any prospect of ever finding a good job.

            Information is the currency of democracy. ~ T.J.

            by CIndyCasella on Mon Mar 23, 2009 at 11:44:32 AM PDT

            [ Parent ]

        •  This is an auction... (0+ / 0-)

          the investors know what thy are getting to a certain extent...In the CDS market not all the assets are 'toxic'! The paulsen/bush plan was a gemme bailout with NO RESTRICTIONS!  This is a buy and hold game!

        •  It's a good plan and could work. Period. (0+ / 0-)
      •  me too...these *poor* bastards need the change (9+ / 0-)

        in my purse more than I do.

        Can I send a baggie with pennies through the mail?

        ~"Im in ur economy socializin yer medicine" -Omir the Storyteller~

        by CWalter on Mon Mar 23, 2009 at 08:03:48 AM PDT

        [ Parent ]

      •  Great Idea (0+ / 0-)

        I'm sure someone will put an ad in the WSJ asking for public support because too many people are getting laid off to pay enough taxes.  So we can have not just taxes for corporate american and the financial system....but tithes!  If you only have 80 bucks in your checking account send in a check for 8 dollars!

    •  This is my concern. Will this simply (57+ / 0-)

      further enrich the hedge fund managers at my expense? I am still struggling to understand how this all will work. Speculative private investment got us into this mess. why should we believe that it will get us out? And, will this really unfreeze the credit markets which are critical to an economic recovery?

    •  It really depends (6+ / 0-)

      if it's coupled with proper increases to marginal tax rates and fixes in loopholes that have allowed hedge fund income to be taxed as capital gains, we'll be able to recoup the government investment, in the long run, from the same people who are potentially benefitting from it.

      We have to rescue the system before we can fix it, unfortunately. I think that with the right combination of increased regulation and increased taxation, we can fix the system once it's been rescued. But the proper order of operations here is rescue then fix, not fix then rescue (or fix while rescuing), which means there's likely going to be some unpalatable stuff happening along the way.

    •  I think that is what might make this successful. (3+ / 0-)
      Recommended by:
      Minerva, Boston to Salem, crystalboy

      3% down for what could be a huge return is hard to pass up.

    •  There's nothing stopping you/me/anyone (6+ / 0-)

      from getting involved.

      The question here is, are we all willing to make an investment?

      With an investment, America will be restored and come back stronger.  Without an investment, we're headed for another Great Depression, and there won't be a second term for President Obama.  (President Mitt Romney, anyone?)

      You're part of this and you can be part of the solution.

      Justice, mercy, tolerance, hope, love, grace, and redemption are all Judeo-Christian values.

      by Benintn on Mon Mar 23, 2009 at 08:15:12 AM PDT

      [ Parent ]

      •  Yes, because everybody needs toilet paper (0+ / 0-)

        and that's what you'll be buying.  More expensive than the best and more irritating to your cheeks than the worst.  It's win/win people!  (snark)

      •  People aren't going to turn to Romney (0+ / 0-)

        the question is, though, what will they turn to...?

        "All governments lie, but disaster lies in wait for countries whose officials smoke the same hashish they give out." --I.F. Stone

        by Alice in Florida on Mon Mar 23, 2009 at 09:49:27 AM PDT

        [ Parent ]

      •  I don't mind an investment (1+ / 0-)
        Recommended by:
        lotlizard

        but I want it done in a way that I own something when all is said and done, even if its a loan that has to be foreclosed on, I'll still end up owning something in the end.  

        The only way to do that is through re-capitalization.

        A conservative is a man with two perfectly good legs who, however, has never learned how to walk forward. FDR

        by Betty Pinson on Mon Mar 23, 2009 at 10:04:35 AM PDT

        [ Parent ]

    •  Wall St Crooks to taxpayers - thx suckers and (6+ / 0-)

      XOXOXO to O, G, and B.

    •  And who says the "tax payers" even (9+ / 0-)

      want to share in the risk?

      WTF? Is this the best they can do for the tax payers, the common citizen who has already likely taken a beating because his/her 401k was partly invested in this crap to begin with? And whose financial security has been weakened or completely undermined by "free market" ideology as well.

      And as for "the taxpayer sharing in profitable returns"? Give me a break. As soon as any of this looks like it will be profitable, government will sell if off and we, the tax payers, will be lucky to see break even on so called risks.

      HEY! Just be thankful you have a job. And if you don't have a job, maybe, just maybe this will help create some. Unless of course those jobs can be done by people overseas for pennies an hour. Corporate bottom line is paramount!

      If you're not a big time investor, you're just a small time "tax payer" I guess. Unless of course you're not even earning an income, then you're just a statistic.

      Yeah, I'm bitter. Simply because this "plan" to me doesn't seem to address the underlying issues that are the problem with the whole system to begin with, it perpetuates them.

      At tax payer expense and detriment.

      I am a liberal - I question authority, ALL authority.

      by Pescadero Bill on Mon Mar 23, 2009 at 08:47:48 AM PDT

      [ Parent ]

      •  LOL They Already Do (4+ / 0-)

        Like... 100% of it.  We don't have a magic "Make Debt Disappear" button.  Why is it that people assume the cost of doing nothing is zero.  We've been doing "nothing" since 1981.  Do you really think there's no cost?

        If spittle & tooth=vigor & youth Bill-O & Savage won't grow any older If wishes & dreams=bitches & beams We'll all live in skyscrapers bu

        by TooFolkGR on Mon Mar 23, 2009 at 09:09:37 AM PDT

        [ Parent ]

      •  We don't have to have 401Ks invested in (2+ / 0-)
        Recommended by:
        Yoshimi, SingularExistence

        "this crap"...because "this crap" is pulling down the whole market, including companies making useful stuff and having nothing to do with finance other than needing to fund operations and pay people and buy materials, etc....anyone who has a 401K invested in anything will be better off when markets improve.  

        "All governments lie, but disaster lies in wait for countries whose officials smoke the same hashish they give out." --I.F. Stone

        by Alice in Florida on Mon Mar 23, 2009 at 09:53:04 AM PDT

        [ Parent ]

      •  "And, btw, (2+ / 0-)
        Recommended by:
        ferg, Pescadero Bill

        you unwashed masses of stupid taxpayers can forget about universal health care, education for your kids, social security, medicare, etc.  We just can't afford those things anymore (especially after completely looting the ss trust fund to prop up insolvent banks).  We can't leave this deficit to our children and grandchildren!"

        So it's a two-fer:  we get the risk AND the shaft.  

    •  I think that's the whole point. (4+ / 0-)
      Recommended by:
      ferg, lotlizard, costello7, JesseCW

      I heard Robert Kuttner from American Prospect on NPR today saying that Geitner and Summers are totally ignoring people even remotely progressive, and instead focusing on the concerns of the very people who brought us this crisis.

      Based on this plan, I would agree. This is basically the Paulson plan, isn't it?

      Rise like lions after slumber in unvanquishable number. Shake your chains to earth like dew, which in sleep had fallen on you. Ye are many - they are few.

      by cruz on Mon Mar 23, 2009 at 08:55:39 AM PDT

      [ Parent ]

    •  According to Mike Whitney, (7+ / 0-)

      "The idea that 97 percent "low interest" funding constitutes a "partnership",  boggles the mind. Where can a businessman or a homeowner get gravy a deal like that? The Treasury is providing a subsidy to Wall Street crooksters to manage taxpayer money so they can fatten their own bottom line. It's that simple. Geithner's not only willing to empty the public purse for his buddies but, also, write another trillion dollar check on an account that is already overdrawn by $11 trillion. This is one gigantic looting operation concocted by bank lobbyists masquerading as public officials."

      http://www.counterpunch.org/...

      The most tyrannical of governments are those which make crimes of opinions, for everyone has an inalienable right to his thoughts.-Baruch Spinoza, philosopher

      by StonedontheSofa on Mon Mar 23, 2009 at 08:56:33 AM PDT

      [ Parent ]

    •  Every bust cycle is an opportunity for some. (0+ / 0-)

      Just as the President says this is an opportunity for the country, these situations are always opportunities for people lucky or smart enough to have assets to invest.

      http://www.democraticfreedomcaucus.org/dfc-platform/

      by Common Cents on Mon Mar 23, 2009 at 09:18:28 AM PDT

      [ Parent ]

      •  That's fine (0+ / 0-)

        If people want to take risks with their own money, I have no problem with it. But taxpayer money should be rigorously guarded, particularly against scams like this one.

        •  I think it is an acceptable risk we must take. (0+ / 0-)

          If we desire a market economy in any form and think the government would not be the best central agency running the economy, then we must encourage private investment in this matter. The only way to do that is to minimize the risk of those investors (who are also a party of the taxpayer bracket). So we do what we can. It is not perfect, but it is plausible.

          http://www.democraticfreedomcaucus.org/dfc-platform/

          by Common Cents on Mon Mar 23, 2009 at 10:29:52 AM PDT

          [ Parent ]

    •  Geithner Plan analogous to Flammable water (1+ / 0-)
      Recommended by:
      lotlizard
    •  Which should be a tolerable collateral risk (0+ / 0-)

      Like the good people of the middle east deal with while Al Qaeda competes for their sons - just because an enemy claims the same goals as your moral high ground, don't look away from the moral high ground. It is possible to deal with the different issues differently at the right times, even of one benefits in the short term.

      HR 676 - Health care reform we can believe in - national single-payer NOW.

      by kck on Mon Mar 23, 2009 at 09:37:44 AM PDT

      [ Parent ]

    •  first positive take i've read (0+ / 0-)

      snd coming from you it gives me a sliver of hope ... so should we be telling those we know who still have something left to invest --- or who have stocks in 50lks to move into this instead?

      "Imagine better than the best you know." Neville Goddard.

      by boatsie on Mon Mar 23, 2009 at 09:57:51 AM PDT

      [ Parent ]

    •  Banks wouldn't be "selling assets" to us (1+ / 0-)
      Recommended by:
      lotlizard

      if they were WORTH anything.

      And they aren't.  

      Which makes them LIABILITIES, not "assets."

      What this plan does is transfer the bank's WORST liabilities to the public.

      Period.

      Which is a criminally immoral propping up of anti-democratic institutions by a democratically elected government.  

      This plan is designed to save the very system of inequality they we as a nation have been suffering under for years.

      Instead of admitting it is a failure, we are attempting to resurrect it with money from the very people it oppresses.  The average American.  

      There is nothing "good" about it.

    •  That exactly what was just said on CNN, (1+ / 0-)
      Recommended by:
      lotlizard

      hedge fund managers, Goldman Saks, and others will make a killing off of this plan! The same thugs that got us into this mess. This is gross and immoral.

    •  The market went up 500 points today (0+ / 0-)
      because now there is a plan and it has details.

      Sure there are still questions about it; but a plan where you get to invest in assets at pennies of the dollar then set your own price as the economy recovers and the government protects you from any downside has as its biggest downside the fact that given that plan the present holders of these "toxic assets" may not want to sell them to investors.

      Also raised as a question is whether or not if the private sector invests and makes a profit does it get to keep the procedes or do the taxpayers who bailed out all these institutions that messed up get some payback as well.

      Live Free or Die --- Investigate, Incarcerate

      by rktect on Mon Mar 23, 2009 at 01:34:26 PM PDT

      [ Parent ]

    •  It's all about the banks (1+ / 0-)
      Recommended by:
      lotlizard

      Check this out:
      http://seekingalpha.com/...

      Multi-way shell game, or, how to have Citi and BofA make each other solvent overnight: put $20Bil each into a PPIF (TARP already gave that and more), levered to $400Bil with the government's generous support. Each PPIF buys only the most toxic crap from the other bank, paying par (or even above par!). The assets are written down to $0.50 already (yet are worth $0.25), so we realize 100% profit each for Citi and BofA (by selling $200B of book value for $400B), and get to stick $400B cash to each balance sheet. The PPIF equity holding is quickly worth nothing (better copy that statement to your clipboard for later), so a net of $380B each. Banks are solvent, and then Geithner can have mock sincerity when he acts surprised that the government lost $600B (but at least the banks are "fixed").

      With this leverage ratio, fraud is all but certain. It just takes a few billion dollars for the banks to offload huge amounts of garbage from their balances sheets. Hey, my hedge fund manager buddy, just bid up the prices of these junk for me to where I need them to be. The government is picking the tab for most of your losses and I will cover the rest (plus a nice bonus) in some "unrelated" deal.

  •  Preferential to the Rich (43+ / 0-)

    So ... the assets will be auctioned of "to the highest bidder" who then gets public funds to make the purchase.

    These bidders will of course by large, private pools of money operated by ... the very people who got us into this mess!

    How do I get in on this scam?

    I want the government to subsidize my investments at 50% ...  Sheesh ...  And I thought the 5% match I got from my employer in my 401(k) was good.

    You can call me "Lord Bink Forester de Rothschild."

    by bink on Mon Mar 23, 2009 at 07:32:33 AM PDT

  •  The question is: (35+ / 0-)

    Is this a giveaway, or a workable solution?  Krugman contends that its a giveaway and doesn't adequately address the problem.  Are we kicking the can down the street, or facing up to the problem?  I really need a talking down here.

    I am for the individual over government, government over big business and the environment over all -- William O. Douglas

    by Its the Supreme Court Stupid on Mon Mar 23, 2009 at 07:33:57 AM PDT

    •  lots of questions ..... answers are years away (9+ / 0-)

      My worry is that the rich are just waiting for the bottom to be realized at which time they'll swoop in to pick through the bones for great deals and thereby make themselves even richer.
      I would like to see a way for regular citizens to get in on this. Say one to ten thousand dollar investments for assets in their own states that could have a tax benefit if those assets rise quickly.
      Let's be sure that this bailout doesn't become another garden for those whose greed caused the mess in the first place.

      •  rich are already buying up property (8+ / 0-)

        While keeping rents based on the inflated real estate market, the richie-rich types are already buying up properties at the foreclosure auctions.

        The entire US System of the last 30 years has been all about making the rich richer, and this will continue for years, hard to get those in power to give up any of it.

      •  When in American history (3+ / 0-)

        has that ever NOT been the case, that the rich get richer?

        "We have always known that heedless self-interest was bad morals; we know now that it is bad economics." Franklin Delano Roosevelt, March 4, 1937

        by Pangloss on Mon Mar 23, 2009 at 08:23:56 AM PDT

        [ Parent ]

        •  When is Human history (8+ / 0-)

          has that not been the case?

          I just upgraded internet speed. Now I can be late to the best diaries, faster.

          by mississippi boatrat on Mon Mar 23, 2009 at 09:10:32 AM PDT

          [ Parent ]

          •  Never (6+ / 0-)

            And it will never change.  It's kind of one of the foundations of capitalism.  I don't care how rich the rich get, because hating the rich is stupid.  I'm more concerned with what happens to the other 95% of us and improving that.  It's easy to pretend this is a zero sum game--but it isn't and it never has done.  

            Anybody who goes into this with the attitude of, "Anything that benefits people with more money than me is evil/a waste of time/a giveaway," don't understand economics, and don't really deserve a place at the decision making table.  They just don't have anything to contribute.

            If spittle & tooth=vigor & youth Bill-O & Savage won't grow any older If wishes & dreams=bitches & beams We'll all live in skyscrapers bu

            by TooFolkGR on Mon Mar 23, 2009 at 09:17:17 AM PDT

            [ Parent ]

            •  This is politics, not economics (1+ / 0-)
              Recommended by:
              lotlizard

              Economics says that rewarding bad decisions leads to more bad decisions.  

              •  Right But It's Politics That Says (1+ / 0-)
                Recommended by:
                mississippi boatrat

                Any time a corporation or wealthy person benefits, it's a bad decision.  And it's politics that says everyone who has money made bad decisions that get us here, and that every corporation behaved the same, etc.

                If spittle & tooth=vigor & youth Bill-O & Savage won't grow any older If wishes & dreams=bitches & beams We'll all live in skyscrapers bu

                by TooFolkGR on Mon Mar 23, 2009 at 09:25:56 AM PDT

                [ Parent ]

                •  No, every corporation did not act this way (1+ / 0-)
                  Recommended by:
                  lotlizard

                  and not everyone with money made the decisions that got us here. But yes, it is politics, and your politics support rewarding bad decisions, and erecting a straw man to avoid the issue.  There are ways to save the economy without bailing out speculators.  The assets are worthless and that fact needs to be faced.

                  •  LOL That's Cute (1+ / 0-)
                    Recommended by:
                    mississippi boatrat

                    First you accuse me of supporting bad decisions and erecting straw-men, then you throw this out:

                    The assets are worthless and that fact needs to be faced.

                    That's right.  It's worthless.  Pick a random 100,000 real estate holdings and bundle them into a security:  They're worth nothing and they never will be.  And they'll never go up in value.  And there's no way to value them.  They're worth nothing.  We might as well just bulldoze all the properties in question and start storing nuclear waste there, because they are worth NOTHING.

                    Me and my strawmen, I feel just awful being called out like that.  ;)

                    If spittle & tooth=vigor & youth Bill-O & Savage won't grow any older If wishes & dreams=bitches & beams We'll all live in skyscrapers bu

                    by TooFolkGR on Mon Mar 23, 2009 at 09:37:33 AM PDT

                    [ Parent ]

          •  Well, human history is not a Madoff (1+ / 0-)
            Recommended by:
            mississippi boatrat

            hedge fund...it has had lots of ups and downs, empires have risen and fallen and yes, sometimes the rich and powerful get thrown down off their perches...but while we might find that prospect thrilling, most Americans would rather get back to a stable economy without the further dislocation that a revolution would entail...

            "All governments lie, but disaster lies in wait for countries whose officials smoke the same hashish they give out." --I.F. Stone

            by Alice in Florida on Mon Mar 23, 2009 at 10:09:55 AM PDT

            [ Parent ]

            •  There would be no human history (0+ / 0-)

              if it was a Madoff hedge fund because our DNA would have gone the way of his assets...
              :-)
              Money, and wealth, are relatively recently invented tools, and can be used for good and evil. Sometimes we forget that and then we have to experience a "regression to the mean," which is gut wrenching.

              I just upgraded internet speed. Now I can be late to the best diaries, faster.

              by mississippi boatrat on Mon Mar 23, 2009 at 10:26:50 AM PDT

              [ Parent ]

    •  I trust bondad (14+ / 0-)

      The diarist has not been a cheerleader for Obama's financial team.  Far from it.

      Bondad is one of the voices on this site I trust the most regarding financial matters.  This diary is heartening to me, as so many others here, who seem to consider themselves financial wizards, are spouting nothing but doom and gloom.

      "But your flag decal won't get you into heaven anymore"--Prine 4240+ dead Americans. Bring them home.

      by Miss Blue on Mon Mar 23, 2009 at 08:38:35 AM PDT

      [ Parent ]

      •  I'm kindasorta skeptical of bonddad (1+ / 0-)
        Recommended by:
        New Deal democrat

        but I admit I don't read as much of him as I should.  I just remember Bonddad being a guy that would (at least occasionally) spout the Wall Street CW.  I remember him saying the crisis was "contained" right around the time Bear Stearns went bankrupt.  Uh huh.

        Maybe I'm being too harsh and should give him another chance.  Keep in mind, though, that bonddad's expertise is in trading, not economics.  Those are NOT the same thing.  Find other voices out there, preferably ones with economic expertise.

        Civic spirit drowns in a hurricane of mere survivalism - McKenzie Wark

        by cfaller96 on Mon Mar 23, 2009 at 10:09:44 AM PDT

        [ Parent ]

    •  me as well (1+ / 0-)

      like i cannot figure out how it took geitner all these months working 15 hour days to come up with this???? my idea was we needed somemthing extraordinary ... this isn't it. waiting for bondad's answer to my q above...

      "Imagine better than the best you know." Neville Goddard.

      by boatsie on Mon Mar 23, 2009 at 10:02:36 AM PDT

      [ Parent ]

    •  There's only one way to find out (2+ / 0-)

      Unfortunately this exact situation has never happened before, so even Krugman (who I have the greatest respect for) doesn't know for sure...no one does. We just have to see what happens at this point, but definitely be ready to push for nationalization if Geitner's plan fails to work.

      "All governments lie, but disaster lies in wait for countries whose officials smoke the same hashish they give out." --I.F. Stone

      by Alice in Florida on Mon Mar 23, 2009 at 10:06:45 AM PDT

      [ Parent ]

    •  Krugman also said Obama supporters are a cult. (1+ / 0-)
      Recommended by:
      sebastianguy99

      Just about a year ago. I can't see him as an honest broker of ideas at this point. He may in fact be. But his saying that Obama "shot his bolt" must be taken within the context where Krugman has also shot his.

      It rubs the loofah on its skin or else it gets the falafel again.

      by Fishgrease on Mon Mar 23, 2009 at 10:07:51 AM PDT

      [ Parent ]

  •  why do you think it is workable? (12+ / 0-)

    (0.12, -3.33) ONE America! Yes! We really are ONE America!

    by terrypinder on Mon Mar 23, 2009 at 07:35:53 AM PDT

  •  As TooBigToFail Bank (llc).....we'll get back to (9+ / 0-)

    you on what we'll do.

  •  A lot more than 3%? (11+ / 0-)

    To entice private investors like hedge funds and private equity firms to take part, the F.D.I.C. will provide nonrecourse loans — that is, loans that are secured only by the value of the mortgage assets being bought — worth up to 85 percent of the value of a portfolio of troubled assets.

    The remaining 15 percent will come from the government and the private investors. The Treasury would put up as much as 80 percent of that, while private investors would put up as little as 20 percent of the money, according to industry officials. Private investors, then, would be contributing as little as 3 percent of the equity, and the government as much as 97 percent.

    http://www.nytimes.com/...

    What are we talking? 5%? 10%

    Here we are now Entertain us I feel stupid and contagious

    by Scarce on Mon Mar 23, 2009 at 07:38:36 AM PDT

    •  I'll Just Go With The Numbers We Have (0+ / 0-)

      I mean making stuff up is fun, but I'll just assume that the entire range is possible.

      If spittle & tooth=vigor & youth Bill-O & Savage won't grow any older If wishes & dreams=bitches & beams We'll all live in skyscrapers bu

      by TooFolkGR on Mon Mar 23, 2009 at 09:21:08 AM PDT

      [ Parent ]

  •  The mantra du jour (36+ / 0-)

    is nationalization.  I can't seem to get an answer re: what nationalization would actually cost up front and can you do it with global mega banks.  What is the advantage of being responsible for 100% of the legacy assets rather than providing 97%insurance against the private sector buying the toxic assets.

    I'm sorry, I'm truly dense re: economics but would like to be better informed rather than reading just the two extreme camps -- you tend to always provide reasoned analysis.  Thanks.

    I am not going to sit here and be an idle spectator to the diminution, the subversion, the destruction of the Constitution. -- Barbara Jordan, 1974

    by gchaucer2 on Mon Mar 23, 2009 at 07:42:37 AM PDT

    •  The economists on "On Point" this morning (23+ / 0-)

      essentially said that some of these monster banks are too big to nationalize, i.e. the FDIC doesn't have the resources to "buy" them.

      In 1993, NO Republicans voted for the most successful economic program in history. NOT ONE. Wrong then, wrong now.

      by The Creator on Mon Mar 23, 2009 at 08:02:44 AM PDT

      [ Parent ]

      •  AND they are international. (23+ / 0-)

        I'm not sure how you nationalize a Saudi Owned bank and I am pretty sure they won't let us once we decide to.

        •  Have their governments nationalizae theirs (1+ / 0-)
          Recommended by:
          JesseCW

          Makes agreements through the G-20 - if not they invite failure.

          "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

          by thethinveil on Mon Mar 23, 2009 at 08:15:32 AM PDT

          [ Parent ]

          •  do you honestly believe that the US (9+ / 0-)

            has the clout, financial power or even military might to force the Saudi sovreign wealth fund managers to nationalise their banks because we say so.  That attitude didn't work too well in Iraq or Afghanistan or even Pakistan did it?  or am I missing something here.

            •  Was I suggesting force? No - stop it with the (1+ / 0-)
              Recommended by:
              JesseCW

              Strawmen.

              They need do it because it is their national asset. They would do it to save their own banks or they could try recapitalizing them Geithners way good luck to them.

              Do we have the clout? Possibly.

              But I don't think that is needed.

              "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

              by thethinveil on Mon Mar 23, 2009 at 08:31:24 AM PDT

              [ Parent ]

              •  you have the right to your beliefs as I (8+ / 0-)

                have the right to mine. I believe your ideas are dangerously naive and I am sure you think mine are dangerously unrealistic.  So be it.

                •  Try not using Strawmen and I will take you more (1+ / 0-)
                  Recommended by:
                  JesseCW

                  seriously.

                  I think both could be considered unrealistic or naive.

                  But one is worth fighting for in my mind while the other isn't.

                  "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                  by thethinveil on Mon Mar 23, 2009 at 08:36:27 AM PDT

                  [ Parent ]

                  •  you know something I hoinestly don't (2+ / 0-)
                    Recommended by:
                    askew, freakofsociety

                    give a hoot whether you atake me seriously or not. You asked a question, I answered it.  US military force in the middle east or South Asia is by no means a 'strawman', it is an integral part of the equation as the past decade has proved.

                    It is impossible to discuss global finances without including global military power.

                    As I said in my opinion your attitude is dangerously naive in terms of internatuional politcs.

                    •  I did not ask a question there. It is a Strawman (1+ / 0-)
                      Recommended by:
                      JesseCW

                      to any progressive - it is out and out not an option.

                      I think it is incredibly naive of you to believe someone who has overseen the stock market the past several years and  who did nothing while the entire situation was created - Who promised transparency but didn't follow through, who protected the bonus system, who is trying to protect the private stock broker, bankers and other at the expense of tax payers, and who has studied and practiced neo-liberal economics with Larry Summers.

                      So as I said both could be considered naive or unrealistic but that conversation gets us nowhere.

                      "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                      by thethinveil on Mon Mar 23, 2009 at 08:55:03 AM PDT

                      [ Parent ]

                      •  I repeat, I did NOT offer military force (1+ / 0-)
                        Recommended by:
                        freakofsociety

                        as an OPTION. I stated that in my opinion America does not have the clout, financially or militarily, or economically, or even diplomatically, to FORCE the Saudi's, the Europeans or any other nations to impose their ideas on solutions to global realities.

                        The upcoming G20 summit will give us an inkling exactly how much compromise will be necessary to coax the global markets into further regulation of the international monetary systems.

                        As you rightly say, this discussion is getting us nowhere.  Amerca has hard power, and she has soft power, she has economic power, she has military power and so do every other nation on the planet.

                        The days when America and her citizens can impose their will on the rest of the world are OVER!!!

                        •  I think regulation will be easy to secure (1+ / 0-)
                          Recommended by:
                          JesseCW

                          Stimulus by Europe on the other hand, a little more difficult.

                          And I said that force would not be necessary but their own national interest would serve. You could refute me on that point.

                          "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                          by thethinveil on Mon Mar 23, 2009 at 09:13:41 AM PDT

                          [ Parent ]

                          •  From my own personal experience as a born and (2+ / 0-)
                            Recommended by:
                            Yoshimi, pamelabrown

                            bred Brit, brought up in the UK, living in US since the 50's but moving freely back and forth, my opinion is that as the European Union by no means speaks with one voice or is monolithic and is burdened with the problem of rich nations and poor nations within the union, any meaningful regulatory sysm will be very doifficult to achieve. That has already been borne out following Gordon Brown's less than successful visit, and the mini summit Geithner attneded a week or so ago.  Unaninimyty was not achieved, rather they waffled as usual.

                            As far as Middle East oil producing nations such as Saudi Arabia etc. I cannot see where their national interests lie in acceeding to US demands or even desires, whatever they are or are being presented as.

                            The national self interests of all energy producing nations is to fill their own coffers as fast as possible by restricting production and/or simultaneously raising prices. As long as America continues to depend on foreign oil as an energy supply they are basically held hostage to oil producing nations whims.  The same goes for Europe's dependance on natural gas from Russia and the MMiddle east.

                            All nations self interest is to gain as much power at other nations expense as possible.  America needs Saudi Arabia's oil a hell of a lot more than Saudi Arabia needs America's what?  what exactly has America to offer at this point in time on the global balance scale?

                            i totally fail to see how nationalising the American banking system is going to enhance her global power?  please explain?  if that is what you are advocating anyway, I am not clear on that score.

                          •  We don't have to offer them anything for (0+ / 0-)

                            Them to nationalize in my opinion - doesn't it give them some sort of power to have a banking system of their own.

                            To (re)describe the issue of petrol as a source of economic power and political power doesn't really explain this issue for me.

                            Funny I was going to ask if you were British because of the spelling.

                            Or even (re)describing the problems of the European union - but they will find agreement on giving either the IMF or the UN the financial industry.  

                            So when I ask you why it would be against a countries national interest to perserve the banking system - you would say . . . .  

                            "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                            by thethinveil on Mon Mar 23, 2009 at 09:43:48 AM PDT

                            [ Parent ]

                          •  Naive (0+ / 0-)

                            doesn't it give them some sort of power to have a banking system of their own.

                            They have their own banking system, it is Wall Street.

                          •  Naive that using hedgefunds to deal with the (0+ / 0-)

                            assets will actually work.

                            "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                            by thethinveil on Mon Mar 23, 2009 at 10:15:59 AM PDT

                            [ Parent ]

                          •  I would say that I believe that (1+ / 0-)
                            Recommended by:
                            Yoshimi

                            preserving the nations banking system is exactly what the Geithner/Obama plan is attempting to do.  I would aslo say that nationalising the nation's banks thereby turning the entire risk over to tax payer would not preserve the nations' banking system.

                            Spreading the risk between the taxpayer and the private markets is as far as I am concerned a more sensible solution.

                            I am not sure whether you are inferring that the Saudi's do not have a banking system of their own?  if so, where is your proof of that?

                            And to infer that the Europeans will turn over their banking systems to the IMF or the UN to run is terminally naive.

                          •  ISn't it spread 97% to 3% already? (0+ / 0-)

                            The risk is all on the Governments side.

                            Again correct me if I am wrong on this point.

                            Europeans would not nationalize through the IMF or the UN again you misread me - Merkel is suggesting the UN while Sarkozy and Brown I think want regulation through the IMF - which I think isn't the best idea because I think regulation has to be done democratically.

                            "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                            by thethinveil on Mon Mar 23, 2009 at 10:19:16 AM PDT

                            [ Parent ]

                          •  you will have to stay tuned to hear what various (0+ / 0-)

                            European nations leaders are saying. They are all over the map and I see no signs of unity regarding nationlisation in the Union which is run from Brussels. If each nation makes its own decision the European union becomes defunct. If you see signs of that happening pray keep us informed.  Anyway, I've got to go to the dentist now.

                          •  Wow entirely off again. Work on reading skills (0+ / 0-)

                            Grandma,

                            I was talking about regulation not nationalization through the IMF and /or the UN.

                            NAtionalization would be exactly that - each individual nation would have to nationalize.

                            After we have nationalized the parts or the physical banks located here - others will have the option as well or they could come up with their own version of Geithner plan.

                            "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                            by thethinveil on Mon Mar 23, 2009 at 12:06:05 PM PDT

                            [ Parent ]

              •  Well It's Not REALLY a Strawman (4+ / 0-)

                You said, "Have them do it."  You didn't imply MILITARY force, but when you "have someone do something for you," it's clearly implied that you have the authority to do so.

                If spittle & tooth=vigor & youth Bill-O & Savage won't grow any older If wishes & dreams=bitches & beams We'll all live in skyscrapers bu

                by TooFolkGR on Mon Mar 23, 2009 at 09:22:27 AM PDT

                [ Parent ]

                •   I guess some could have seen that as an (1+ / 0-)
                  Recommended by:
                  TooFolkGR

                  implication but wasn't it was a misreading - which set up a strawman argument - that we would use imperialistic force when our military is stretched so thin and that progressives  here would support such an option.

                  It is forcing them into making a decision do they want to support their banking system in their own countries or do they want to let them fail - to deal with the consequences of their lost power.

                  "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                  by thethinveil on Mon Mar 23, 2009 at 09:32:53 AM PDT

                  [ Parent ]

            •  For most of them, they don't have to nationalize (0+ / 0-)

              they already have. In lots of countries, the biggest bank basically IS owned by the govt.

      •  FDIC doesn't "buy" banks (5+ / 0-)

        FDIC insures assets.

        Justice, mercy, tolerance, hope, love, grace, and redemption are all Judeo-Christian values.

        by Benintn on Mon Mar 23, 2009 at 08:23:28 AM PDT

        [ Parent ]

        •  Tell that to Indymac. (4+ / 0-)

          They insure the assets by taking over the banks that fail.  They don't just pay out a claim like some ordinary insurer.

          In 1993, NO Republicans voted for the most successful economic program in history. NOT ONE. Wrong then, wrong now.

          by The Creator on Mon Mar 23, 2009 at 09:20:31 AM PDT

          [ Parent ]

          •  Problem = there is no money/collateral on CDS (0+ / 0-)

            Swaps and derivatives don't have any collateral attached to them.  What that means is that we'd be insuring a bunch of paper that has no value.

            As Obama said last week on Tonight Show, the CDS and derivatives trades were "perfectly legal".  And this shows just how much the regulatory system was asleep at the wheel.

            The banks and hedge funds basically made a bet - they bet that home values would continue to increase ad infinitum, and they bet that any bursting bubble in the housing market would be bailed out by the US Government.

            So, housing bailouts keep homeowners in their homes, paying more on their mortgages, and the hedge funds and banks keep making shittons of money.

            Justice, mercy, tolerance, hope, love, grace, and redemption are all Judeo-Christian values.

            by Benintn on Mon Mar 23, 2009 at 09:56:43 AM PDT

            [ Parent ]

            •  Clearly these derivatives (0+ / 0-)

              are the core of the problem, and have been for quite some time.  This was not an unpredicted problem.

              Regulate the fucking things for crissakes!

              In 1993, NO Republicans voted for the most successful economic program in history. NOT ONE. Wrong then, wrong now.

              by The Creator on Mon Mar 23, 2009 at 12:26:57 PM PDT

              [ Parent ]

      •  Congress won't appropriate the $ to nationalize. (3+ / 0-)
        Recommended by:
        Yoshimi, freakofsociety, The Creator

        Republicans are liars, by deed or proxy. There is no such thing as an honest Republican. Just those who do the dirty work and those who don't.

        by chicago jeff on Mon Mar 23, 2009 at 08:51:29 AM PDT

        [ Parent ]

    •  I have been in favor of true nationalization (4+ / 0-)

      Just Seize them no pay out to the stock holders.

      I would like to hear the problems with this method as opposed to paying the stockholders or for the assets.

      "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

      by thethinveil on Mon Mar 23, 2009 at 08:03:17 AM PDT

      [ Parent ]

      •  See my comment above. (4+ / 0-)

        What nation can nationalize an multi-national company?

        •  That is not an answer to my question. (4+ / 0-)
          Recommended by:
          slinkerwink, mattman, bigchin, JesseCW

          My question is on the distinction between paying for nationalization or not.

          "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

          by thethinveil on Mon Mar 23, 2009 at 08:09:01 AM PDT

          [ Parent ]

          •  My response is to your suggestion that we (0+ / 0-)

            "seize them."

            Go for it buddy.  I have your back.

            •  Yeah it really looks like it. (0+ / 0-)

              Why are you defending the Geithner plan?

              "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

              by thethinveil on Mon Mar 23, 2009 at 10:01:01 AM PDT

              [ Parent ]

              •  I'm just sick of the idea that there is a magic (1+ / 0-)
                Recommended by:
                askew

                bullet for this problem.  Are you a nationalizer fan because Krugman suggested it?  Because it seems that you really haven't thought through all the implications of nationalization.

                •  Krugman and every other economist of note. (0+ / 0-)

                  Like Stiglitz, for example.

                  It's you pro-bailout people who are the ideologues. What's more, I doubt very much you'd be so hot for this plan if Paulson was suggesting it. In fact I know you wouldn't be, because IT'S THE SAME FUCKING PLAN.

                  Just a few bells and whistles tacked on in an attempt to obscure the fact that it still comes down to taxpayers paying cash for trash. And, you know, I didn't see you singing Paulson's praises.

                  Did I miss something? Or are you a hypocrite? Not making any accusation here, just wondering. Maybe you can point to where you said Paulson's cash for trash plan was the bestest.

                  You've got to say, 'I'm a HUMAN BEING, Goddamnit! My LIFE has VALUE!'

                  by expatjourno on Mon Mar 23, 2009 at 02:34:57 PM PDT

                  [ Parent ]

            •  Wants to propose nationalization with a buy out (0+ / 0-)

              and give reason but everybody wants to spend their time on why either nationalization in general is not an option or whether receivership is not an option.

              You could call it receivership if you are afraid of being called a socialist.

              "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

              by thethinveil on Mon Mar 23, 2009 at 10:05:22 AM PDT

              [ Parent ]

      •  With the major banks (8+ / 0-)

        being almost in penny-stock status, wiping out stock holders doesn't achieve much in the way of payoff. Plus, exactly what in the way of liabilities is the government then on the hook for? Frankly, I don't pretend to know the best solution but there are serious concerns regarding the costs of nationalization to the taxpayer that too many folks seem to ignore.

        •  Couldn't you sell off the bad assets then (0+ / 0-)

          and recapitalize the good bank and then sell that at pure profit for the tax payer.

          "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

          by thethinveil on Mon Mar 23, 2009 at 08:32:59 AM PDT

          [ Parent ]

          •  Sell the assets to whom? And at what price? (3+ / 0-)
            Recommended by:
            Yoshimi, freakofsociety, crystalboy

            Explain.

            With him from the beginning, with him until the end.

            by brooklynbadboy on Mon Mar 23, 2009 at 08:48:20 AM PDT

            [ Parent ]

            •  To whomever would buy them. (3+ / 0-)
              Recommended by:
              lotlizard, JesseCW, Losty

              This is how we deal with the depositors which is the real question:

              Rather than dump the bad assets on the government, we would strip out the good assets--those that can be easily priced. If the value of claims by depositors and other claims that we decide need to be protected is less than the value of the assets, then the government would write a check to the Old Bank (we could call it the Bad Bank)

              We could create a Bad Bank or Old bank for these toxic assets.

              Meanwhile, the Old Bank would be left with the task of disposing of its toxic assets as best it can. Because the Old Bank's capital is inadequate, it couldn't take deposits, unless it found enough capital privately to recapitalize itself. How much shareholders and bondholders got would depend on how well management did in disposing of these assets--and how well they did in ensuring that management didn't overpay itself.

              However it probably is a good idea not to allow hedge fund managers do this - that what asian banks did in the crisis - they got screwed.

              Another for your postion:

              Worse still, long experience has taught us that when banks are at risk of failure, their managers engage in behaviors that risk losing even more taxpayer money. They may, for instance, undertake big bets: if they win, they keep the proceeds; if they lose, so what?--they would have died anyway. That's why we have laws that say when a bank's capital is low, it should be shut down. We don't wait for the till to be empty. Because the government is on the hook for so much money, it has to take an active role in managing the restructuring; even in the case of airline bankruptcy, courts typically appoint someone to oversee the restructuring to make sure that the claimants' interests are served.

              "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

              by thethinveil on Mon Mar 23, 2009 at 09:08:50 AM PDT

              [ Parent ]

              •  Okay, explain this to me... (1+ / 0-)
                Recommended by:
                Yoshimi

                Why do you think government will be able to sell assets that banks cannot?

                And what is going to be the government's asking price? How will that be determined?

                With him from the beginning, with him until the end.

                by brooklynbadboy on Mon Mar 23, 2009 at 09:46:50 AM PDT

                [ Parent ]

                •  The banks as of now are trying not to sell (1+ / 0-)
                  Recommended by:
                  lgcap

                  their assets because they are counting on the Government to buy them. The government can force the transparency with direct control to force them into a market valuation.

                  "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                  by thethinveil on Mon Mar 23, 2009 at 09:58:10 AM PDT

                  [ Parent ]

            •  And here - this is central to me. (2+ / 0-)
              Recommended by:
              lotlizard, polar bear

              What do these plans cost in terms of lives?

              One option is try this see if it fails meanwhile people starve - roughly 400,000 more due to this crisis - the World health org estimates that the world hunger problem could be soled with as little as 40 Billion.

              The other option is one that puts this money directly towards lending and strengthen good banks that will lend. And putting what money we would have spent on that failed plan towards something worthwhile - lie solving the hunger crisis.

              "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

              by thethinveil on Mon Mar 23, 2009 at 09:26:37 AM PDT

              [ Parent ]

            •  It could be done quite quickly (1+ / 0-)
              Recommended by:
              thethinveil

              using, say, a dutch auction.  And this would provide the added benefit of finality- we could finally get past this problem and get on to other issues.

              Your dog likes it when you sing for her.

              by aztecraingod on Mon Mar 23, 2009 at 09:33:48 AM PDT

              [ Parent ]

              •  Really? Dutch auction sets a price cap, (1+ / 0-)
                Recommended by:
                Yoshimi

                I suppose you could start at the face value of the security, but that is a amount that is already known and people still aren't buying them.

                I still have not seen one good explanation from anyone on how nationalization is going to create any demand for these assets. But I am pretty damn certain it would curb demand, at least from institutions based in the United States.

                With him from the beginning, with him until the end.

                by brooklynbadboy on Mon Mar 23, 2009 at 09:52:50 AM PDT

                [ Parent ]

                •  This is an issue for the Bad bank managers to (0+ / 0-)

                  take up - they will have to mark to market possibly.

                  "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                  by thethinveil on Mon Mar 23, 2009 at 09:56:09 AM PDT

                  [ Parent ]

                  •  Well, if mark to market is used (3+ / 0-)
                    Recommended by:
                    Yoshimi, kfd313, stegro

                    we know the price...ZERO. How do you have a dutch auction when the top bid is ZERO? Government gonna PAY people to take the assets? Whoever asks for the most wins?

                    lol

                    This is the problem you have with the bad bank idea. First of all, government would probably end up creating the kind of pricing mechanism that Geithner is creating ALREADY, resulting in needless and pointless nationalization.

                    A lot of people want us to create kind of a Resolution Trust Co like we did during the SNL, but the problem with that is we would need like $10 trillion in cash, which we couldnt raise from either healthy banks or in treasuries. SO thats out.

                    Straight up takeover then requires government to start pricing arbitrarily or creating a Geithner-like pricing system. And thats AFTER trying to contain the capital flight that would occur at the first sign of nationalization. (how you gonna keep money from crossing the border with the push of a button?) If you have $8 billion in Citibank and its about to nationalize, you immediately send that to DeutscheBank. Now how you gonna get it back? Thats what almost happened last September, an international bank run.

                    Nationalisation only compounds our problems.

                    So why dont we avoid all that and just create the geithner price mechanism? I'm sure thats exactly the conclusion the president came to after thinking it through.

                    With him from the beginning, with him until the end.

                    by brooklynbadboy on Mon Mar 23, 2009 at 10:06:06 AM PDT

                    [ Parent ]

                    •  This is an idea about setting up a good bank. (0+ / 0-)

                      People could not pull their money out because it would not be in their control any more.

                      No they are not worth zero but they are not worth what they are valued as - the price needs to be realistic not arbitrary.

                      "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                      by thethinveil on Mon Mar 23, 2009 at 10:13:44 AM PDT

                      [ Parent ]

                      •  LMAO...are you kidding? (1+ / 0-)
                        Recommended by:
                        Yoshimi

                        Dude...do you think this is 1932? I can sit hit right now at my desk and move all my meagher money to New Zealand in about 3 minutes.

                        Lets how this happens, this nationalization:

                        1. President says go.
                        1. Geithner says ok. We can do this two ways:

                         a. Just get all our guys to go over there and start running things.

                         b. go get a court order.

                        1. No matter if its a or b, as it makes its way down the chain of command, somebody is going to hear about it. The emails will fly around the world "TREASURY MOVING TO NATIONALIZE CITIBANK" and then every citbank customer in the world is going to get to move their money ASAP.
                        1. People who have claims on Citibank will make them IMMEDIATELY DUE.
                        1. Banks that are not being nationalized, but could be, experience a run as well.
                        1. Sally goes to her local Wells Fargo ATM and its not working because Wells didnt deliver any cash to any of its machines because of the bank run.
                        1. Sally's co-workers panic and begin withdrawing their cash.

                        So now you've got a lot more on your hands than a toxic asset problem. Now youve got a capital flight problem.

                        How you gonna contain it?

                        With him from the beginning, with him until the end.

                        by brooklynbadboy on Mon Mar 23, 2009 at 10:31:15 AM PDT

                        [ Parent ]

                        •  Don't know but I imagine an asset freeze (0+ / 0-)

                          set up through international regulation that they are discussing at the G-20 would have that power.

                          Bond holders should be happy for the most part - they get a safe place to put their money while taking care of the bad assests.

                          Whoever invested in CDSs just gets screwed. Oh well fake money anyhow.

                          "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                          by thethinveil on Mon Mar 23, 2009 at 10:41:21 AM PDT

                          [ Parent ]

                          •  Ha ha ha....good luck with that. (3+ / 0-)
                            Recommended by:
                            Yoshimi, missLotus, stegro

                            First country to violate the freeze is going to reap a bonanza.

                            Wouldnt last five minutes.

                            How we gonna punish violators? Sanctions? War?

                            lol.

                            Nowonder the President dismisses this out of hand.

                            With him from the beginning, with him until the end.

                            by brooklynbadboy on Mon Mar 23, 2009 at 11:03:47 AM PDT

                            [ Parent ]

                          •  If it is computerized then return it by pressing (2+ / 0-)
                            Recommended by:
                            Yoshimi, brooklynbadboy

                            the undo button.

                            Well this is what they are hoping for in their regulatory system - Blame Geithner for being unrealistic and naive.

                            Talking to you at least got me to think this time.

                            "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                            by thethinveil on Mon Mar 23, 2009 at 11:09:54 AM PDT

                            [ Parent ]

                          •  lol..good one. (0+ / 0-)

                            Undo!

                            Well, I wish we didn't have to do this, but I don't see any better option or any better plan.

                            Krugman's proposals are completely ideological and not well thought through at all, and more importantly, not politically feasible as it would require new powers from Congress. What Krugman does is start from a position of "ideal solution" and then stops right there.

                            What Obama does is say "what is the best POSSIBLE solution?"

                            Again...politics is the art of the possible.

                            With him from the beginning, with him until the end.

                            by brooklynbadboy on Mon Mar 23, 2009 at 11:40:35 AM PDT

                            [ Parent ]

                          •  He said he wanted to fix it - Geithners plan (0+ / 0-)

                            will not fix it - that is what americans want is a real fix like the swedish plan has provided.

                            As I said this plan may be unrealistic politically (even though Greenspan and conservatives like Lindsey Gramm have supported nationalisation) but is the only one worth fighting for as Geithners plan resembles other plans  (A combination of japan and asian tigers.)

                            I personally do not let a situation define what I work for politically. I look for ways to change the situation pragmatically. If you don't have this sense of agency in politics I see little reason for being involved at all.

                            And if you think international regulation that can control capital flight is unreasonable - as  then your trust in Obama is failing you - it is necessary to prevent off shore accounts and tax evasion - on this I agree with Obama.

                            "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                            by thethinveil on Mon Mar 23, 2009 at 01:14:49 PM PDT

                            [ Parent ]

                          •  Well, we will see wont we? (0+ / 0-)

                            One of us will be in the fantasy Krugman world of newspaper columns and theoretical posturin, and the other will be watching things get done.

                            Kinda reminds me of some of my "activist" frieds, highly active at influencing nothing.

                            Meanwhile, the doers press on. And win.

                            With him from the beginning, with him until the end.

                            by brooklynbadboy on Mon Mar 23, 2009 at 01:24:32 PM PDT

                            [ Parent ]

                          •  As an organizer who has gotten (0+ / 0-)

                            a lot done I have to say you are full of it.

                            I am not an activist so much - but I encourage it.

                            Go to a protest here and there. But mainly I work with communities to encourage their activism

                            Don't confuse getting things done with fixing things.

                            Bush got a lot of things done but managed just to fuck a lot up.

                            "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                            by thethinveil on Mon Mar 23, 2009 at 01:32:20 PM PDT

                            [ Parent ]

                          •  Wait and see is a bullshiters way of getting (0+ / 0-)

                            through life.

                            "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                            by thethinveil on Mon Mar 23, 2009 at 01:33:09 PM PDT

                            [ Parent ]

                        •  Whether you're right or wrong about nationalizati (0+ / 0-)

                          on, this plan will not work.  No one acting out of self interest will take up the Treasury on this plan, and even if they did, they wouldn't be making any money, while the taxpayers lose massively.

                          http://www.nakedcapitalism.com/...

                          Your dog likes it when you sing for her.

                          by aztecraingod on Mon Mar 23, 2009 at 10:55:18 AM PDT

                          [ Parent ]

                          •  Makes no sense. (0+ / 0-)

                            Doesn't comport with the facts. Assets that are now being priced at ZERO will have a price. That looks like investor upside to me...you know...zero to something sounds like profit.

                            With him from the beginning, with him until the end.

                            by brooklynbadboy on Mon Mar 23, 2009 at 11:02:06 AM PDT

                            [ Parent ]

                          •  Why? Explain (1+ / 0-)
                            Recommended by:
                            brooklynbadboy

                            how, under your understanding, would this plan work under this example.  Start off with Citi having an asset that exists on their book at $100 mill face value, but currently valued at $30 million.  Show your work, I'd love to know.

                            Your dog likes it when you sing for her.

                            by aztecraingod on Mon Mar 23, 2009 at 11:12:33 AM PDT

                            [ Parent ]

                          •  The problem is in your assumption... (4+ / 0-)

                            you assume that its worth $30 million, but the truth is, its only worth what people are willing to pay for it. Thats the "Mark to Market" you hear about. So currently, with no buyers, Citibank's $100 million face value asset is worth a big fat ZERO. Theyve got ZERO on their books because they can't see it. They can't give it away.

                            So, Obama/Geithner goes into effect.

                            Treasury tells Citibank, put that there up for auction.

                            Citibank says fine.

                            Now I see this auction coming so I put up 7.5%. Treasury says, okay..ill match it and we split everything 50-50.

                            Bidding starts. I win the bid. Lets say its $30 million. I put up $2.25 million of my own cash. Treasury puts up $2.25 in TARP cash. $25.5 million im going to raise by issuing bonds against the asset and selling them to a list of investors approved by FDIC, say for example the Calpers pension fund or TIAA-CREF. That $25.5 million is guaranteed against default by the FDIC. If I default on the loan and every home or mall within the actual asset is burned down to the ground, FDIC will make Calpers whole. FDIC will get this money from its usual source, premiums charged from banks and also from fees I pay to get them to guarantee the bonds.

                            Okay..so I've got my $30 million, I go to Citibank. They can either sell me the asset or not. If they do, I hold it long term because that is what Treasury is pushing in order to be a partner. If I can sell it in the future for face value, everyone nets out good.

                            If Citibank does not sell to me, THEY STILL HAVE TO MARK IT IN THEIR BOOKS FOR $30 MILLION, becaue of mark to market. Their assets just went from ZERO to $30 million because that is the "market price" as has been established by my offer. It also means, Citibank thinks its worth MORE than what im offering, enticing future bids. Perhaps Citibank will be able to get $50 million somewhere else because of MY bid. Or perhaps they can now say..wait a minute...lets LOAN out $5 million against this asset because we now have a larger capital base.

                            The point is to get PRICING going. With pricing will come a better sense of where we are and what needs to be done. So long as there is no pricing, were stuck with a lot of ZEROs.

                            With him from the beginning, with him until the end.

                            by brooklynbadboy on Mon Mar 23, 2009 at 11:30:55 AM PDT

                            [ Parent ]

                          •  Will you please write a diary on this? (1+ / 0-)
                            Recommended by:
                            brooklynbadboy

                            What you say makes sense, and you seem to be one of the few here saying it.

                          •  You should make a diary of this! nt (0+ / 0-)
                          •  This is the nugget in this discussion. (0+ / 0-)

                            Agree with the other commenters. A diary that doesn't use provocative rhetoric, call out other posters or denigrate Krugman, etc. but simply lays out how the Geithner proposal solves the pricing problem (and other schemes do not), would be extremely valuable at this juncture.

                            The Dutch children's chorus Kinderen voor Kinderen wishes all the children of the world a happy holiday season!

                            by lotlizard on Mon Mar 23, 2009 at 08:26:49 PM PDT

                            [ Parent ]

        •  as opposed to serious concerns about (1+ / 0-)
          Recommended by:
          thethinveil

          the cost of TALF?

          "History is a tragedy, not a melodrama." - I.F.Stone

          by bigchin on Mon Mar 23, 2009 at 08:36:21 AM PDT

          [ Parent ]

        •  Only FDIC insured accounts are protected (1+ / 0-)
          Recommended by:
          thethinveil

          That's all the FDIC does - quick bankruptcy, with account holders protected.

          The rest gets sold in a Fire Sale.

          Many of the Banks contracts may not be honored in the event of recievership.

          We are not on the hook for all of a banks bad debts if we take them over.

          We're just on the hook for the actual deposits in FDIC accounts.

          There seems to be a lot of missunderstanding on this.

          "Callin' it your job sure don't make it Right, but if you want me to I'll say a prayer for your soul tonight" John Mellencamp ~ Scarecrow

          by JesseCW on Mon Mar 23, 2009 at 09:19:32 AM PDT

          [ Parent ]

      •  Play Monopoly much? (6+ / 0-)

        I think you see the guy with the monacle as the stock holder.

        In fact, my parents who have been retired for four years, lost 80% of their life savings over the last 8 months, and the teacher retirement system where I have stored my own money over the last 17 years, along with thousands of others, are the stockholders you want to leave penniless.

        Are there evil people in the system? Absofuckinglutely!

        Are all the people in the system evil?  

        According to the armchair economists I read on these pages who apparently haven't had the foresight to plan for their futures (I doubt any of them have a few hundred thousand set aside under their mattresses for their golden years, either) - this crisis is all very neat and tidy, black and white, and anyone who has worked hard for 40 or 50 years, sacrificed so that they'd live on more than cat food for the final 20 or 30 years of their lives, are to blame for the ills of the conspicuous consumption we 30 and 40 somethings charged on our credit cards.

        Naam!! Tunaweza!!

        by bogbud on Mon Mar 23, 2009 at 08:46:57 AM PDT

        [ Parent ]

        •  Incidentally, lest you think I'm taking the side (3+ / 0-)
          Recommended by:
          MontanaMaven, fayea, sherijr

          of the "elites" - dad worked on the same stitching machine for 45 years and mom was in the office answering phones.  They still sent two kids to college and had enough left over so we wouldn't have to worry about them - they thought.

          Sis and I are now worried.

          Naam!! Tunaweza!!

          by bogbud on Mon Mar 23, 2009 at 08:53:12 AM PDT

          [ Parent ]

          •  You may not realize it but mocking any other (0+ / 0-)

            solution comes of as a support of Geithners plan or for things staying as they are.

            It is not uncommon for the working class to support interests other than their own. See Reagan Democrats.

            "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

            by thethinveil on Mon Mar 23, 2009 at 09:52:22 AM PDT

            [ Parent ]

            •  Not mocking any solutions... (0+ / 0-)

              but rather disagreeing with nationalization without compensation to the little guy.  I live next door to Chavez, and before this lived next door to Mugabe.

              Systemic change is needed, absolutely, but I prefer it to happen in a reasoned and thoughtful way (which my tiny intellect considers to be at least partly behind the current administration's plans).  

              Ask the working class father in Mugabe's Zimbabwe how wholesale nationalization of farms is working for him seven years on.  The ends don't ALWAYS justify the means.

              Naam!! Tunaweza!!

              by bogbud on Mon Mar 23, 2009 at 11:06:50 AM PDT

              [ Parent ]

        •  Well I think your simpication of the issue as (0+ / 0-)

          black and white is the true source of the problem - we can't discuss anything because some are unable to see or think of other options - except an extremely bad one of buying trash for cash and letting the polluters off the hook.

          "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

          by thethinveil on Mon Mar 23, 2009 at 09:49:17 AM PDT

          [ Parent ]

          •  A bit reactive this... (0+ / 0-)

            I haven't yet defended Geithner's plan, or any other.  I don't consider myself qualified to do so.

            I was, however, pointing out an obvious flaw in the original commenter's proposed solution of nationalization without compensation to everyday working Americans who have tried to save through investment, and got took.  That's all.

            I, in fact, CAN think of several other options, all of which I am sure would be flawed as well, and so I keep them to myself.

            Naam!! Tunaweza!!

            by bogbud on Mon Mar 23, 2009 at 11:11:23 AM PDT

            [ Parent ]

        •  Are you insulting those who don't have the money (0+ / 0-)

          who apparently haven't had the foresight to plan for their futures (I doubt any of them have a few hundred thousand set aside under their mattresses for their golden years, either

          To invest in their future. And the blame the borrower argument is just lame.

          The argument against he stockholder has nothing to do with class war - it has everything to do with not incentivizing speculative bad investments in the stock market. That you could actually make an investment without researching the company first.

          The stock market is an insider game - people without the time to do the work should get out.

          "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

          by thethinveil on Mon Mar 23, 2009 at 10:10:15 AM PDT

          [ Parent ]

          •  Have you been paying attention? (1+ / 0-)
            Recommended by:
            rweba

            Even those who have done the work have been f#$%&ed in the past several months.

            Most of those in the stock market in recent years aren't individual day traders, and likely don't even buy stocks in a specific company.

            I trust the administrators of the teachers retirement plan to "do the work", and indeed I trust they did.

            I want to see the system change as much as the next guy.  What I don't want is for the little guy to be left holding the bag.

            I haven't a clue if Geithner's plan will work, but I haven't seen any other plan, other than in "perfect-world fantasy-land" that has blown the roof off of this or any other place!  I stick to student learning and trust the "experts" hired by the guy I hired (largely because of his judgement) figure out a way to reduce the permanent damage caused by the last guy.  I also believe he'll find a superior way forward once the bleeding stops.

            What I most want is that what little my parents have left makes it until my sister finds a job and I find a better paying one.

            Naam!! Tunaweza!!

            by bogbud on Mon Mar 23, 2009 at 10:58:06 AM PDT

            [ Parent ]

            •  So here - is the lesson workers do not put (0+ / 0-)

              your money in the hands of investor you do not trust or in the stock market at all.

              Remember when pensions didn't throw your money into the stock market - well I think it may be time to go back to that system.

              Put our money in Geithners hands after he allowed the crisis to spill over at the NYFED and how he administered the first bailouts money so far - it is not likely that his plan would work based on past experiences with him

              - seeing as how it has little to do with the bad assets anyway, mostly the CDS debt simply has to be written down - which isn't such a big deal because it was fake value anyway.

              "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

              by thethinveil on Mon Mar 23, 2009 at 11:07:12 AM PDT

              [ Parent ]

              •  Those with savings... (0+ / 0-)

                in the current, albeit flawed, system don't have the luxury of reminiscence and thought experiments.  They need first aid to stem the bleeding, and then skilled doctoring to plan the reconstruction and rehabilitation process.

                Once the bleeding stops, I'll be there screaming by your side - I promise!  But first things first... a softer landing for the innocents if we can find it, please.

                Naam!! Tunaweza!!

                by bogbud on Mon Mar 23, 2009 at 11:17:47 AM PDT

                [ Parent ]

                •  Who is arguing for a harsh landing? (1+ / 0-)
                  Recommended by:
                  lotlizard

                  I certainly don't want one - I want unions to work for pension plans that offer non-speculative, non stock market investments. Stock in the banks is already worthless - those who own that stock stand to loose a faily small amount via government take over.

                  This is part of the rehabilitation process - the part of using the good bank or setting up a government bank to handle loans to consumers and home buyers of modest means with low interest rates.

                  Trust me if we let hedge fund managers deal with this - we will be screwed maybe as screwed as the Japanese who have had 10 years of stagnation.

                  At least the Swedish plan got the economy up and running with little wait time.

                  "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

                  by thethinveil on Mon Mar 23, 2009 at 01:05:05 PM PDT

                  [ Parent ]

                  •  Here is where theory and practice just don't jive (0+ / 0-)

                    I want unions to work for pension plans that offer non-speculative, non stock market investments.

                    Investment IS speculative.  And beyond that, where am I as a union worker to derive my contribution to this imagined pension plan if the company that employs me is not able to capitalize its growth or even continued operation through selling shares in ownership (in the stock market)?

                    This non-speculative, non-stock market investment basically becomes the equivalent of stuffing the mattress.  However, forty years of inflation causes this no-return investment to be worth less than if the moths get to it.

                    I am not and never have been a fan of the usurist financial sector that generates wealth out of thin air, and when I had money to invest, except for low-fee, lower-risk indexed mutual funds, only invested in green technologies.  Nonetheless, in savings as in life, one must always strike a balance between risk and reward.  While the system is broke, we can go TOO far the other way and end up no further ahead.

                    Naam!! Tunaweza!!

                    by bogbud on Mon Mar 23, 2009 at 01:56:27 PM PDT

                    [ Parent ]

      •  What??? (2+ / 0-)
        Recommended by:
        Yoshimi, JesseCW

        The bank stockholders have already been wiped out. Banks are trading at $1.

        So, umm...what?

        With him from the beginning, with him until the end.

        by brooklynbadboy on Mon Mar 23, 2009 at 08:47:56 AM PDT

        [ Parent ]

      •  No Pay out is bit extreme, and unconstitutional (0+ / 0-)

        As the bonus tax is.

        If the banks are eager to sell, why NOT buy the toxic assets penny-on-the-dollar.

        •  Hoow is it unconstituitional (0+ / 0-)

          Cities use emanate domain all the time and we nationalized the railroads without a buyout right.

          extreme times call for extreme measures.

          "What is the robbing of a Bank compared to the FOUNDING of a Bank?" Bertolt Brecht

          by thethinveil on Mon Mar 23, 2009 at 09:54:18 AM PDT

          [ Parent ]

    •  And thanks to you, gchauce2, for your (7+ / 0-)

      encouraging sharijr. Her story is exactly the type of thing for which we should educate ourselves in economic matters.
      We live in the richest country in the world and what happened to her, and who knows how many others, is an embarrassment that is only rivaled by our own squandering our wealth.
      I am no expert in economic matters either, but you are dead on with bonddad. I would have not known that he was a voice of reason had I not plowed through some mighty dreary reading of both extremes.
      Oh, and thanks to you, too, bonddad. I listened to your advice and have lost nothing in this downturn.

      I just upgraded internet speed. Now I can be late to the best diaries, faster.

      by mississippi boatrat on Mon Mar 23, 2009 at 09:22:11 AM PDT

      [ Parent ]

    •  You just spoke my mind gchaucer n/t (2+ / 0-)
      Recommended by:
      gchaucer2, Patricia Bruner
    •  You are not going to get an answer either (1+ / 0-)
      Recommended by:
      askew

      They don't know how much it would cost. They aren't willing to discuss any possible downsides let alone entertain the notion that nationalization may not work either.

      So when you raise these commonsensical questions you get back attitude and are told things like "Krugman won the Noble Prize", etc...

      Bonddad, like the President, is willing to admit that all the solutions may not yet be known.We might actually have to make course corrections as we go.

      The other side says their plan will work without a doubt.

      "Most people would sooner die than think; in fact, they do so." ...Bertrand Russell

      by sebastianguy99 on Mon Mar 23, 2009 at 01:36:57 PM PDT

      [ Parent ]

  •  Meanwhile...JPMorgan needs new jets (25+ / 0-)

    Embattled bank JPMorgan Chase, the recipient of $25 billion in TARP funds, is going ahead with a $138 million plan to buy two new luxury corporate jets and build "the premiere corporate aircraft hangar on the eastern seaboard" to house them, ABC News has learned.
    The recipient of $25 billion in TARP money plans to buy two new corporate jets.

    The financial giant's upgrade includes nearly $120 million for two Gulfstream 650 planes and $18 million for a lavish renovation of a hangar at the Westchester Airport outside New York City.

    http://abcnews.go.com/...

    Honest, they really do.

    Here we are now Entertain us I feel stupid and contagious

    by Scarce on Mon Mar 23, 2009 at 07:43:09 AM PDT

  •  Dow rises more than 200 pts in early trading (5+ / 0-)
    Recommended by:
    Fury, Overseas, crystalboy, dmhlt 66, notrouble

    today, and the markets also climb in Europe and Asia.

    "As rain falls equally on the just and the unjust, do not burden your heart with judgments but rain your kindness equally on all." The Buddha

    by fhamme on Mon Mar 23, 2009 at 07:45:39 AM PDT

  •  But what about Krugman?? (21+ / 0-)

    The magic pixey dust liberal economist has already declared the plan a failure.  Why do you not bow to the magic Krugman? Infidel.

    By the way, I am not crazy about this plan although I do believe it is the best of several bad plans.  Lets face it, this situation sucks and there are few good plans that I can think of. Only don't look to the magic Krugman, he is too busy declaring everyone else wrong to tell us what his plan is.

    •  Not Sure How This Plan Anything But Sucks (28+ / 0-)

      The plan is to give money to rich people to buy distressed assets.

      You can call me "Lord Bink Forester de Rothschild."

      by bink on Mon Mar 23, 2009 at 07:46:48 AM PDT

      [ Parent ]

      •  OUR Money (20+ / 0-)

        Not just any money but OUR money.

        RMD

        The Bushiter's Iraq 2004 - 1268 Dead, about 25K Medivacs and 9000 Maimed... It's the Bushiter Way, wasting other people's money and lives. And it's worse now.

        by RedMeatDem on Mon Mar 23, 2009 at 07:49:48 AM PDT

        [ Parent ]

      •  If you nationalize (9+ / 0-)

        and write the shitty shitpile to zero, you'll have to throw in an equal amount of money to keep the nationalized thing solvent, and there's no private money taking a first loss.

        Any plan needs to effectively destroy these assets by throwing money at the problem.  The plans must suck a priori.

        "Dream for just a second and then do it!" -- Kolmogorov

        by theran on Mon Mar 23, 2009 at 07:51:46 AM PDT

        [ Parent ]

      •  That's a misstatement. (19+ / 0-)

        The plan is that the government offers matching funds to entice private investors.  If the investment shows a profit, the investors split the profit with the government.  If the investment tanks, both lose.  You are writing as if the investor gets 100% of any profit and 0% of any loss, and that's plainly not the plan.

        •  That's mostly a misstatement.. (8+ / 0-)

          The private investments lose their equity by the defined definition.  However, there is practically very little chance of them losing a penny.

          The Treasury loses their matching funds.  That's US Folks.

          The FDIC Loses the loans, in full.  That's US folks..

          Remember, Toxic assets, overpriced toxic assets..

          Take this..

          Bank X wants to sell 100M of RMBS, Toxic RMBS..

          Now, it's safe to assume these will bid too much to recapitalize, re-liquify these insolvent, broke, bankrupt organizations.  However, due to the TARP/TALF, etc there will be finds to "invest" in these.  

          The banks and owners of CDSs have an incentive to overbid, but let's say by some miracle the winning bid from the Friends of the banks ends up being 84M..

          Investor Y puts up 6M, Treasury puts up 6M, FDIC guarantees 72M of debt it then sells.  6/1 leverage, 12M = 72M of FDIC guarantees.

          And there are management fees, let's assume over 6M over time.  Wouldn't PIMCO and other asset managers (Morgan Stanley, Merril Lynch, Citi et al.. ) be the perfect people to manage this?

          They will get their "investment" back in fees, and we will lose a TON..

          This is a giveaway, pure and simple..

          B of A will bid on Citi, Citi Will Bid on B of A, they will all buy each other, then the mark-to-market will go up, and there is NO risk for them due to the management fees, TARP, and the non-recourse loans.  

          Also, once the loans are made, what is to stop the "investors" to buy CDS protection on the RMBS??

          Nothing.  

          They will make $ from CDSs on loans that the taxpayer is 100% liable for, with no recourse from the taxpayer to the banks or investors.

          •  There's no guarantee on the $72M debt. (0+ / 0-)

            As I understand it, the FDIC guarantee covers only the government's $6M buy-in (in the example you gave), matching the investor's own $6M buy-in, which the investor uses to buy the "legacy loans."

            If the face value of the loans is $100M and the highest bidder on those loans offers $72M, the plan leverages that at 6:1 for a net bid of $84M.  The bidder puts up $6M, and the government matches that at $6M.  As I understand it, that $12M is the only "real" money in the system; the $72M bid is really a guess at how well those loans will perform.

            If the loans pay out less than $72M, the investor and taxpayers each lose their $6M.  If the loans pay out between $72M and $84M, the investor and taxpayers each lose some portion of their $6M.  If the loans pay out more than $84M, the investor and taxpayers split the profits.  But no one has more than 16.6% of the original bid price at stake.

            I may be misreading the Treasury Department fact sheet, but that's what it looked like to me.

            •  The loans are non-recourse.. (5+ / 0-)

              Those are the words.. And everyone from CNBC to Bloomie has been hitting those words.

              You are right on the equity the way I see it. However, the bid being 84M means someone gets 84M.  Investor Y issues FDIC-guaranteed non-recourse debt for the 72M backed by the full faith and credit of the USG.  The Bank selling gets the 84M.  Investor Y and the Treasury get 6M equity each in a pool of CMBS.  The Treasury is on the hook for 6M, the FDIC for 74M, the Investor for 6M.  

              The loan for the remainder goes from the private buyer to the Banks (In this case Bank X)..

              If the loans pay out less (And they should, and 84 May be a lowball, they MAY be over face, to replenish and re-"bubble"), then once the 12B is lost (and 6 of that is US), the FDIC is on the hook due to the non-recourse to the buyer on the 74M.  

                 

              •  Yes, see below. I'd misread. <nt> (2+ / 0-)
                Recommended by:
                JesseCW, Losty
                •  Sorry, Didn't notice n/t (1+ / 0-)
                  Recommended by:
                  NCrissieB
                  •  You couldn't have known ... (1+ / 0-)
                    Recommended by:
                    lotlizard

                    ... I was posting the "Oops" message while you were posting yours. :)

                    It's worth noting that this plan isn't designed to buy all of the "legacy assets" on the banks' books.  It's designed to sell enough of them between now and October - the period of the "stress test" - to price the "legacy assets" that remain on the banks' books.  Then we'll know which banks really are insolvent and which aren't.  We can take the insolvent banks into receivership, sell their "legacy assets" at prices based on data from sales under this plan, clean up their books, and put them back on the market.

                    For example, if the bid price on a given class of mortgages has averaged 0.60 over the course of this "stress test" period, the FDIC holding a bank in receivership can offer $100M of such mortgages for $5M, where the buyer will lose up to the full $5M if the loans pay out less than $70M, and get 50% of profits if the loans pay out more than $70M.

                    Regardless, that batch of "legacy loans" is off the bank's books at a price that has some reasonable market basis from "stress test" data, rather than the FDIC having to sell it "blind."

                    It's better to think of this as a diagnostic test, rather than as The Treatment Plan.

            •  Misread and I was wrong.... (3+ / 0-)
              Recommended by:
              HarlanNY, Brooke In Seattle, JesseCW

              In fact, the $72M is guaranteed by the FDIC.  So if the loans pay out less than $72M, private investor is out $6M, the Treasury is out $6M, and the FDIC is out the difference between $72M and the actual payout.

              •  Yep, but the FDIC gets the asset (1+ / 0-)
                Recommended by:
                NCrissieB

                Which is still worth something and which they can potentially hold long-term until the asset recovers its value.

                This can also be aided by future government programs that would increase the value of the houses the government owns and make them easier to sell off.

                •  Right ... to some extent. (1+ / 0-)
                  Recommended by:
                  guyeda

                  This particular part is about the "legacy loans," many (but not all) of which will be home mortgages.  The FDIC becomes a non-profit mortgage company, in essence.  If the mortgages pay out at less than the bid value - many defaults, foreclosure sales average less than mortgage balances - the FDIC takes a loss.  If they pay out at more than the bid value, but less than the total price, the FDIC gets paid back but the private investor and Treasury each lose some of their equity stake.  If they pay out at more than the total price, the FDIC gets paid back and the investor and government split the profits.

                  I'm distinguishing between the Treasury taking a loss and the FDIC taking a loss because there is a very important difference: the FDIC, while guaranteed by the government, is funded with premiums paid by the member banks.  With the example I gave, if the FDIC issued a non-recourse loan for $72M, based on the investor's bid, then the investor and Treasury each bought an equity stake for $6M.  Let's say the loans pay out at only $60M.  The investor is out $6M.  Treasury is out $6M (that's We the People).  The other $12M comes from the FDIC, and might well be paid entirely from premiums already paid in, with no additional loss to the Treasury.  It's only if the FDIC doesn't have enough to cover the loss that Treasury must make up the difference.

        •  try informing yourself before commenting (0+ / 0-)

          Under this plan the government puts up 80% in the form of a loan, and the private investors 20%. That's also the split on the downside. But the upside all goes to the investors who simply repay the government "loans" if they sell the asset for a profit.

          I am not going to sit here and be an idle spectator to the diminution, the subversion, the destruction, of the Constitution. Barbara Jordan

          by Lcohen on Mon Mar 23, 2009 at 08:44:40 AM PDT

          [ Parent ]

        •  NO NO NO NO (2+ / 0-)
          Recommended by:
          New Deal democrat, thethinveil

          You apparently missed the whole "non-recourse loans" from the FDIC part

      •  Do you have a pension or a mutual fund or any (15+ / 0-)

        kind of investment in the economy. Then either your money may be going into this, or your wealth is at risk if it doesn't work. Either way, we all have skin in the game. Get used to some people making a mint on the crisis. It always happens. As long as it gets us out of this reasonably soon (by mid-2010) it's something we gotta live with.

        •  LOL (3+ / 0-)

          Dude 2010 is a pipe dream... I still think a lot of you don't understand just how insanely huge this crisis is

          Sigh.. I think this is going to end in violence..... and I dont think its going to be pretty..

        •  Well, There are a few things.. (1+ / 0-)
          Recommended by:
          lotlizard

          One could invest in TIPS, to protect against inflation, or foreign currencies..

          In this plan I have no choice.  When these fail I will be losing as a taxpayer, bringing about inflation, and a chance at Weimar inflation.  

          And, Let's use another example.. A worse case possibility (probability?)

          Let's go back to Bank X.  Bank X has some more CMBS.  Let's say they want to sell 100M More CMBS.  Now, these 100M were from mortgages that were issued in 2002.  In California's Inland Empire, Southern Florida, Cleveland, and Detroit.  If they are bid at 84, and the underlying loans go from 100,000.00 real estate value to 1000.00 real estate value as some homes in Detroit and Cleveland, exactly how much will we get?  0.  And we paid management fees all the way, and we are out 78M.  

          And I forgot, we're also loaning the private investors up to 80% of their investment.  Add 4.75M to that.

          And I forgot, they should (To be prudent) buy CDS on their losses.  So they will make a mint off that.  And we will keep paying out these (See AIG payments to Goldman/Merril while we were bailing out JPM and BAC)

          Now, we have no economy, no income, worthless assets, inflation, and the worst of every world.  

          Then, since people may get mad about this and would want to do anything different, they may lose their minds.  Then we may have President Palin.  Time to relocate to a country that wouldn't do this at that point (I said worse case scenario.  I wouldn't wish this on Iran.)

          And, How exactly would my wealth be at risk?  Bank stocks are flying.  Can you say Guaranteed profits paid for by the taxpayer for 0 value assets??

           

      •  How would you (2+ / 0-)
        Recommended by:
        Overseas, soccergrandmom

        know until we have given it a chance to work? We are in unprecedented territory. I don't understand how anyone can declare it failure when it hasn't even started yet?

    •  actually, Krugman's been pretty clear (23+ / 0-)

      It's time to nationalize the "too big to fail" banks.  Re-parcel them into pieces that make sense and send them back into the marketplace.

      But don't let that get in the way of your rant.

      Do please take a moment to tell me how this is different from something Gramm/McCain would have done, however.

      I am my brother's keeper, I am my sister's keeper. - President Barack Obama

      by ThirstyGator on Mon Mar 23, 2009 at 07:52:30 AM PDT

      [ Parent ]

      •  I think it is a waste of time to compare (16+ / 0-)

        plans like this based on ideology. Who cares if it is liberal or conservative, Dem or Repub? The focus should be on whether it makes sense. Personally, I prefer nationalization but politically I don't think it will fly.  

        As a practicing bankuptcy lawyer, my phone is ringing more lately than ever during this crisis. The foreclosures are not decreasing. The idea that you move "toxic" assets away from the banks to a separate fund that may or may not increase in value later and rewarding an entity to participate is not that bad, even if the gov has to subsidize. You would do that anyway under nationalization.

        The loans in foreclosure I am seeing are pretty consistent, good property but the value was just too high, not only residential but commercial as well. Will they recover that value? Maybe maybe not, but if you restructure the loan and turn it into a performing asset at a reduced interest, that is not a bad plan.  I like you would prefer the government to do this ala the Savings & Loan fiasco.

        Got to run, conference call with client served with foreclosure today.

        •  here's what I want: (12+ / 0-)

          A system that takes the thieves out of the picture.  Simple.  The people who have the opportunity to invest in these government-subsidized asset grabs are the same thieves who got us into this mess.  You don't see that making the problem worse?

          I am my brother's keeper, I am my sister's keeper. - President Barack Obama

          by ThirstyGator on Mon Mar 23, 2009 at 08:09:03 AM PDT

          [ Parent ]

          •  I also want to win the lottery (7+ / 0-)

            but that's not going to happen. I want the same as you do, and I have seen incredible executive abuse in corporate America over my career. American corporations are nothing more than looting vehicles for a handful of insiders that sit around and concoct Enronesque schemes to enrich themselves at the expense of the corporation and taxpayers. This has been going on for years.  What you are proposing is to change the fundamentals of American capitalism, and I don't think we can do that right now. Right now we need to stabilize a dangerous, worldwide financial meltdown. This plan might do that.

            But don't listen to this jaded lawyer who has been beat down by the system. Keep up your diligence against the thieves because they are responsible for this mess, but keep in mind, not every CEO, banker or fund manager is an asshole. Most in fact are decent. Here in the Midwest, most banks are in good standing because they stuck to banking, not scheming.

            Take action. Don't patronize the mega-banks (Citi, BOA) go local. Get into a credit union. This is good for you and hopefully will lead to the demise of these mega-institutions that call themselves banks but are not engaged in banking but scheming.

      •  Just curious... (3+ / 0-)
        Recommended by:
        wader, malharden, mnguy66

        I like the idea of breaking up these large financial companies, but that strikes me as an independent effort.  I mean sure let's do it now and then we have more smaller firms holding toxic assets and not lending instead of just a few big ones not lending.  How does that help with the immediate crisis?

        What plan does Krugman specify for handling the toxic assets?

      •  Yeah, well, guess who gets stuck with the toxic (1+ / 0-)
        Recommended by:
        wader

        assets then? Yep. we the taxpayers. This solution doesn't prevent that from happening.

        •  but as I mention above ... (5+ / 0-)

          it keeps the pirates/thieves who got us into this out of the picture.  This is going to reward the very same people who are responsible for it.

          I am my brother's keeper, I am my sister's keeper. - President Barack Obama

          by ThirstyGator on Mon Mar 23, 2009 at 08:10:06 AM PDT

          [ Parent ]

        •  Not a bad thing as long as we don't overpay (0+ / 0-)

          As I've been saying, the underlying house/land still has value.  

          The housing market tanking just means the house's current market worth + the mortgage payments before the buyer got foreclosed on is worth less than the amount the bank paid for it.

          All you have to do is hold on to the asset until housing values come back up.  

          Hell, we could even rent these out in the interim.

      •  What exactly (0+ / 0-)

        is a too big to fail bank?

        I don't care what political philosophy that brings our country out of our economic crisis. If it is Mccain, great. If it is Obama, great. I just want to have a job.

      •  As soon as Krugman explains (0+ / 0-)

        how this nationalization of banks bigger than ever attempted before will not potentially collapse the markets and government, I will be all for his plan.

        "Nationalize!" is easy to say. But I'd guess that in Obama meetings they are very concerned about the potential market damage and the size of these firms. As someone else pointed out, there are issues when corporations become essentially bigger than the government.

        •  Proving a negative? (2+ / 0-)
          Recommended by:
          ThirstyGator, thethinveil

          Can you explain how nationalizing the banks is going to collapse the markets and government?  Its been done before without those consequences.  How is it different this time?

          A conservative is a man with two perfectly good legs who, however, has never learned how to walk forward. FDR

          by Betty Pinson on Mon Mar 23, 2009 at 10:42:15 AM PDT

          [ Parent ]

          •  It has never been done before like this (0+ / 0-)

            This is not your local S&L. These are corporations that hold more derivatives (summed together) than the entire GDP of the world. For the government to take this on directly exposes the USA itself to sovereign default, IMO. But as far as 'collapse the markets', look at what happened over the last year as other (smaller) firms were taken over, and consider what will happen to the markets if the government were to announce nationalization of Citi and BofA. At a minimum, it is a whole nother dice-roll with equally-serious risks.

            People act as if nationalizing these mega banks is a piece of cake, as if we do it all the time. We don't. RTC was small potatoes compared to this.

  •  This is exactly the kind of diary I need to read (14+ / 0-)

    one that explains the terms and meanings of arcane, to most people anyway, terms, making us possible to understand and delve deeper into the possibilities and potenialities as well as alleviating some of our anxiety.

    The rhetroric that is still emanating from the mouths of Congress people and Senators, and media, is still appalling, fueling vengeance and violence as the solution to all the world's  economic woes.

  •  Bonddad = Traitor! Evil person! Anti-Krugman! (15+ / 0-)

    How dare you disobey the all-knowing prophet Krugman and say the plan might work.

    You're anti-American! And in bed with Maddoff and the Wall Streeters!

    /snark

  •  Ok maybe I'm thick (1+ / 0-)
    Recommended by:
    OnlyWords

    but my question doesn't have to do with what happens if the asset loses money but what happens if it gains.  I see a general statement that if the asset goes up in value then both the Buyer and the Government get a return, but the process, as laid out, doesn't seem to bear that out.  Anyone care to explain?

    •  From what I've read (2+ / 0-)
      Recommended by:
      Overseas, OnlyWords

      the government could make a shitload of money if these things turn around.

      In 1993, NO Republicans voted for the most successful economic program in history. NOT ONE. Wrong then, wrong now.

      by The Creator on Mon Mar 23, 2009 at 08:05:43 AM PDT

      [ Parent ]

    •  Yes, simply. (2+ / 0-)
      Recommended by:
      HarlanNY, Primordial Ooze

      If an investment turns a profit, the investor and the government split the profit.

      On "legacy securities," the government's share would be up to 75%, because the government will have matched the investment at 1:1, plus an equal-sized automatic loan, plus the option for another loan of equal size.  So Private Investor puts up $100, Treasury puts up $100, plus a $100 automatic loan, plus the option for another $100.  If the investment shows a profit, Private Investor and government split the profit and use those proceeds to pay back the loan(s).

      On "legacy loans," it's a bit more complex, as it depends on the sale price of the loan.  If the face value of the loan is $100 but the highest bid on it is $72, the government offers max 6:1 leveraging, so the actual purchase price is $84.  Private Investor puts up $6, and the government puts up $6.  If the loan actually pays out $88 at maturity, Private Investor gets $2 and government gets $2.  If the loan pays out less than $75, Private Investor loses $6 and government loses $6.

    •  50-50 split on profits in the plan n/t (0+ / 0-)

      The Justice Department is no longer a credible defender of the rule of law or the Constitution.

      by Overseas on Mon Mar 23, 2009 at 08:43:27 AM PDT

      [ Parent ]

      •  It's not 50-50. It's 97% to 3%. (5+ / 0-)

        Guess who assumes the 97% here?

        •  97% is worst-case, but even so (7+ / 0-)

          I'd much rather the taxpayer break even and the economy recover quickly, even if some teacher pension funds end up making lots of money.

          car wreck : car insurance :: climate wreck : climate insurance

          by HarlanNY on Mon Mar 23, 2009 at 08:55:37 AM PDT

          [ Parent ]

        •  Worse yet, the Wall Street buyers and sellers are (2+ / 0-)
          Recommended by:
          Snarcalita, Areopagitica

          one and the same.  As a business person I'd gladly sell all of my existing accounts receivable at 75%- 85% of par value. Who are they kidding, this plan is the largest piece of corporate welfare ever put into place.  As to getting banks to resume lending, I do not dispute that some that need loans are not currently getting them, but remember what got us into the present fix, i.e., unmitigated and unregulated give away lending practices. And one other thing, given CNBC's recent denigration of Obama over the last 45+ days, I wonder why the stock market is up 4.5%+ today.  Kind of sounds like the local fox congratulating the farmer for purchasing a cat to protect the chicken coop, now the fox has a partner in crime.  

          Dreams have a way of betraying you when you use them to escape. Ask yourself why you dream what you dream.

          by brjzn on Mon Mar 23, 2009 at 10:21:07 AM PDT

          [ Parent ]

          •  Selling you Accounts Receivable (0+ / 0-)

            If you would sell you Accounts Receivable at 75% of par you are either desperate for cash or doing a terrible job of granting credit.  You can easily get more from a good factor.  I also question you comment that the buyers and sellers are the same.  The funds are the buyers and the banks are the sellers.  Different animals.

    •  Sigh. And Everybody Has a Share. (1+ / 0-)
      Recommended by:
      Snarcalita

      Thank God I held on to my shares in M&M Entreprises!

  •  Thanks, Bonddad (6+ / 0-)
    Recommended by:
    mattman, Nina, evora, Dems 2008, zizi, OnlyWords

    Walking through various explanations of economic policy that my English lit major mind can't quite wrap itself around has been exhausting. Yours was clearest. Now to decide how I feel about it...

    Liberal parenting funnies at The Hausfrau Blog

    by jamfan on Mon Mar 23, 2009 at 07:48:49 AM PDT

  •  If the value is dependent on house prices ... (9+ / 0-)

    If the asset value is dependent on house prices returning to 2006 levels, then I don't see how this can work. House prices still need to drop another 20-30 percent in many markets to go back to pre-bubble levels.

    If this program is in anyway based on hoping that the bubble will re-inflate, I don't see how it can work.

    My name is Douglas Watts.

    by Pometacom on Mon Mar 23, 2009 at 07:49:08 AM PDT

    •  Not necessarily (12+ / 0-)

      IMHO the asset value is dependent on folks in general continuing to pay their debts, their mortgages, their HELOC, their car payments.

      Have most of the speculators already walked away from their bubble properties? DO most of the people left have skin in the game in the form of equity or a credit rating to protect?

      If so, then these assets will have some, maybe even significant value.

      That is only likely to be so if unemployment holds were it is and doesn't get appreciably worse.

      That is only likely if lending remains somewhat cheap and, more importantly, pretty freely available.

      It's so bleedin circular it makes my head hurt.

      Banks CAN make money, borrowing at 1 or 2% and lending at 4 and 5%.  That is what they need to do.  And if this will help them do it, and I think that it will, then it needs to be done.

      But I want repeal of the Glass Steagall repeal and I want repeal of the CFMA and I want repeal of whatever law exempting derivatives from the gaming rules, etc.

      •  Partly depends on CDO prices, too (2+ / 0-)
        Recommended by:
        trillian, Primordial Ooze

        Even in the most toxic of "legacy" assets (like CDOs made from mortgages), there are likely to be at least 50% of mortgages that are still paying off, and there should be a return of at least $.50 or $.60 on the dollar from selling repossessed properties.

        So if the CDO is feared to be worth only $.25 on the dollar, then its possible people can figure out it should really be worth $.50-$.60, and the value would climb - regardless of what has happened to the value of the houses.

        The real cost to the banks is this:

        Instead of pretending a CDO is still worth 100 cents on the dollar, banks would essentially have to step outside the fictions of their suspended "mark-to-market" accounting and actually recognize the losses.

        Bonddad makes a good point that banks may think twice about this.  Banks may choose to free-ride.

        What does that mean?

        If I'm a bank why not let some other sucker bank put its assets in the kitty and see them definitively revalued through sale, while I hold on to mine (in the hopes of capturing more upside down the road if housing values come back) - not that I don't appreciate learning the real value of my portfolio by looking at the sales prices of those comparable CDOs...

        Seems to me there will have to be another stick to get banks to participate - e.g., reinstating mark-to-market accounting requirements.

        We must pick ourselves up, dust ourselves off, and begin again the work of remaking America.

        by Minerva on Mon Mar 23, 2009 at 08:58:50 AM PDT

        [ Parent ]

    •  define "work" (5+ / 0-)

      If I represent an organization that can afford to get in on this, I have very little risk and I'm buying an asset at a reduced rate.  I don't need it to get back to 2006 levels, I just need it to be better than it is today.  And if it DOES lose value, remember, I have very little skin in the game, so my losses are protected.

      And if I represent the bank that currently owns the asset, I'm THRILLED because somebody's going to finally buy the crap I've been stuck with.

      So everybody wins ... except the taxpayer.

      I am my brother's keeper, I am my sister's keeper. - President Barack Obama

      by ThirstyGator on Mon Mar 23, 2009 at 07:57:13 AM PDT

      [ Parent ]

      •  no, you can lose 100% of your money (0+ / 0-)

        And if it DOES lose value, remember, I have very little skin in the game, so my losses are protected.

        No, that's not true. If the assets are worthless, under the program you lose 100% of your equity. (At least, that's what I read about it.)

        car wreck : car insurance :: climate wreck : climate insurance

        by HarlanNY on Mon Mar 23, 2009 at 08:46:10 AM PDT

        [ Parent ]

    •  Exactly (3+ / 0-)
      Recommended by:
      wader, JesseCW, Losty

      Even Erin Burnett, Wall Street Head Cheerleader said yesterday on Meet the Press:

      "When we're trying to talk about can we get lending--all of these acronym plans we're talking about are trying to reinflate the economy.  And the question is, can it be reinflated?"

      Oh, well, this gamble is just being backstopped by taxpayer's money, after all.  It's not like this is a big risk for the wall street big shots, so what's to worry about?

      One cannot deny the humanity of another without diminishing one's own. James Baldwin

      by CarolynC967 on Mon Mar 23, 2009 at 07:58:11 AM PDT

      [ Parent ]

    •  do you have a dataset on this? (0+ / 0-)

      I don't know where you think house prices need to drop 20-30%.  Where?  Which markets?

      Justice, mercy, tolerance, hope, love, grace, and redemption are all Judeo-Christian values.

      by Benintn on Mon Mar 23, 2009 at 08:27:39 AM PDT

      [ Parent ]

  •  So this is why the Repubs decry doomsday (11+ / 0-)

    The introduction of rational decisionmaking to national politics raises the bar prohibitively high for their continued participation. :)

  •  N.B. it's Geithner with an H /nt (6+ / 0-)
  •  Please spell his name correctly (4+ / 0-)
    Recommended by:
    SLKRR, Rita in DC, askew, Addison

    since you're on the rec list.

    "This union may never be perfect, but generation after generation has shown that it can always be perfected." - Barack Obama (3.18.08)

    by lapis on Mon Mar 23, 2009 at 07:54:03 AM PDT

  •  Shorter version: this is a huge gamble. (6+ / 0-)

    You end with, "There are no guaranteed solutions," alluding to the risk that taxpayers will be left holding the bag, if the plan fails.
    So this is a gamble with gazillions of dollars of taxpayer money in play.
    Why am I not reassured?  

    One cannot deny the humanity of another without diminishing one's own. James Baldwin

    by CarolynC967 on Mon Mar 23, 2009 at 07:54:27 AM PDT

  •  Here's the ONE lynchpin: (21+ / 0-)

    Private bidders arriving at a price the banks are willing to take.

    Since banks "haven't been willing to take" the bids of private players - because that would mean they are insolvent - that means the government must pay more than market for the assets. (which means, Geithner et al are continuing to view the problem as lack of liquidity rather than insolvency).

    Yves Smith says, as pointed out already in a comment, the possible loss to the "private investors" is only 3%.  The taxpayer is taking all of the rest of the risk, and getting far less of the upside potential.

    Essentially, this is Paulson's original plan, dressed up to include competitive bidding by government subsidized buyers (i.e., taxpayers will bid against themselves, which is, um, strange) and the private player has 3% skin in the game.

    At the moment, I'm not buying.  I am going to read the informed opinion today, and maybe post a diary that isn't "instant analysis" tomorrow.

    "When the going gets tough, the tough get 'too big to fail'."

    by New Deal democrat on Mon Mar 23, 2009 at 07:54:29 AM PDT

    •  "Pay more than market" (2+ / 0-)
      Recommended by:
      Yoshimi, crystalboy

      is getting thrown around an awful lot without discussing what it really means.  Right now there is NO effective market for these assets.  That doesn't mean that they are worthless.

      Likely they are worth more than the firesale prices being offered but worth something less than what the banks think they are worth.

      •  There is "NO effective market" because... (6+ / 0-)

        ... banks don't want to sell for what hedge funds, etc. are willing to pay.

        You know, like house-flippers didn't want to sell in 2007-2008 for what potential buyers wanted to pay.

        There was a market, sellers just didn't want to take the loss.

        "When the going gets tough, the tough get 'too big to fail'."

        by New Deal democrat on Mon Mar 23, 2009 at 08:07:33 AM PDT

        [ Parent ]

        •  When nobody will buy something.. (0+ / 0-)

          The Value is 0.  That's the market.

          Think used toilet paper.  Happy New Year 2001 merch.

          •  So, when home sales tanked, that meant (5+ / 0-)

            houses were free?  Wow, I missed out!

            The market is "frozen".  Buyers and sellers can't agree on a price.  That's not the same as "the value is zero."

            "When the going gets tough, the tough get 'too big to fail'."

            by New Deal democrat on Mon Mar 23, 2009 at 08:58:26 AM PDT

            [ Parent ]

            •  Not for something that Has Value. (1+ / 0-)
              Recommended by:
              lotlizard

              Homes in Cleveland are selling, just nowhere Near the mortgages.  45% of sales in the last report were "distressed" sales.

              Note the examples above, for no intr.

              For the CDS and CDOs..

              OK,  Better Example:

              Say I have a $50 ticket at 10-1 on Tony Stewart winning the Food City 500.  How much would you give me for it???

              There is no value in that ticket, as Kyle Busch won, but I Still have that bet.  Look at the intrinsic value on CDOs, and Look at the intrinsic value on a 100K mortgage on a house in Cleveland now worth 1,000.00  

              Now lever that 30-1.  3 Million worth of CDOs backed by a house now worth 1,000.00

              And, Merril sold some recently, 22 cents, and we loaned them 75%.  If they fail..

              The intristic value is so small on a good # of these.. WHo would the Banks be up today this much??  

              Free Money, from Us to Them.  

        •  Right but my whole point (1+ / 0-)
          Recommended by:
          Yoshimi

          is a market like that DOESN'T establish or represent true value.

          Market price is a reflector of value only when the seller is not under any kind of a compulsion to sell.

          •  So only home sales in 2005-6 were correct? (0+ / 0-)

            We can ignor 2007-9 sales, because sellers were "under pressure"?

            "When the going gets tough, the tough get 'too big to fail'."

            by New Deal democrat on Mon Mar 23, 2009 at 08:59:36 AM PDT

            [ Parent ]

            •  No (0+ / 0-)

              I am saying "market price" and "value" are two different concepts.  When you have buyers and sellers agreeing on a price, neither being under any type of a compulsion to buy or sell (and neither having any artificial incentive to buy or sell), that price is likely to reflect the value of the asset.

              However, that wasn't the case in a bubble market where folks had an artificial incentive to overspend.

              And that is not the case in certain markets right now.  For example, take a real estate market that has been hit hard and really tumbled.  You might have a home worth 100k but because so many buyers are fearful, rationally or irrationally, or can't get financing maybe the only offer you get is from a cash rich vulture slumlords for 50k. You might be in a desparate situation and have to sell, even for such a crappy offer, so 50k is the going market price for your house in that market. But if you didn't have to sell, you wouldn't because the current market price does not reflect value.  Maybe the government steps in for whatever reason and buys it for 75k.  It would be paying more than "market price" but still might be getting a good deal.

              All I am saying is that if we are going to talk about paying more than market price for these toxic assets we need to be clear what it is we are talking about, their current trading value in a non-functioning market or their intrinsic worth or what...

    •  New Deal, from a layman's perspective (4+ / 0-)

      this sounds like an attempt to "bubble" up asset prices with the government acting as chief bubble blower. Am I wrong? How is this not an attempt to simply create another bubble?

      If you see mistakes in this post, it's because my editor's on vacation. Sorry.

      by TKinVT on Mon Mar 23, 2009 at 08:12:23 AM PDT

      [ Parent ]

      •  I want to actually read the plan (11+ / 0-)

        and some commentary before I say too much in detail (although the initial signs aren't good).

        Lack of liquidity means the asset is really worth X but because of a temporary emergency, I can't cash it in at full value.  If I can get tided over, the asset will be worth X again.

        Insolvency means the asset really is worth less than X, and if I cash it in, I'm out of business.

        This plan assumes that the problem is more one of liquidity than solvency, and if we can just get over this temporary emergency, the assets will be worth close enough to X that the banks stay solvent and normal lending resumes.

        I don't think there's an attempt to inflate a new bubble, but it sure seems that there's an attempt to halt the collapse of an existing bubble.

        "When the going gets tough, the tough get 'too big to fail'."

        by New Deal democrat on Mon Mar 23, 2009 at 08:20:20 AM PDT

        [ Parent ]

        •  Kinda-sorta.... (8+ / 0-)

          I reviewed the plan, and I'm not an economist, but basically this plan is more akin to a diagnostic test than a treatment plan.  Right now there's too much we don't know and can't know.

          On the one side are economists like Krugman who believe that we have not yet hit bottom and thus that whatever data we gain from this plan (and it's really about finding out where we are as of October 2009) will fall short of the true extent of the damage.  Moreover, Krugman and others believe that by waiting until October to decide what banks are insolvent, we'll let an already shaky banking industry become irreparably insolvent, because Obama will not have the political capital to step in once we know how bad it really is.

          On the other side are those who think we're probably at or near bottom now, and that by sounding out the true value of these assets and their derivatives from now until October, we can know their "bottom" market values.  We can then look at banks' asset sheets in October and know which banks are insolvent, and which are simply liquidity-starved due to the present chaos.

          So it's some of both in Geithner's plan.  It looks like the objective is to stimulate enough trading to sound out the market and find out what the real "bottom" values of these "legacy assets" are.  The plan doesn't imply it's entirely a liquidity issue; the plan essentially says "we don't know if it's a liquidity issue or a solvency issue, and here's one way to find out."

          The problem with Krugman's criticism, in my view, is that he's judging this plan as if it were the treatment.  In fact, as best I can tell, the plan is more like a set of diagnostic tests.

          But as I said, I'm not an economist.

    •  Exactly (2+ / 0-)
      Recommended by:
      bigchin, JesseCW

      I don't see how this does much more than provide further impetus for future dollar devaluation through our ever increasing debt.  We are throwing so much bad money after bad, that the inflation brewing in the system is going to boil over at some point.

    •  James K. Galbraith at Firedoglake has a response (0+ / 0-)

      … to Geithner's plan that may be worth a read here.

      The Dutch children's chorus Kinderen voor Kinderen wishes all the children of the world a happy holiday season!

      by lotlizard on Mon Mar 23, 2009 at 09:12:50 PM PDT

      [ Parent ]

  •  Thanks for writing a diary that does not (23+ / 0-)

    resort to childish name calling of anyone's point of view on the economic situation and alternative plans.  Way too much name calling going on in the other diaries.  

    "Live in the sunshine, swim the sea, drink the wild air." - Ralph Waldo Emerson

    by Blue VA on Mon Mar 23, 2009 at 07:55:04 AM PDT

  •  More analysis would be helpful, Bonddad (1+ / 0-)
    Recommended by:
    Areopagitica

    Most of the diary is just a cut and paste of the Administration press release.

    But thanks anyways for doing what you have done.

    My name is Douglas Watts.

    by Pometacom on Mon Mar 23, 2009 at 07:56:10 AM PDT

  •  Krugman is right about this plan (17+ / 0-)

    it will eventually fail. Its lemonade socialism, taxpayers get all of the risk, private hedge funds get most of the upside.

    The administration sets up a false straw man.  There is an alternative, its called Chapter 11 and the FDIC comes in, sells off the bad assets and pays off the depositors.

    This plan is just a do-over of Paulsons MLEC plan of 2007,a super-SIV to buy up toxic assets at above market prices.

    This really is not change we can believe in.

    •  All hail Comrade Krugman!!!!!! (1+ / 2-)
      Recommended by:
      askew
      Hidden by:
      lgcap, Betty Pinson
    •  Chapter 11? (5+ / 0-)

      Yes, that worked so well for Lehman and Bear Stearns. Can you imagine the Domino effect if AIG fails? It would dwarf the domino effect that our economy felt from Lehman/Bear Stearns.

      I truly don't understand why people keep quoting Krugman. He was not exactly on the ball during the 1990's.

      •  Bear Stearns did not file Chapter 11 (1+ / 0-)
        Recommended by:
        JesseCW

        they were bailed out by Tiny Tim and sold to JPMorgan.

        Which was a problem, because it created an expectation that the Feds would do that for everyone.  Once that expectation was in the market there was no reason to fix their balance sheets which only made matters worse.

        The shit did not hit the fan with Lehman going down, risk spreads did not hit their peak levels until a month later when TARP was passed.

        I have long been a critic of Krugman, but even a blind squirrel finds an acorn and he has found one this time.

    •  How will that work? (1+ / 0-)
      Recommended by:
      kfd313

      What will you do about the bad debts still on the books?

      Justice, mercy, tolerance, hope, love, grace, and redemption are all Judeo-Christian values.

      by Benintn on Mon Mar 23, 2009 at 08:31:03 AM PDT

      [ Parent ]

    •  I'm not willing to jump off the cliff with you... (1+ / 0-)
      Recommended by:
      crystalboy

      into the darkness without knowing what we're jumping into and how far we'll fall. That is exactly what you are proposing. L

      et 'em fail is the biggest risk and possibly the costliest "solution" of them all.

      Sorting out which banks are "viable" and having an FDIC takeover of the really dead ones might be an alternative. But Geitner's is less risky than that. If it doesn't work, we'll be doing that by the end of the year.

      •  When banks fail (0+ / 0-)

        it is the responsibility of the FDIC to come in and sort things out, sell off the assets, pay off depositors.

        The risk in the Geithner plan is the massive moral hazard it creates. It does nothing to change the management or the policies of the banks that got us into this mess. It also undermines the dollar and risk the loss of foreign investors in the long run.

        •  These aren't ordinary banks...AIG and others have (0+ / 0-)

          more than deposits and are like spider webs througout the world system. You aren't going to go in easily on Friday, ensure depositors and reopen on Monday. This is far beyond your simple solution.

          And letting 'em fail probably means bringing down the entire financial system. FDIC is too small to stop it.

    •  Daisy, you socialist!!!! n/t (0+ / 0-)

      "When the going gets tough, the tough get 'too big to fail'."

      by New Deal democrat on Mon Mar 23, 2009 at 08:55:20 AM PDT

      [ Parent ]

    •  probably a dumb question, but (0+ / 0-)

      if the alternative is Chapter 11 and then next step is "selling off bad assets" who would buy them and for how much and how would this help stabilize anything? I mean, if the assets are worthless does Chapter 11 make them more valuable, or sellable? Isn't the problem the same--assets aren't worth a damn? How would Chapter 11 make them more more enticing to buyers? Who would these buyers be?

      (No real knowledge about this, so be patient! Tell it to me like I'm 5, if you please.)

      "Americans wish to be settled. Only so far as they are unsettled is there any hope for them" -Emerson.

      by kfd313 on Mon Mar 23, 2009 at 09:23:27 AM PDT

      [ Parent ]

      •  If the assets are worthless (0+ / 0-)

        then we need to have the banking system recognize them as such.  Carrying them at fantasy prices does nothing to address the insolvency of the banking system.

        Yes the assets are not worth a damn.  That's why you need Chapter 11 for these entities. You also have the advantage of getting rid of the managements that created these problems and the moral hazard that comes from bailing them out.

  •  My only question is (4+ / 0-)
    Recommended by:
    shycat, CarolynC967, ohmyheck, washunate

    How is this price discovery, given that the downside risk is borne by the taxpayer?

    •  I don't think it fully is (4+ / 0-)
      Recommended by:
      sacrelicious, Overseas, Sanuk, crystalboy

      I have yet to see the details, but it seems like the private investor could lose 100% of their investment if the assets turn out to be worth nothing at all. Of course, since the investor is using taxpayer money to leverage the size of the investment, the taxpayer loses more if you're counting dollars, but it's certainly an incentive for the investors to do a good job analyzing the assets before they buy them!

      car wreck : car insurance :: climate wreck : climate insurance

      by HarlanNY on Mon Mar 23, 2009 at 08:36:59 AM PDT

      [ Parent ]

      •  No, I suppose that's true (1+ / 0-)
        Recommended by:
        sacrelicious

        If the gov puts up 97% and the investor 3%, if the assets turn out to be worth nothing then the investor will lose it all. But that's not really the question, from what I can tell. It seems to be that the bank thinks they're worth 60% of face value, private investors currently will pay 30%. So the government is providing the incentive to close that gap. They won't be worth nothing, but we won't know what they're really worth until people start buying them without a government guarantee.

        •  or until they mature (0+ / 0-)

          I believe that the plan is to mostly sell to long-term investors, who may hold many of the assets until they're paid off by the original borrower (or not). There's more than one way to price a security...

          car wreck : car insurance :: climate wreck : climate insurance

          by HarlanNY on Mon Mar 23, 2009 at 09:53:07 AM PDT

          [ Parent ]

          •  The whole "hold to maturity" being different (0+ / 0-)

            from the market price is bs also. The market price is the present value of the expected returns over the life of the loan. The problem is that the borrowers on the vast majority of these loans never intended to pay on them for more than 2-5 years, at which time they had counted on refinancing. Now, with their equity gone, they can't do and that's a major cause of the crisis. People are not going to be able to pay these loans over the long term, that's why the present value calculation of them is so low.

            •  that's *part of the reason why* the PV is so low (0+ / 0-)

              Sure, of course. It's the difference between liquidity and insolvency. I think everyone agrees there's both, but the question is how much of each. I don't think it's likely to be 100% insolvency...

              car wreck : car insurance :: climate wreck : climate insurance

              by HarlanNY on Mon Mar 23, 2009 at 10:16:57 AM PDT

              [ Parent ]

    •  Well, you would know "the score" across banks (1+ / 0-)
      Recommended by:
      Betty Pinson

      Right now, its all just guessing, regardless of who bears the "downside risk."

      Of course Galbraith makes a good point that you could also look in the books and probably estimate the values of particular CDOs pretty well...

      We must pick ourselves up, dust ourselves off, and begin again the work of remaking America.

      by Minerva on Mon Mar 23, 2009 at 09:01:20 AM PDT

      [ Parent ]

  •  From what I understand, the main (7+ / 0-)

    problem with nationalization is that it apparently only works for the Swedes.  I mean, there are Americans of Swedish descent, but not enough I guess to really make it work.

    If you see mistakes in this post, it's because my editor's on vacation. Sorry.

    by TKinVT on Mon Mar 23, 2009 at 07:58:32 AM PDT

  •  private sector ponies (0+ / 0-)

    While this crisis was caused by banks taking too much risk, the danger now is that they will take too little

    What really caused this crisis?  Was it really because of bad assets???  Or was it really because of 8 years of not having to pay taxes.  Now the tax payer has to bail out the system.  Where did all the money go into private pockets of the "non taxpayer".  That's what they are, the richest of the rich, they are non taxpayers.

    Maybe this deal will lure them out of hiding.  They got all that free money, with NO incentive to put it back into the system.  So now they have pockets full of money but if the economy collapses underneath their money won't do much good.  In fact, once inflation kicks in it will water down all their cash and they'll be desperate for a vehicle to reinvest.

    The force of public opinion cannot be resisted when permitted freely to be expressed. Thomas Jefferson

    by Thea VA on Mon Mar 23, 2009 at 07:59:07 AM PDT

  •  Krugman said this is DOA (20+ / 0-)

    so I'm not even going to read anything about it and just call for a bunch of people to resign.

  •  Until someone presents a better alternative... (14+ / 0-)

    this is the plan we're trying. I wish people who don't know squat would stop proposing ridiculous solutions and those who don't have a better idea stop carving up into little pieces every attempt to do something

    Let's hope it works...because if it doesn't we're going down the rabbit hole spiraling into Depression.

    I'm not happy but I'll support this one with fingers crossed.

    •  Sorry, but bullshit (20+ / 0-)

      no better alternative has been presented?!?!  What planet have you been living on the last six months???

      Not just Krugman, but economists and others from across the board have been suggesting the Swedish/FDIC/RTC plan that has already worked twice in the US, in the 1930s and 1980s.  Instead of pouring infinite cash down the gullets of zombie insolvent bad banks, you give capital to good banks that are not in trouble, to help them expand their book of business, and take over and sell off the zombies and/or you create your own "good bank" anew, to retart lending going forward. If something's left after the toxic crud is sold, the remaining bank is re-privatized.

      The fact that you have apparently been covering your ears does not mean people haven't been shouting from the rooftops.

      "When the going gets tough, the tough get 'too big to fail'."

      by New Deal democrat on Mon Mar 23, 2009 at 08:10:13 AM PDT

      [ Parent ]

      •  Apples and oranges (3+ / 0-)
        Recommended by:
        askew, Minerva, Imipolex

        The Sweden situation is totally different than ours. We have 8300 banks, Sweden has 5. They have strong unions. We do not. It is apples and oranges.

      •  How is Nationalization/Re-Privatization different (2+ / 0-)
        Recommended by:
        IndySteve, Betty Pinson

        Taking over the banks and dumping their toxic assets on the market, then re-privatizing them seems to be the same thing as Geithner is doing except that the banks' stockholders are wiped out.

        I don't see how Krugman's plan is better because the result, from the market's perspective is the same.

        •  No (4+ / 0-)

          Good bank vs. bad bank.

          You can take over the "good bank" and let the bad assets go.

          Or, you can take over the "bad bank" by overpaying for the assets.

          The first frees up credit immediately for the future, the second continues the current quagmire.
          In the first, you don't have to overpay.  In fact, you are taking over at near or at bottom dollar.

          In the second, the taxpayer takes much more risk for less reward than the first.

          "When the going gets tough, the tough get 'too big to fail'."

          by New Deal democrat on Mon Mar 23, 2009 at 08:29:57 AM PDT

          [ Parent ]

          •  How do you know you are not overpaying? (1+ / 0-)
            Recommended by:
            crystalboy

            There is NO MARKET VALUE for these banks, good or bad, because the toxic assets' value is unknowable given the lack of a market for them now.

            So there is no way to set a fair market value price for nationalizing these banks that are holding toxic assets.  That has been the problem all along and nobody has figured out how to create a market for these toxic assets.

            The solution is to incentivize buyers of foreclosed houses to clear them from the market and eliminate the toxic assets permanently while stabilizing house prices and reducing future foreclosures in the process.

            •  If you're bankrupt, and have no buyers (0+ / 0-)

              then the government is going to pay bottom dollar.

              "When the going gets tough, the tough get 'too big to fail'."

              by New Deal democrat on Mon Mar 23, 2009 at 08:54:24 AM PDT

              [ Parent ]

              •  Bottom Dollar = Zero (0+ / 0-)

                These banks are insolvent due to the toxic assets so they have no value at all, yet they are profitable because other assets they have, like credit cards, are performing.

                So wiping out Citigroup, for example, would eliminate credit cards for millions of American consumers thereby plunging the nation into the Great Depression 2.0.

                Nationalization would be hugely disruptive to the credit markets.

                •  Nonsense (2+ / 0-)
                  Recommended by:
                  Brooke In Seattle, JesseCW

                  Of course, I'd be perfectly happy for Uncle Sam to get Citi for free.

                  As for the public losing credit cards, I imagine there are a few 10,000,000's who would love to see their Citi credit card debt go to zero (wouldn't happen but it'd be nice).

                  And one thing we know for sure, is that profitable banks like UMB which stayed out of this mess would never issue credit cards to former Citi consumers, right?

                  "When the going gets tough, the tough get 'too big to fail'."

                  by New Deal democrat on Mon Mar 23, 2009 at 09:08:50 AM PDT

                  [ Parent ]

                  •  Why would anyone want Citi, free or not? (0+ / 0-)

                    It is a complete mess that would take the government years to sort out and probably has negative value.

                    So you have no problem disrupting the credit card market in the middle of the worst recession since the 30's?  You do know that consumer demand is 70% of the economy, right?

            •  Nope (1+ / 0-)
              Recommended by:
              New Deal democrat

              There is a market value for the "good assets" which would be purchased to create the good bank.  It is the toxic/bad assets that have no current market value.  These would be left for work out by the geniuses who created them.  If the toxic assets recover in value, bully for them.  If they don't, the shareholders of the troubled firm are wiped out and the institution falls under receivership of an RTC-like entity.  The benefit for the troubled firms is that selling their good assets will provide much needed capital to them to tide them over until their toxic wastes recover or not.  This capital is NOT a hand out but a market purchase of good assets which stand a high probability of further increases in asset value in addition to their ongoing revenue streams.

              •  Separating the Good from the Bad Assets (0+ / 0-)

                would be a very complicated time-consuming task. Meanwhile, the housing market continues to tank creating MORE toxic assets.

                Why not just let the house buyers solve the problem by getting these foreclosed houses sold and off the market for good?

        •  We've done it before (1+ / 0-)
          Recommended by:
          New Deal democrat

          we can do it again.  It worked the last 2 times.

          A conservative is a man with two perfectly good legs who, however, has never learned how to walk forward. FDR

          by Betty Pinson on Mon Mar 23, 2009 at 11:14:09 AM PDT

          [ Parent ]

          •  But the Size is a different Scale (2+ / 0-)
            Recommended by:
            askew, IndySteve

            Citi, BofA, Wells, JPM, AIG are all insolvent and would have to be taken over simultaneously.

            What government bureaucracy could handle all this? Treasury is still not staffed at the policy making level and was never designed for running the banks.

            You would just plunge into the abyss without a clue how it would turn out.  The cost would be enormous compared to Geithner's plan.

      •  It's now a standard talking point (1+ / 0-)
        Recommended by:
        Buckeye Hamburger

        Let's face it, a lot of Dems want this plan because they will personally benefit by it.  Whether it works or not is beside the point.  What I think that most people seem to disagree with is that this is Obama's one shot at a successful presidency.  If six months from now, after giving away a trillion buckeroos, the GDP is still going down and lending has not resumed, he's a lame duck.  Sucks, but that's the way it is.

        Krugman even warned Bush he was doing it wrong. Ignore him at your peril.

        •  And even if it works (0+ / 0-)

          we have printed so much money in this crisis (even before Obama's budgets) that a return to growth may simply equal a return to double digit inflation, in which case Obama is still a lame duck.

          •  I wouldn't worry about that (2+ / 0-)
            Recommended by:
            crystalboy, JesseCW

            mainly because I think we're not going to be growing any time soon.  Real economic growth has a time lag and is hard to do, probably the reason it became unfashionable in the U.S. over the last twenty years.  Financial growth is sooo much easier and quicker. Too bad it goes away after a while.

      •  So you think that we ought to nationalize the bad (3+ / 0-)
        Recommended by:
        askew, HarlanNY, crystalboy

        debt, right? Well, how is that better than what Geitner is trying? At least with Geitner's plan he is using only $100 billion to try to leverage $500 billion in private funds to buy the bad assets. Under your preferred alternative, we'll get all the bad assets, have to clean that out, and then re-capitalize new banks with taxpayer funds.

        I haven't been covering my ears at all. In fact, if the toxic assets are removed in this way, this is much quicker toward a functioning banking system and credit system revival than nationalization. That would take years.  Speed is important.

        •  How's it been working the last 6 months (1+ / 0-)
          Recommended by:
          bigchin

          I mean, so much of the bad assets have been cleaned out while we've been refusing to take over!  It's AWESOME!!!

          "When the going gets tough, the tough get 'too big to fail'."

          by New Deal democrat on Mon Mar 23, 2009 at 08:33:25 AM PDT

          [ Parent ]

          •  New Deal..this is what Bush's Treasury was (1+ / 0-)
            Recommended by:
            crystalboy

            supposed to do with the TARP way back when (october-november). Well, he didn't do it and they are still wedged in everywhere fucking up the credit system. It's time to do it, with some risk and a downside. But your nationalization has huge risks and disruption...we aren't Sweden. And we would be holding the bag under that plan too.

            Let's stop bickering and get on with purging the system of the shit. It's like a septic tank. Clean it out soon to get it working again.

        •  You're assuming that we have any responsibility (2+ / 0-)
          Recommended by:
          Nebraskablue, JesseCW

          for making good on all the "legacy securities" those banks hold.  We don't.  The bond holders eat those losses.  We just worry about deposits.

      •  Pretend you're a huge multinational bank CEO (2+ / 0-)
        Recommended by:
        aisling, sacrelicious

        You hear that Obama has decided to nationalize all the big rotten banks and is going to unveil the plan in three weeks.

        By the time the nationalization actually occurs, do you think there are any good assets left in the banks, at all?

        Successful bank seizures require a certain element of surprise - which Obama might still have, but which he couldn't have if he let it slip out that nationalization might be part of the plan.

        I'd be surprised if you could really efficiently get a quick handle on the overseas pieces of these banks, in any case - a problem of a magnitude the RTC and Swedes decidedly did not face.

        We must pick ourselves up, dust ourselves off, and begin again the work of remaking America.

        by Minerva on Mon Mar 23, 2009 at 09:13:50 AM PDT

        [ Parent ]

    •  Amen (2+ / 0-)
      Recommended by:
      askew, Overseas

      This website (and FoxNews) have so many wise Monday morning quarterbacks that it is ridiculous.

    •  Last time I checked (4+ / 0-)

      we have already had about $3 trillion worth of alternatives that all failed, so I guess you're right what's another trillion dollar experiment.  Whether it works or not is really kinda moot at this point, since the moment we see any recovery, inflation is going to roar like never before.

      •  The Paulson Plan $700B figure in September ... (2+ / 0-)
        Recommended by:
        sacrelicious, bigchin

        was supposed to be so eyepopping large that it couldn't help but succeed.

        That was a few $Trillion ago.

        "When the going gets tough, the tough get 'too big to fail'."

        by New Deal democrat on Mon Mar 23, 2009 at 08:31:43 AM PDT

        [ Parent ]

      •  that money wasn't for this problem (0+ / 0-)

        As far as I know, only a few hundred billion of taxpayer money have gone to banks so far. The money you're talking about is either (a) printed, not taxpayer, or (b) for the stimulus package, which doesn't have anything really to do with banks.

        car wreck : car insurance :: climate wreck : climate insurance

        by HarlanNY on Mon Mar 23, 2009 at 08:43:02 AM PDT

        [ Parent ]

      •  "All failed"? Including one announced today, huh (1+ / 0-)
        Recommended by:
        askew

        I guess some people are so certain that a plan is going to fail that they assume that they've already seen it happen.

        Why not just tell people that IYO the best of all possible worlds is to let it all burn in that wonderful free market?  Because as we all know, the only thing that can never lead us astray is unregulated free markets.

        Congress! Pass a 100% tax on Bush's pension, because tax dollars shouldn't reward incompetence that blew up the country.

        by Inland on Mon Mar 23, 2009 at 11:10:56 AM PDT

        [ Parent ]

    •  Incentivizing Foreclosed Homebuyers is better (0+ / 0-)

      Clear the market of foreclosed houses and prices will stabilize ending the credit crisis.  Toxic assets will be resolved when the house is sold.

      •  Big problem is: speed of doing that.... (1+ / 0-)
        Recommended by:
        crystalboy

        it would take a long time if that was the only measure you took. In fact, that is part of the tri-part solution now. I wouldn't want to wait upon the housing market turning around for the economy to revive. People are forgetting the time element.

        In my view, this is the quickest way to turn around credit markets. Yes, there is a risk that we'll get stuck holding the crap while others benefit. But we all lose big-time if we don't move fast and this spirals down. So many companies are barely holding on, and will begin failing without credit.

        Do you want unemployment to go up to 15% while we clear out the housing market?

        •  Speed is a function of the incentive size (0+ / 0-)

          With sufficient tax incentives, millions of buyers would flood the market and clear the foreclosed houses overnight.  Housing prices would start to rise immediately once the foreclosures are gone.

          Geithner's plan is going to take a long time as the market tries to figure out a price for these toxic mortgages as housing prices continue to decline and more foreclosures occur thereby creating more toxic assets.

    •  ideas are all around you (2+ / 0-)
      Recommended by:
      JesseCW, Capt Morgan

      This notion is extremely unhealthy. There are lots of better ideas.

      Paying private parties to buy assets at inflated prices is about the 100th best option. Let's try the other 99 first.

    •  Bullshit (2+ / 0-)
      Recommended by:
      New Deal democrat, JesseCW

      better alternatives have been presented... stop putting up strawmen

      This is the same BS paulson tried to pull

      I hope everyone enjoys watching the USA becoming the weimar republic... remember what happened in germany after that

  •  This is total bullshit (13+ / 0-)

    Krugman nails it:

    And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.

    It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.

    In a total must-read article in the upcoming issue of Rolling Stone, Matt Taibbi hits it out of the park

    The most galling thing about this financial crisis is that so many Wall Street types think they actually deserve not only their huge bonuses and lavish lifestyles but the awesome political power their own mistakes have left them in possession of. When challenged, they talk about how hard they work, the 90-hour weeks, the stress, the failed marriages, the hemorrhoids and gallstones they all get before they hit 40.

    "But wait a minute," you say to them. "No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what's left of the American auto industry or selling $600 billion in toxic, irredeemable mortgages to ex-strippers on work release and Taco Bell clerks. Actually, come to think of it, why are we even giving taxpayer money to you people? Why are we not throwing your ass in jail instead?"

    But before you even finish saying that, they're rolling their eyes, because You Don't Get It. These people were never about anything except turning money into money, in order to get more money; valueswise they're on par with crack addicts, or obsessive sexual deviants who burgle homes to steal panties. Yet these are the people in whose hands our entire political future now rests.

    Yep, the fix is in and Obama is fully on board.

    Oh yes, I have been in support of actions up until now:  Backing the money markets, TARP (although it was baldly abused) and even the bailout of AIG.  I supported the TALF as originally written to encourage investment in new securitization.

    But with the official proposal to give hedge funds the ability to monetize gains while offloading risk on the taxpayer' dime is breathtaking chutzpah

    •  The solutions going forward require (2+ / 0-)
      Recommended by:
      HarlanNY, JesseCW

      that these awful financial instruments of mass destruction be outlawed or at the very least heavily regulated to prevent these implosions.

      If greed is not thwarted it will thrive.

      In 1993, NO Republicans voted for the most successful economic program in history. NOT ONE. Wrong then, wrong now.

      by The Creator on Mon Mar 23, 2009 at 08:10:39 AM PDT

      [ Parent ]

    •  Since Krugman (4+ / 0-)
      Recommended by:
      askew, Yoshimi, Overseas, SChardonnay

      was so wrong in the 1990's, why is everybody quoting him like he is a saint? He is not.

      •  If that was not snark, (3+ / 0-)

        how was he wrong in the 1990s?  IIRC, he argued forcefully that Greenspan's loose monetary policy would come back to haunt us, he argued that inflation was a real threat and he argued that universal health care ought to be a goal.

        Links would be much appreciated.

        •  Yep (1+ / 0-)
          Recommended by:
          taylormattd

          Links sure would be appreciated.

          Why don't you provide some?  If you're going to accuse our President of collusion with lenders/bankers/Wall Street, how about a few links?  Like a hundred or so?  

          "But your flag decal won't get you into heaven anymore"--Prine 4240+ dead Americans. Bring them home.

          by Miss Blue on Mon Mar 23, 2009 at 08:48:12 AM PDT

          [ Parent ]

          •  how about this (1+ / 0-)
            Recommended by:
            Buckeye Hamburger

            His Treasury Secretary, who works at his pleasure, is proposing a plan that reasonable (and unbiased) people are pointing out is a complete sham:

            Yves here, If this isn't Newspeak, I don't know what is. Since when is someone who puts 3% of total funds and gets 20% of the equity a "partner"?

            So, are we now arguing that Obama is not aware of the implications of what his own Treasury Secretary is proposing?

            Or do we need 'hundreds' of links?

            •  Whatever (0+ / 0-)

              Should I now post links to the reasonable and unbiased people who are in favor of the plan?

              Or maybe you should just read the damn diary again.

              "But your flag decal won't get you into heaven anymore"--Prine 4240+ dead Americans. Bring them home.

              by Miss Blue on Mon Mar 23, 2009 at 11:42:45 AM PDT

              [ Parent ]

              •  so, my comment was an opinion (0+ / 0-)

                about the currentplan.  I wanted to know why someone thought Krugman was full of it back in the 90s. Obviously, links to his statements back then can objectively show that he was full of it by comparing to reality 10 years later.

                I will be happy to offer you links 10 years from now showing why the Geithner approach (as presently constituted) is unfair to taxpayers - that would offer objective fact.

                Until then, opinion is all I got.

    •  How could there be losses? Would never happen. (0+ / 0-)

      Just kidding.

      We must pick ourselves up, dust ourselves off, and begin again the work of remaking America.

      by Minerva on Mon Mar 23, 2009 at 09:15:33 AM PDT

      [ Parent ]

    •  The Taibbi article is amazing. (0+ / 0-)

      I recommended it over and over again yesterday.  However, the chance that the administration is going to destroy the markets in order to remake them is a pipedream.  I'm furious at these derivatives people. However, the best way for this to work out is to let the smartest president in some time do his work.

      Obama has always said, if something isn't working, he'll change course. I'm comfortable that that is true.  The fact is, none of this, so far, is his fault.

      So, let's ask for a little less purity, and a little less concern until at least, the end of the summer to see what the indicators are.

      FWIW, Bonddad's explanation of the administration's plan is very clear that it sets limited goals. While it doesn't address the systemic corruption, The reform of the markets and wall street is still on the agenda. Right now, we need to stabilize the financial system.  Do we have to like the people in it? No. But's short term, we need to do it.

      Educate yourself. Think for yourself. Be yourself. Do for others.

      by DHinIA on Mon Mar 23, 2009 at 09:17:41 AM PDT

      [ Parent ]

      •  agree and disagree (1+ / 0-)
        Recommended by:
        DHinIA

        Right now, we need to stabilize the financial system.

        Agreed.  

        But I do disagree that the best way to stabilize it is by giving the same guys even more money and blatantly support failure.

        The much reviled Ayn Rand has a telling exchange in Atlas Shrugged - that is actually quite pertinent.

        Mr Thompson is asking John Galt why he wouldn't help fix the world. And he gives an analogy:

        "If your leg was broken, you would pay a doctor to fix it"

        "Not if he was the person who just broke it." replied Galt. "I just don't think it is wise to support a protection racket"

        Isn't that exactly what we are doing here - supporting a multi trillion dollar protection racket?  I would be more convinced if the regulatory changes came before the handout. What we have here is a handout with the promise of regulation somewhere in the future.

        We all know how that ends.

        •  Good points, but I disagree. (0+ / 0-)

          The protection racket was sub-prime derivatives +  CDS. AIG promised protection, but just like the mafia, the protection was an illusion. We're breaking up that scam right now. To do that, we have to work with the banks as they exist (minus the Casano types). To keep the economy afloat at the same time, we need to set the remaining traders on a new mission- to try to develop new markets for old, bad stock.  These guys can make money selling snow to eskimos. As long as the taxpayer gets the benefits, I think it's the best immediate plan available.

          Yesterday one post mentioned "game theory" as a useful way to look at the various risks that Geithner faces.

          After the stabilization, we need to institute thoughtful, stringent new regulations. It will be another political struggle altogether to wrest the government from the plutacracy that controls it now.

          Educate yourself. Think for yourself. Be yourself. Do for others.

          by DHinIA on Mon Mar 23, 2009 at 11:47:24 AM PDT

          [ Parent ]

  •  as usual Krugman seems to be actively working (20+ / 0-)

    against the government solutions, continuing to stokre poipulist sentiment which is getting out of control. I am sure this will please many here. I personally think it counter productive.

    http://www.nytimes.com/...

    meanwhile the much touted Sweden says 'No' to auto bailout.

    http://www.nytimes.com/...

    The oft quoted socialist model says no to government intervention, the populist American economist wants more and bigger government intervention.

    I guess we'll have to see who proves to be right.

    The Obama tean seem to have decided they don't want to totally destroy the entire financial sytem in order to save it, but will proceed in a slower manner by gradually re-regulating and levelling the playing fields.

    This seems to be the first time we have had a President in this nation who is able to play offense and defense at the same time. Keep his eye on the ball at the net and still see the distant horizon.

    I am satisfied.

  •  Why do the bailout apologists get so (4+ / 0-)

    much praise on this site?

    •  very perceptive question (2+ / 0-)
      Recommended by:
      JesseCW, ohmyheck

      One of the problems in our discourse generally in our country is that conservative, corporate interests are so entrenched that it's difficult to just create space for safe, honest, calm, thorough analysis. Indeed, one of the core assaults of movement conservatism is on the concepts of pluralism and evidence-based reasoning.

      The level of reflexive support for corporate bailouts on a website dedicated to electing more and better Democrats just shows how much work we have to do to reclaim our democracy.

      But I'm fundamentally optimistic; I will defend reality-based discussions against all comers. I think that's the task of the center, to hold against all foes, above and below, left and right, front and back, and whatever other continuums and labels we like to develop to segment and dissect American opinion. After all, that's where the bulk of American opinion lies, and I'll take the will of the masses over a few establishment defender voices any day.

      •  Space for analysis? Try data. (0+ / 0-)

        To have a serious discussion of what to do, we'd need to have way more data, which would mean way more transparency.

        I'm not sure why we don't have this data / transparency by now, but have a few theories:

        1. Too many assets and liabilities can't be valued, at all
        1. Figuring out the valuations that would give a handle on the true scope of the problem requires diving too deep into too many complex instruments - there isn't time, incentive, or authorization for anyone to have done this and rolled it up
        1. Someone has done the analysis and the powers that be have found the resulting picture to be so scary they desperately do not want it to get out for fear of further crashing markets and/or consumer confidence

        I have a feeling the answer is some combination of all three...

        We must pick ourselves up, dust ourselves off, and begin again the work of remaking America.

        by Minerva on Mon Mar 23, 2009 at 09:21:36 AM PDT

        [ Parent ]

        •  I sympathize (1+ / 0-)
          Recommended by:
          JesseCW

          But I guess what I would focus on is what we do know, not what we don't know, because we know a lot. For years, people have been making suggestions for how to make our system better.

          This notion that we have to fork over trillions of dollars to big companies, that there are literally no other alternatives, is so absurd that it's really just comical when you step back and think about it.

    •  Because they are cultists is the reason du jour. (0+ / 0-)

      Cultish Obama worshippers is the one most often given, because it's easier than actually dealing with the issues that speak in favor of the bailout.  

      Congress! Pass a 100% tax on Bush's pension, because tax dollars shouldn't reward incompetence that blew up the country.

      by Inland on Mon Mar 23, 2009 at 11:12:21 AM PDT

      [ Parent ]

  •  Thanks for this diary bonddad? (2+ / 0-)
    Recommended by:
    Dems 2008, kat68

    Can you give us some insight on the throwing out the baby with the bathwater strategy that some commenters are pursuing regarding Wall Street is Teh Evil?

    Should we destroy Wall Street or is it a necessary evil for each of us to live prosperous lives?

  •  The ASSHOLE Plan would be a better title (3+ / 0-)
    Recommended by:
    Wilberforce, dark daze, zyangunc

    Because only an asshole could like this plan.

  •  Thank you Bonddad... (3+ / 0-)
    Recommended by:
    Miss Blue, Overseas, SherriG

    I trust your judgement.  I'm so relieved to see that you are not throwing a fit over the plan.  

    Obviously, there are complicated problems with the banking system.  And it seems obvious to me, at least, that there are no simple or GOOD solutions.  Rather, the best of the bad options.

    Thanks again.

  •  This is SO clear. Thanks! n/t (2+ / 0-)
    Recommended by:
    vinny67, dougbob

    Educate yourself. Think for yourself. Be yourself. Do for others.

    by DHinIA on Mon Mar 23, 2009 at 08:18:44 AM PDT

  •  So, it's like nationalization - Public money (8+ / 0-)

    is used to purchase 97% of the toxic assets. 3% comes from Private money. Except, in this case all of the profits go to private companies, whereas with nationalization it would all go to the state? Tell me this is wrong and explain how, please.

    •  Disclaimer - not an expert (0+ / 0-)

      As I understand it the public/private partnership shares the profits and losses in proportion to the equity put forward for purchase of the. So if 80% is from the treasury, the taxpayer gets 80% of the profits, and vice versa. This means the private partner also stands to lose if the assets are over valued, hence the incentive to bid for the best price.

      This stuff going around that it's a giveaway to hedge funds is bull. It's collaboration with hedge funds, potentially for the tax payers benefit if the hedge fund guys are any good at their jobs.

    •  It is nationalization of banks' trash assets (2+ / 0-)
      Recommended by:
      JesseCW, Betty Pinson

      Banks get the opportunity to offload their trash at inflated prices.
      Hedge funds that participate would make out like bandits.

      •  Explain how the hedge funds benefit (0+ / 0-)

        at the same time as the treasury losing out, while they're tied at the hip?

      •  Explain why hedge funds are bandits and (2+ / 0-)
        Recommended by:
        HarlanNY, SingularExistence

        the federal governmet is a huge loser when they are 50-50 partners in the same venture.

        With him from the beginning, with him until the end.

        by brooklynbadboy on Mon Mar 23, 2009 at 08:37:06 AM PDT

        [ Parent ]

        •  Because hedge funds are getting loans... (0+ / 0-)

          ...that they don't have to pay back. Is that clear enough for you?

          You've got to say, 'I'm a HUMAN BEING, Goddamnit! My LIFE has VALUE!'

          by expatjourno on Mon Mar 23, 2009 at 08:46:51 AM PDT

          [ Parent ]

          •  WTF?!!! (1+ / 0-)
            Recommended by:
            HarlanNY

            What part of the plan says that?!!!

            Show it to me.

            With him from the beginning, with him until the end.

            by brooklynbadboy on Mon Mar 23, 2009 at 08:51:22 AM PDT

            [ Parent ]

            •  They are called non-recourse loans. Look it up. (6+ / 0-)

              You haven't read the New York Times, Krugman, Economist's View or anything else, and yet, you feel perfectly confident that your entirely uninformed opinion has value. Amazing.

              Here it is in plain English:

              To entice private investors like hedge funds and private equity firms to take part, the F.D.I.C. will provide nonrecourse loans — that is, loans that are secured only by the value of the mortgage assets being bought — worth up to 85 percent of the value of a portfolio of troubled assets.

              The remaining 15 percent will come from the government and the private investors. The Treasury would put up as much as 80 percent of that, while private investors would put up as little as 20 percent of the money, according to industry officials. Private investors, then, would be contributing as little as 3 percent of the equity, and the government as much as 97 percent.

              Emphasis added.

              You've got to say, 'I'm a HUMAN BEING, Goddamnit! My LIFE has VALUE!'

              by expatjourno on Mon Mar 23, 2009 at 09:00:44 AM PDT

              [ Parent ]

              •  Ummm... (1+ / 0-)
                Recommended by:
                Yoshimi

                The FDIC gets its money from banks.

                You know that right?

                With him from the beginning, with him until the end.

                by brooklynbadboy on Mon Mar 23, 2009 at 09:07:24 AM PDT

                [ Parent ]

                •  Not relevant. Try reading. eom (1+ / 0-)
                  Recommended by:
                  JesseCW

                  You've got to say, 'I'm a HUMAN BEING, Goddamnit! My LIFE has VALUE!'

                  by expatjourno on Mon Mar 23, 2009 at 09:15:35 AM PDT

                  [ Parent ]

                  •  This isn't difficult. A recap: (2+ / 0-)
                    Recommended by:
                    Yoshimi, guyeda

                    You said:

                    Because hedge funds are getting loans... (0+ / 0-)
                    ...that they don't have to pay back. Is that clear enough for you?

                    I asked you to quote the plan that is on the treasury website and show me that provision.

                    You said,

                    To entice private investors like hedge funds and private equity firms to take part, the F.D.I.C. will provide nonrecourse loans — that is, loans that are secured only by the value of the mortgage assets being bought — worth up to 85 percent of the value of a portfolio of troubled assets.

                    Of course, the FDIC loans to wit you refer are financed by FDIC, which extracts its capital by charging premiums to banks. Taxpayers pay nothing for FDIC. So point is now dead.

                    More importantly, here is the plan in actuality on the financialstability.gov website:

                    Financing Is Provided Through FDIC Guarantee: If the seller accepts the purchase price, the buyer would receive financing by issuing debt guaranteed by the FDIC. The FDIC-guaranteed debt would be collateralized by the purchased assets and the FDIC would receive a fee in return for its guarantee.

                    Get that? The investor or buyer issues debt to whomever he can get to finance him, debt which is guaranteed by the FDIC and collateralized by the underlying asset. Do you comprehend that? The FDIC gets a fee for this service as well as increasing its premium charges to banks to capitalize the guarantee. Do you comprehend that? So, if the buyer does end up purchasing a worthless asset, he will lose his investment, the treasury will lose its investment, and the 85% that was collateralized debt will fall on the shoulders of the private invester who lent money to the enterprise. He can then claim insurance from the FDIC which would pay out from the capital it raised from bank premiums.

                    So now, you explain how hedge funds are getting loans they dont have to pay back.

                    With him from the beginning, with him until the end.

                    by brooklynbadboy on Mon Mar 23, 2009 at 09:42:19 AM PDT

                    [ Parent ]

                    •  Um, Not dead.. (1+ / 0-)
                      Recommended by:
                      expatjourno

                      The FDIC is backed by the full faith and credit of the US Government.  Why are they asking for the increases in backstop from the FED?  Why are they asking for more fees?

                      If the new fees aren't enough?  Government.  Taxpayers.  YOU.

                      Do you think they'll have the full amount sitting their when these fail?  Do you want the FDIC backstop going to these, or to the depositors?

                      Whick group do you want to protect?  The Merril Lynch/Goldman/PIMCO/Blackrocks of the world?  Or someone with or without a job who has a few hundred in the bank?

                      ?

                      •  Ohh..i see...IF IF IF (0+ / 0-)

                        So youre saying that IF every single asset that is purchased falls apart, and every single investor make bad decisions with respect to buy these assets, its going to create a large cash run on the FDIC, and IF that happens then the FDIC will have to go to the banks for more premiums, and IF that isnt enough then they will have to go to the Treasury.

                        And thats the same thing as hedge funds getting loans they will never have to pay back.

                        So if thats the case, why in gods name would we want to nationalize these assets and ENSURE that taxpeyers were on the hook? Makes no sense.

                        WHat I want to protect is the American economy in the most intelligent way possible and not engage in an ideological witchhunt because bloggers have a hard on for Wall Street guys.

                        With him from the beginning, with him until the end.

                        by brooklynbadboy on Mon Mar 23, 2009 at 10:23:26 AM PDT

                        [ Parent ]

                        •  How many have to fall apart?? (1+ / 0-)
                          Recommended by:
                          expatjourno

                          If the investor is at risk for 3% of the total, how much has to fall apart??

                          How low do they have to fall before a loss if an investor has to put up 3%?  If they have to put up 1/12 of the total?

                          Doesn't sound like a great deal.. ANd when they buy CDS security on it, where if they fail the CDSs pay off more than the investment?

                          See Expatjourno's note.  (Didn't like his comment, but the link is good.. )

                        •  Oh, and if we nationalize? (1+ / 0-)
                          Recommended by:
                          expatjourno

                          We would then nationalize in the way we did 3 banks and 2 credit unions yesterday.  Paying nothing. (Smaller loss than letting them go on.)

                          If we just came in and took over these banks and cancelled the CDSs like a couple posted on here?  Refund the bet they made and cancel the CDO.  

                          As far as the mortgage security itself, if we held to maturity, nationalization (or Good bank/bad bank scenario) would have a cost basis of zero.  If a cost basis is zero, then any return would be positive, no?

                          Or Force Majeure the CDOs.  Or take any reason to NOT overpay for the assets, giving us a chance..

                        •  Protect the American Economy? (1+ / 0-)
                          Recommended by:
                          expatjourno

                          Curious, WHy can bondholders get made whole from this, and have to take a haircut on GM/Chrylser?

                          How Bout the workers of Goldman and the workers on the line at CHrysler.  Still not selling too many cars.  

                        •  It's ideology that is behind this bailout. (0+ / 0-)

                          The same ideology that caused the problem in the first place. When every most economists of any standing whatsoever are saying that this is a simply a way of getting the taxpayers to foot the bill. Taking over the insolvent banks is a well-proven solution.

                          You don't know shit.

                          You've got to say, 'I'm a HUMAN BEING, Goddamnit! My LIFE has VALUE!'

                          by expatjourno on Mon Mar 23, 2009 at 02:03:28 PM PDT

                          [ Parent ]

            •  Brooklyn-is it a 50/50 deal between the gov and (0+ / 0-)

              the private investors? This whole plan seems to be about getting private investors to pump money into the system. I have no problem with that. What i do have a problem with though is that to incentivize this project, they are pumping more money from TARP into this program which doesn't have a large chance of working. Didn't the FED just pump 1trillion dollars into the system last week? and now another 500 billion is come from the FED for this?

              Granted, it's complicated but i would like to know exactly where the money will end up. People are still losing their jobs, y'know?

              •  Yes. It really simple terms: (1+ / 0-)
                Recommended by:
                Yoshimi

                It basically works like this:

                Private investers says "OPPORTUNITY HERE!"

                Government says "ILL GO IN WITH YOU 50-50"

                FDIC says "OKAY YOU GUYS. ILL GURANTEE 85% OF IT WITH INSURANCE"

                PARTNERSHIP PAYS BANK FOR ASSET

                FDIC says to bank "GIVE ME A PERCENTAGE OF THAT CASH BECAUSE I NEED IT TO INSURE."

                Thats the system in a nutshell.

                With him from the beginning, with him until the end.

                by brooklynbadboy on Mon Mar 23, 2009 at 09:11:23 AM PDT

                [ Parent ]

                •  And when the percentage isn't enough? (0+ / 0-)

                  Oh, and you forgot the "I'll loan you 80% of your investment.. "

                  And when the Financial services buy the assets of the bank it owns, at a higher price than its intrinsic value, raising the bank's value, and then walks away from the loan?

                  And cashes in on the CDS on the "investment"?

                  •  WTF? Listen closely (1+ / 0-)
                    Recommended by:
                    SingularExistence

                    Ummm..youre talking about things that are not in any way shape or form, IN THE PLAN. You cant just make stuff up. There is nothing in here on CDSs because there is no NEED FOR IT BECAUSE OF THE FDIC guarantee. I know this is complicated, but read the plan's whitepaper carefully. You dont need CDS type insurance when you have a federal guarantee.

                    If the FDIC capital is insufficient to pay claims, they will most likely be paid with T-bonds instead...but that is only up the point of the difference between the collateral and the investor-issued bonds. Get it?

                    So lets say our investor buys a toxic asset from a bank. The face value is $200 but he gets it for $100 at auction. He puts up $7.50 and Treasure puts up $7.50 in TARP money. The other $85 he BORROWS from say...New York Pension Fund. NYPF is happy to loan on good terms because it sees that the bonds they purchased are FDIC guaranteed.

                    Okay, So not our investor begins to dig through the asset he purchased and realizes he has a shitload of mortgage foreclosures. He figures if he siezes all the properties contained therein, he's gona get about $50 worth of property. So, he sells for the $50. He walks away $3.75, Treasure walks away with $3.75 and $42.50 goes to NYPF. Now NYPF goes to FDIC and says "make me whole" and FDIC gives him $42.50 out of its capital, or if it is insufficient, $42.50 treasury bond.

                    Pension remains afloat. Investor loses. Treasury loses Government goes deeper into debt. But NO TOTAL COLLAPSE.

                    IF the inverse happens and the investor sells the asset for face value, everyone wins. Total economic upside.

                    Now im still waiting to hear ANYTHING thats better than this, but I havn't seen it.

                    With him from the beginning, with him until the end.

                    by brooklynbadboy on Mon Mar 23, 2009 at 10:45:52 AM PDT

                    [ Parent ]

                    •  One thing I forgot to mention.... (0+ / 0-)

                      If the investor defaults on the loan from NYFP because he can't sell the asset, or its "worthless"
                      then all the underlying property would go to NYFP and the difference in that value and the $85 would be made up by FDIC. So the pension could get $42.50 in property and $42.50 in treasury securities.

                      That is why the FDIC is supervising this program, so as to bring in institutions that have a long term buy and hold perspective, as a pension fund normally would have.

                      With him from the beginning, with him until the end.

                      by brooklynbadboy on Mon Mar 23, 2009 at 10:50:36 AM PDT

                      [ Parent ]

                      •  And if that real estate... (1+ / 0-)
                        Recommended by:
                        brooklynbadboy

                        IS gutted property in Detroit/Cleveland?

                        Costing more to destroy and rebuild than you could sell it for?

                        And, Doesn't the pension fund pay out of state property taxes, that are going up..   (This could be exempt, if not this could help, but insurance on the property.. Liability..)

                        •  In that case (0+ / 0-)

                          You have the situation much as you have it now, but at least you have a sense of WHAT ITS WORTH.

                          Indeed what I expect you will begin to see happen is what I like to call "de-bundling" in which case a lot of these investors who buy these toxic assets are going to seek permission from the FDIC to divide say the 60% of the underlying properties that are "performing" from the "non-performing" 40%. Those 40% may be allowed to lapse into lien, causing them to be owned for fire sale by City of Detroit or Cleveland, and investors get their profits from the better performing 60% in Overland Park, KS.

                          Which is exactly what SHOULD be happening now. But it isn't because nobody knows what anything is WORTH.

                          With him from the beginning, with him until the end.

                          by brooklynbadboy on Mon Mar 23, 2009 at 12:03:53 PM PDT

                          [ Parent ]

                          •  So we get 94% of the risk.. (0+ / 0-)

                            On the non-performing 40% and they get 50% of the upside on the decent 60%?  OR do they get to use their 6 just on the good, and we pay 100% of the bad..

                            Why don't we put in all the $ then??? Or make it a percentage deal.. You put up 6? you get 6.. You put up 94? you get 94.

                            Can't happen though..

                    •  CDSs aren't in the plan. If you're the Gov't. (1+ / 0-)
                      Recommended by:
                      brooklynbadboy

                      2 examples.

                      1.  Let's say I help run NYPF.  Not happening, but work with me.  

                      Now, Being prudent and respectful of my pensioneers and the people of NY, to protect myself as much as I could.. I would WANT insurance on the loan I make to Investor Y.  

                      The Fed guarantees it's 6/1 loan, but that's why I want it more..

                      Let's use your example.  I put up 85.  The investor sells at 50, and I get 1/2 immediately.  (Let's assume no fees in that, and the insurance with the Fed guarantee is cheap that based on these numbers it's de minimus.)  

                      The loans go bad, and the FDIC has to pay them off.  I get 42.5 from the 50 sale and 42.5 from the Fed.  But now, when the RMCS defaults and forces the FDIC to payoff there is a credit event --like in your scenario THOUGH I PROFIT in your scenario:  The CDS pays off to the insured (NYPF) AND the FDIC pays off the balance of the loan.  I basically double up.  The CDS would result in additional profit to the pensioners with very little risk (the lowered premium due to the guarantee).

                      As the NYPF, this is basically playing with the house's money.  I get cheap insurance, a government backstop, and interest from the pool if any.

                      Oh, and the MYPD getting more treasuries?  How would that exactly work if there are a LOT of $200, wouldn't that lead to inflation and a devaluing of the dollar?  Wouldn't Printing the funds to make whole do the same thing?

                      Could that be one reason China's buying commodities like they're going out of style, and soverign funds are talking about maybe making additional currencies that could become the reserve currency if and or when our inflation goes up, devaluing our currency? Give me the cash.  My pensioners can't eat notes, they can eat with my payments.

                      Example 2:  I am now Investor Y.  

                      Let's say I have 200 burning a hole in my pocket, and I am a winning bidder on my own.  Again, Not happening, but work with me.  

                      I put up the 3% needed because I am worried about possible inflation down the road, and need to insure I have enough funds now.  I put up the 20% of the "investment" required (3% of the total), and go to the Treasury and borrow the other 80%.  I am the winning bidder in your example.  

                      Now, Being prudent and respectful of my my investors, or if I am the investor, I want to protect the 3% or the 7.5 if the 80% loan has recourse.   To protect myself as much as I could.. I would WANT insurance on the losses to protect AGAINST MY 3%..

                      The Fed guarantees it's 6/1 loan, but..

                      Who guarantees I make one dime on my 3%??

                      Nobody.  Buying the CDS protection against the FDIC having to back up the loan protects my 3%.  If nothing happens, and the deal makes a profit, The insurance is a cost of doing business and I make out like a bandit.  

                      If the loans go bad, and the FDIC has to pay them off, ie if the RMCS defaults and forces the FDIC to payoff there is a credit event --like in your scenario THOUGH I PROFIT in your scenario:  The CDS pays off to the investor, Me.  And the FDIC pays off the loan.  

                      The CDS would payoff to at least the 7.50 I am on the hook for (My 3 and the 4.50 loan from Treasury recoursed).  Assume I add some interest for the time value before it fails.  I should make out like a bandit.

                      Example 2A: Where it gets real interesting..

                      OK.  Let's get a little bit extreme and assume, since with the FDIC-Treasury-FED backing the spread would be lower than say MGM's spread now, it's cheap to do, I actually insure against the whole bid.  I am insuring 100 on a Fed guaranteed 85, a Treasury 12, and my 3.  (Remember, I borrowed all but my 3% required, they're loaning 80/20 on the 1/6th I need.)  In the event a credit event, The FDIC/Fed/Treasury pays me off in full.  ALSO, with the insurance I get paid a substantial amount more..  

                      Buying the CDS would in effect make the invenstment guaranteed, to the Private buyer, NOT to the Government.

                      OK, Now this one may cost too much to do, this may not be de minimus, but..

                      Example 2B: Only the Strange Remain..

                      Let's Get Really aggressive here.  I am still Investor Y, and the information is the same as your example.  

                      Remember the RMBS has a face currently of 200?  Let's spend some money.  Let's insure the whole 200.  Now there is a chance at some lower return, as the insurance would cost more now since 100 is not Fed backed.  However, When I dig into the loans I know they smell.  They smell to the tune of 150.  So I insure the whole thing, spend more of a spread, and..Here's the change:  It pays in full.  No Default.  100-200 Paid.  I make a little less of a spread, but could sleep like a baby.  (Never could get that, Babies sometimes cry at night.)  All I do is cash checks, and make a touch less.

                      Now to your 50 example.  The Fed pays off the loan, so I'm off the hook there.  The Treasury loses it's 7.5, and comes to me for the 4.5 loan.  Well, I may have made some $ before it defaulted.  But now, I insured 200.  I will get much more than 4.5 back, insuring a profit.  One could assume more of a profit than example 1, since there is more funds there and I am on the hook for NONE except the 4.5.

                      And, When the CDS pays off, how much would you bet that a government-guaranteed organization is forced to pay it off, and if it doesn't have it?

                      •  Here's the problem with your example, but its a (0+ / 0-)

                        good one:

                        The loans go bad, and the FDIC has to pay them off.  I get 42.5 from the 50 sale and 42.5 from the Fed.  But now, when the RMCS defaults and forces the FDIC to payoff there is a credit event --like in your scenario THOUGH I PROFIT in your scenario:  The CDS pays off to the insured (NYPF) AND the FDIC pays off the balance of the loan.  I basically double up.  The CDS would result in additional profit to the pensioners with very little risk (the lowered premium due to the guarantee).

                        What you describe here is a regulatory hole. In other words, this sort of "doubling up" would under normal circumstances not be allowed. You cant, for example, insure your home from 4 or 5 different insurers and claim them all if theres a fire.

                        This is why Treasury is having this particular program be regulated by the FDIC. The instruments and participants being created will have the same sort of regulatory oversight the FDIC has over banks as a condition for participation.

                        From the whitepaper:

                        Once the initial transaction has been completed, the private capital partners will control and
                        manage the assets until final liquidation, subject to strict oversight from the FDIC. The FDIC
                        will play an ongoing reporting, oversight and accounting role on behalf of the FDIC and
                        Treasury. The exact requirements and structure of the Legacy Loans Program will be subject to
                        notice and comment rulemaking.

                        By running this through the rulemaking process rather than legislation, Treasury is using a temporary fix. Keep in mind, the derivatives market outside of participants in this program will revive and have to be regulated, BUT NOT WITH THESE ASSET CLASSES.

                        Again, the point is to create a pricing mechanism, which i think it will do effectively and at a profit to the taxpayers.

                        With him from the beginning, with him until the end.

                        by brooklynbadboy on Mon Mar 23, 2009 at 11:58:44 AM PDT

                        [ Parent ]

                        •  The FDIC isn't paying twice.. (0+ / 0-)

                          (Well, The FDIC itself isn't, though if it's Merril paying it may)..

                          The insurance is a separate event.  I would get paid that regardless.  I am not making extra $ off the government directly, but off the insurance I was intelligent enough to buy.

                          As far as the fire example goes, I am only buying the insurance once.  The Federal Government through the FDIC in it's program is giving a non-recourse loan to me out of the kindness of its heart.  If It wishes to Guarantee the loan on my behalf, who am I to say no?  It is NOT by definition insurance, and is part and parcel of the program, no cost to me, just as a thank you and an incentive for my 3% investment.  

                          The Insurance I am purchasing isn't from the government, ostensibly.  It's from a CDS..

                          The FDIC isn't selling that to me.  Think about it like this.  I am a depositor at Bank Q.  Assume it's an FDIC depository bank, and that I purchase excess insurance from one of the companies who offer it.  I have 500,000 in an individual account there.

                          Bank Q had too much Commercial Real Estate loans, and credit card loans (The next shoes to drop).  The FDIC takes out Bank Q.  

                          Depository insurance if I was a depositor over the FDIC insurance limit.   I get up to 250K from the government automatically.   Anything over that?  The government doesn't cover anything else.  If I bought insurance for my excess I get paid that by a different company.  There are credit unions who buy excess insurance at their expense, I am buying it with my cost here.  Now as an excess depositor, I get the first 250 from the FDIC and any overage (to the limit of what I bought) by the insurance company.  One event, 2 insurances, only one paid by the government.  Same deal in my examples.  The Government only pays once.  

                          As far as the pricing mechanism goes, What incentive would I have to bid anything close to actual value (something near 0 from the Merril sale a while back, 22 with 3/4 loan from the Feds)  with no downside due to the non-recourse loan--not insurance, and this CDS insurance up to 200 in our example which is NOT the non-recourse loan.

                          Merril Bids B of A up to or over 100% of face.  Puts up 3%, borrows 4.5%, Gets 7.5 from Treasury, 85% non-recourse loan.  Now, all those toxic assetts can be marked at 100%, therefore B of A is fine.    Merril goes to Goldman Sachs and buys CDS on 100% of it.  And Goldman Buys Citis, etc..

                          Reflating the bubble, here we go again.  Only, WHo is the last bagholder?  Mr. NYPC? Nope, they're whole.  Mr. Bank? Nope, they get 100%.  Mr. Investor? Nope, between the Gov't and the CDS they have no way to lose.  Who's left? Mr. Taxpayer.

                           

                          •  Wrong...quite wrong actually: (0+ / 0-)

                            You seem confused.

                            As far as the fire example goes, I am only buying the insurance once.  The Federal Government through the FDIC in it's program is giving a non-recourse loan to me out of the kindness of its heart.  If It wishes to Guarantee the loan on my behalf, who am I to say no?  It is NOT by definition insurance, and is part and parcel of the program, no cost to me, just as a thank you and an incentive for my 3% investment.  

                            The FDIC isn't giving out any loans. The FDIC is guaranteeing the loan to whomever you borrow from. This IS INSURANCE. By their regulation of the entities under this plan, participation is subject to regulation, such as "no additional party insureres without capital hedges" for example.

                            THe example you cite is exactly what you WANT to happen. Unfortunately, it isn't likely to get very far because once an investor decides to participate in this program, a new sort of financial instrument is being credit, but one regulated and overseen by one agency with complete authority over them.

                            However, if what you describe happens, that is indeed a good thing and will restore our capital markets to health. Furthermore, by having FDIC supervise their creation, we will get a good sense of the sort of regulations we will need to supervise the broader secondary market.

                            And that, is why we are up $500 today as money flows back into equity positions.

                            Good.

                            With him from the beginning, with him until the end.

                            by brooklynbadboy on Mon Mar 23, 2009 at 01:40:16 PM PDT

                            [ Parent ]

                          •  And where is that? (0+ / 0-)

                            And, they didn't BUY that FDIC insurance..

                            Sorry, The debt would be bought by someone, who WOULDN'T BUY those prices without the guarantee.  Sorry I used the wrong phrasing.  I'm sellng FDIC insured debt, that very few people would buy WITHOUT the FDIC guarantee, and the full faith and credit.  The FDIC doesn't write the check, yet..

                            The public-private partnership SPV won't be able to buy any insurance.  The Parent company of the investor would have no issues.  In fact, they would have a fiduciary responsibility to hedge that.  

                            Also, If I was a pensioneer with NYFC with my example and They could insure my 1st dollar cost and didn't, and possibly double up my funds I would file a class action, throwing my 3% or 7.5% away without any effort to get any back when it would be so easy to do.  

                            What CEO and director doing their fiduciary responsibility would fail to get insurance?  Kinda like no auto insurance, auto or home insurance..

                            Oh, and the markets?  There are 20+% rallies in bear markets.  See the volume?  Light.  

                            If you aren't a Steve Schwartzman at Blackstone (Who already said will participate, Big Shock There. He likes doubling his money with very little (read no) risk.)  So does PIMCO's Bil Gross.  Where is Joe Six Pack's free money?  Think they know anyone who could sell them a CDS?  Maybe Blackrock can buy CDS on PIMCOs investments and PIMCO could buy CDSs on Blackrock?  That solves your dilemma there.

                            Banks flew.  Boy am I shocked.  If I was given $100 for something worth $0-10 (The $50 bet on Tony Stewart) with no risk at all.  

                            And everything went up today.  It will for a while..

                            Including layoffs.  

                            Ann Arbor MI News to close.  Up to 8,000 in Washington State, 84 at the Charlotte Observer.  212 Boston teachers..

                            But think positive.. If you bought the market in May 1997, you're even today not including inflation and dividends.

                            12 years of no returns..

                            And 1Q "earnings" are coming..

                            And Herbst Gaming filed for BK;  MGM Mirage may soon follow, and they're being sued for Citycenter.  And the housing today showed 45% were distressed sales.  And months of supply was flat even with that bump..

                            But everything's OK Now..

                            And from the financialstability site, for Joe Six Pack to buy a toxic asset and take part in this great upside he needs:

                            10 Billion under management and experiences managing MBS.  Also proficiency in Microsoft Office.  To think, we could use Linux, Openoffice, and Firefox, but no.

                            AIG Execs could qualify though..

        •  The government provides up to 86% of financing (4+ / 0-)
          Recommended by:
          slinkerwink, Superpole, JesseCW, Losty

          in the form of non-recourse debt. So in effect 93% of the funding is government's responsibility, while the hedge fund puts in 7%. If the investment pays off hedge fund gets 50% of the proceeds, if it doesn't the hedge fund loses are limited to 7%, government can lose up to 93%.

          Tell me how this is not a sweet deal for a hedge fund and the bank that gets to sell its junk assets at inflated price.

          •  Exactly-- As I Inquired Upstream (2+ / 0-)
            Recommended by:
            dmnyct, JesseCW

            thanks for posting these numbers, because it tells the exact story of the so called "Private/Public partnership" and it's why Krugman came out against this horrid plan over two weeks ago.

            93% on we the people and only 7% on the investors.. that's a partnership?

            and look at the opposite side of the coin.. do the low number of investors get most of the gain from the toxic paper "one day being worth something"? probably.

            this is SUCH a scam.

            "The most dangerous thing in any economic crisis is denial". Simon Johnson, MIT

            by Superpole on Mon Mar 23, 2009 at 09:21:36 AM PDT

            [ Parent ]

    •  'socializing losses' (3+ / 0-)

      Is a phrase you'll hear describing this phenomenon, as in, private actors profiting in good times, socializing losses in bad times.

      The purpose of bankrtuptcy proceedings is to make the investors and creditors suffer the losses of their actions, rather than society in general. When bankruptcy proceedings would be too chaotic, there are two other options:

      1. Socialize the losses, ie, corporate bailouts.
      1. Nationalization, ie, taking over firms, cleaning up the mess, and then selling them back to private investors under new management.
    •  Biggest robbery *ever* (4+ / 0-)
      Recommended by:
      trevzb, ggwoman55, JesseCW, Betty Pinson

      "The military industrial complex not only controls our government, lock, stock and barrel, but they control our culture." - Mike Gravel

      by Wilberforce on Mon Mar 23, 2009 at 09:24:38 AM PDT

      [ Parent ]

  •  Incentivizing Foreclosed Home Buyers is better (3+ / 0-)
    Recommended by:
    expatjourno, Superpole, Betty Pinson

    than incentivizing banks to sell foreclosed mortgages.

    First, there is an actual "widely traded" market for foreclosed houses so realistic prices can be set.

    Second, clearing the market of foreclosed houses is the solution to the housing price collapse that has caused this credit crisis. Housing prices will quickly stabilize and begin to increase, thereby reducing future foreclosures.

    Third, foreclosed houses can be cleared from the market quickly by millions of buyers who get tax incentives to purchase these "toxic" assets.

    Fourth, no more "cash for trash" bailouts to the banks. Zombie banks are going to die or wake from the dead.  Problem solved.

    •  House sales are stabilising (1+ / 0-)
      Recommended by:
      Yoshimi

      apparently, partly thanks to a first time buyer tax credit, which is a pretty good incentive.

      •  Proves my point (2+ / 0-)
        Recommended by:
        expatjourno, brooklynbadboy

        Incentivizing homebuyers is the key to stabilizing house prices which is the key to ending the foreclosure crisis that is causing the credit crisis and creating all the toxic assets.

        So let's step up the incentives and focus them on foreclosed houses to clear the market ASAP and get credit flowing again.

        •  The president is going at ALL of it. (2+ / 0-)
          Recommended by:
          Yoshimi, SingularExistence

          Getting house prizes rising to that the toxic assets arent so toxic, AND creating price mechanisms so private investors can recapitalize the banks.

          I think its a good plan.

          With him from the beginning, with him until the end.

          by brooklynbadboy on Mon Mar 23, 2009 at 08:39:24 AM PDT

          [ Parent ]

          •  It's not enough (1+ / 0-)
            Recommended by:
            expatjourno

            If foreclosed houses are not cleared from the market, house prices will continue to fall creating MORE toxic assets.

            Pres. Obama has not established any incentives for buyers of foreclosed houses which could clear the market immediately.

            •  Ummm...actually (0+ / 0-)

              there is a huge credit in the stimulus package for first time homoebuyers. there are funds under the housing program to refinance your old mortgage freeing up disposable income. finally, the stimulus package is there to stop the bleeding in unemployment, which is the real cause of foreclosure.

              There will probably be more needed, but lets give it time and see what happens.

              With him from the beginning, with him until the end.

              by brooklynbadboy on Mon Mar 23, 2009 at 08:57:30 AM PDT

              [ Parent ]

          •  Oh, for fuck's sake. (3+ / 0-)
            Recommended by:
            slinkerwink, PatriciaPA, JesseCW

            Another trillion-plus dollars to make the hedge funds whole and 78 billion to help homeowners. Give me a fucking break.

            You've got to say, 'I'm a HUMAN BEING, Goddamnit! My LIFE has VALUE!'

            by expatjourno on Mon Mar 23, 2009 at 08:49:14 AM PDT

            [ Parent ]

            •  LOL. (1+ / 0-)
              Recommended by:
              Yoshimi

              awww.

              Youll be okay. Give it time to work.

              With him from the beginning, with him until the end.

              by brooklynbadboy on Mon Mar 23, 2009 at 08:55:12 AM PDT

              [ Parent ]

            •  You prefer the vicious cycle instead? (0+ / 0-)

              Housing Price Declines = More Foreclosures = More Toxic Assets = More Failed Banks = Less Lending to the Housing Market = Fewer Houses Bought = Housing Price Declines.

              We don't have any good choices here because unemployment is already double digits and heading higher.  The vicious cycle must be broken.

              •  Did I say do nothing? Did I? Did I? (0+ / 0-)

                There is a tried and true solution. And that is to take over the failed institutions rather than prop them up. That is the solution that other countries have used many times, notably Sweden, Norway and the United States. Yeah, the Untited States. Ever heard of the S&L meltdown? Hmmmmm?

                What we have instead is an ideologically driven refusal to take the route that is best for taxpayer and, instead, pay off the foolish bets of the Masters of the Universe. This, even though it is moral hazard on steroids, besides being a rip-off of the taxpayers.

                And it is being done because people like Robert Rubin call the shots when it comes to economic policy in the United States.

                How about living up to your name?

                You've got to say, 'I'm a HUMAN BEING, Goddamnit! My LIFE has VALUE!'

                by expatjourno on Mon Mar 23, 2009 at 02:09:14 PM PDT

                [ Parent ]

                •  So why do the markets say otherwise? (0+ / 0-)

                  Looks like you are having a bad day.  I hope you didn't short the banks today.

                  So in your fantasy, the feds will take over all the major banks and solve all our credit problems?  Seems like a risky bet to me since nothing like that has ever been done on such a massive scale.

                  Taking over a few hundred S&Ls with less than $400B assets total, like the RTC did, is not even close to the assets at risk now.  Plus, the government had no choice then because those S&Ls were bankrupt and had to be closed.

                  What Sweden did was peanuts compared to the problems we face now.

                  •  What Sweden did was not peanuts. (0+ / 0-)

                    Not in comparison with the resources they had. The U.S. has bigger banks It is also a bigger country.

                    You know, I've got at least two Nobel Prize winners on my side. How many do you have? Zero. That's right. Zero.

                    Think of that.

                    You've got to say, 'I'm a HUMAN BEING, Goddamnit! My LIFE has VALUE!'

                    by expatjourno on Mon Mar 23, 2009 at 02:57:36 PM PDT

                    [ Parent ]

                    •  Nobel Prize Winners? (0+ / 0-)

                      Neither won the Nobel for banking analysis.  

                      More important than Nobel winners, I've got all the major markets around the world on my side.  That's all that matters at the end of the day.

                      The Great Krugman is wrong on this one and he is making a fool of himself going out on a limb with all his "dispair."

                      •  At least he can spell "despair." (0+ / 0-)

                        You have the markets of the world salivating over having a couple of trillion dollars of taxpayer money injected into them. That is all.

                        For the record, Krugman has written a lot about finance. And Stiglitz was head of the World Bank and the President's Council of Economic Advisors.

                        Let's take a trip over to Wikipedia, shall we:

                        In 2008, Krugman won the Nobel Memorial Prize in Economic Sciences "for his analysis of trade patterns and location of economic activity".[3][4] Krugman is known in academia for his work in international economics, including trade theory, economic geography, and international finance.

                        And:

                        Stiglitz's most famous research was on screening, a technique used by one economic agent to extract otherwise private information from another. It was for this contribution to the theory of information asymmetry that he shared the Nobel Memorial Prize in Economics[1] in 2001 "for laying the foundations for the theory of markets with asymmetric information" with George A. Akerlof and A. Michael Spence.

                        Ooops. You lose. But thanks for playing.

                        You've got to say, 'I'm a HUMAN BEING, Goddamnit! My LIFE has VALUE!'

                        by expatjourno on Tue Mar 24, 2009 at 09:44:18 AM PDT

                        [ Parent ]

        •  Questions (0+ / 0-)

          . . .In other words, the problem hasn't been the system of securitization.  Instead the problem has been the "lend to securitize" market of mortgage lenders that sprung up over the last 15 years like weeds. . . .

          These are essentially mortgage related assets who's value is depressed right now thanks to the housing market.  . . .

          Secondly, is their price unrealistically low right now because of the problems in the housing market?  . . .

          This struck my non-economist brain as a loop. Or is Bonddad saying the "problems in the housing market" are separate things, with different causes, than the existence/non-reality-based pricing of "mortgage related assets?"

          They seem so connected to me that I don't understand how selling one side of the coin fixes the other.

          Is this plan suggesting that bankers, or someone, will really be able to sit down and figure out which home loan is good and which is bad, and figure out which "mortgage related asset" is related to which good or bad loan? That somehow the good loans will then create a healthy housing market? Which is unhealthy for unrelated reasons?

          Patient answers appreciated. :)

          Nance -- still trying to figure out why the mortgage refinance plan doesn't apply to me; if a family dependent on the construction trades in FL doesn't qualify, who does?; or maybe I should just hush up about that and keep my head down, happy with an 8% mortgage and no ARM even if a lower monthly payment would surely help.

          •  Problems in the Housing Market are the same (0+ / 0-)

            problems as the toxic assets.  They are two sides of the same coin.

            As long as housing prices are falling and foreclosures are increasing - which is a vicious cycle - more toxic assets are being created on the books of the banks and AIG.

            If foreclosures were cleared from the market, house prices would start to increase thereby halting the foreclosure/price collapse vicious cycle and stopping the creation of more toxic assets.

            Removing the toxic assets from the banks' books should be the last step in the process, not the first.

            •  It's a cycle, actually (1+ / 0-)
              Recommended by:
              SingularExistence

              Because the toxic assets are keeping the banks from lending to business and to homeowners, which isn't helping unemployment or home buying.

              •  True that (0+ / 0-)

                So the toxic assets that exist now must be eliminated and future toxic assets must be prevented.

                The only way to do that is to get foreclosed houses off the market to stablilize prices which will prevent future foreclosures.  If house prices continue to drop, more foreclosures will create more toxic assets -  and another vicious cycle.

              •  Cycle, not loop. (0+ / 0-)

                Got it. :)

                Now, what the hell does that mean?

                Banks have bad loans on their books. Get rid of them and "poof" they will be willing to lend? And the cycle can change?

                In the meantime, apparently, some guys in suits will get richer. Who cares.

                Will the other guys in suits, the ones we elected, regulate them so they won't screw this whole thing up again?

                Nance

  •  Carrot. Stick? (0+ / 0-)

    Has there been any talk of linking receipt of bailout or TARP funding to participation in this market?  Requiring it, in other words?

  •  The only question I have left is this... (0+ / 0-)

    ...Obama: Jimmy Carter or Gorbachev?

    (And I wrote that as early as a year ago.)

    OVER HERE: AN AMERICAN EXPAT IN THE SOUTH OF FRANCE, is now available on Amazon US

    by Lupin on Mon Mar 23, 2009 at 08:25:43 AM PDT

  •  What does Krugman and Limbaugh have in common? (3+ / 0-)
    Recommended by:
    Dems 2008, JohnAdams999, jtown

    They both want Obama to fail.  

    What happens if it works Paul? Will you give back your Nobel?  Krugman has really gone "all in" in his outright opposition to Geithner and his constant criticism, emboldened by his Nobel, is really getting tiresome.  

    Krugman doesn't want the plan to work, because then he's economic genius star will dim.  It's one thing to critique via peer review in academia, but to be doing such in the NYT sabotages the effort.

    Quis custodiet ipsos custodes?

    by Jonze on Mon Mar 23, 2009 at 08:27:29 AM PDT

    •  Wow, you sure think small. (4+ / 0-)
      If you knew the details---reported in the press and elsewhere--of the banking scam and the AIG scam you would never equate Krugman with Limbaugh in a million years.

      Instead of offering you links to the facts, I will just assume you're in the Obama-is-right mafia and will let it go at that.

      You are not well read, that is obvious.

    •  Want? (4+ / 0-)
      Recommended by:
      pHunbalanced, expatjourno, JesseCW, Losty

      Huh. When did Krugman say that?

      Honestly, making shit up out of thin air isn't going to help Obama or the plan, assuming you support each.

    •  Horseshit. n/t (5+ / 0-)
      Recommended by:
      Dissento, pHunbalanced, SherriG, lgcap, JesseCW

      You've got to say, 'I'm a HUMAN BEING, Goddamnit! My LIFE has VALUE!'

      by expatjourno on Mon Mar 23, 2009 at 08:50:48 AM PDT

      [ Parent ]

    •  He didn't say he "wants Obama to fail..." (3+ / 0-)
      Recommended by:
      Dissento, pHunbalanced, Southern Bell

      Krugman said that he is very worried that he will fail.

      Mr. Krugman knows a lot about economics AND he has a political perspective, as do most of us here. That's why Krugman says:

      Even more important, however, is the way Mr. Obama is squandering his credibility. If this plan fails — as it almost surely will — it’s unlikely that he’ll be able to persuade Congress to come up with more funds to do what he should have done in the first place.

      All is not lost: the public wants Mr. Obama to succeed, which means that he can still rescue his bank rescue plan. But time is running out.

      I share Mr. Krugman's perspective, but I'm not as despairing as he is. I had hoped that this crisis would be the catalyst for the creation of a more just economy from the top down. It looks like that won't happen. I'm not completely surprised because President Obama has always said that he trusts the capitalist system.

      But that doesn't mean that the current crisis can't be remediated with the proposed plan. It might "work" in the sense that some equilibrium is brought back to the old economic system. Still, that old system must be changed even if that change does not come from the Obama administration.

      I still hope that President Obama will seek better regulation of the new financial institutions/products - that is something that he said he would support.

      And, meanwhile, whatever happens we can still work toward a just economy from the bottom up in our local communities.

      "The eyes of the future are looking back at us and they are praying for us to see beyond our own time." - Terry Tempest Williams

      by your neighbor on Mon Mar 23, 2009 at 09:47:42 AM PDT

      [ Parent ]

  •  can the blackmail be prolonged ? (2+ / 0-)
    Recommended by:
    Superpole, dark daze

    The dark forces of TBTF (too big to fail) have already proven they can push the government around, not to mention I think that Geithner et al don't mind being pushed around.  They think that this is just a bad patch for an otherwise wonderful, fair and balanced system.  We won't know the answer to that question until we start seeing re-regulation plans.

    Meanwhile, I think that maybe they'll just sit on their hands waiting for things to get worse, and then "ask" for a better deal.

    big badda boom : GRB 080913

    by squarewheel on Mon Mar 23, 2009 at 08:28:00 AM PDT

  •  The pricing mechanism is key in determining how (0+ / 0-)

    banks participate. I suspect if I were a bank I'd want to get rid of as much of my assets as possible so as to increase my ability to lend, but no so much as to give away the store.

    Furthermore, the fact that a bank will now get a sense of a price of what their assets are worth will probable cause them to realize that some of what they own is indeed worth more than they expect, and some are indeed worthless.

    The banks will take losses, but they will begin to be capitalized.

    With him from the beginning, with him until the end.

    by brooklynbadboy on Mon Mar 23, 2009 at 08:35:31 AM PDT

  •  All I can say is whether you (3+ / 0-)

    Agree with it or not this is the plan the team is going with so let's give it at least a chance to be implemented and see what we can critique from there. For all our sakes I hope this shit works.

  •  of course this is workable (8+ / 0-)

    overall I think this is workable

    I disagree on the definition of 'this'.

    The point of the plan is to transfer wealth from taxpayers to financial companies. That's why the government has to subsidize the purchase of these assets.

    1.) The banks wanting to sell an asset, and

    2.) Private bidders arriving at a price the banks are willing to take.

    That's what a market is. Sellers and buyers coming together. Currently, buyers are not willing to pay what sellers are willing to offer. That's the market position. Markets are telling the owners of assets that their assets aren't worth as much as the owners want them to be worth. Normally, people who own stuff suffer the losses when the stuff they own drops in value. Normally, taxpayers are not on the hook to make gamblers whole when gamblers lose money.

    The Geithner plan (which is really the same Paulson-Bernanke plan when you boil it down to fundamentals) is to pay potential buyers so that they pay what they're willing to pay, plus what the government tacks on, to reach a figure the seller is willing to accept. The particular mechanisms and securities involved are complex, but the basic math is pretty basic. Market prices plus government subsidies via loans and guarantees equals above-market price. This is precisely the kind of government meddling in markets that our entire economic understanding is designed to speak out against, particularly when the beneficiaries just happen to be large, well-connected firms.

    We have better options. Let's put resources behind those instead, investing in shared prosperity instead of the very failed management teams that created our economic mess in the first place.

    •  Ummm... (1+ / 0-)
      Recommended by:
      Yoshimi

      You know, the problem we have is that there is not enough capital in the United States financial system to sustain normal business conditions. That is what we faced last September.

      So, in your thinking, without being ideological, but being nuts and bolts dick in hand practical, explain how you create sufficient capital for normal business conditions without private capital.

      Go.

      With him from the beginning, with him until the end.

      by brooklynbadboy on Mon Mar 23, 2009 at 08:42:49 AM PDT

      [ Parent ]

      •  bring on more debt! (1+ / 0-)
        Recommended by:
        Nance

        Government doesn't really have capital. Government action trades off with private action (in economic jargon, this is called 'crowding out'). When the Treasury Department sells securities to private investors, that is a direct trade off. Money that was available to private markets is now re-directed to the government; no net new capital was created. Fed actions are less direct, but the effect is similar. When the Fed prints money (typically, by crediting reserve balances at participating institutions), that does increase the money supply. But by definition, that decreases the value of the existing money by the same amount. We call this effect inflation; it's one of the key mechanisms for how costs are disbursed through the economy. It has the handy benefit of not being technically taxation, but the effect is the same on standard of living; whether you pay higher taxes, or you pay higher prices, your purchasing power falls either way.

        You know, the problem we have is that there is not enough capital in the United States financial system to sustain normal business conditions.

        Not precisely. There is not enough capital to sustain certain firms. This notion that because some firms are insolvent that the whole financial system is insolvent is one of the core misunderstandings. We need to save our financial system, not specific companies.

        So, in your thinking, without being ideological, but being nuts and bolts dick in hand practical, explain how you create sufficient capital for normal business conditions without private capital.

        Well, people have been writing about better alternatives for years.

        Here's my personal stab over the weekend.

        Capital isn't the problem; it's not what's causing our economic situation. Rather, our faltering economy has caused problems in financial markets. The best options are those that cure the disease, rather than those that attempt to treat the symptoms.

  •  Everyone is bitching (4+ / 0-)
    Recommended by:
    laderrick, beachmom, kfd313, mysticlaker

    that the players don't have much skin in the game, citing percentages of risk. It's not about percentages, it's about monetary amount.

    Example: If some assets, say mortgages, were bundled and a value was put on them of 10 billion dollars, a participating weasel asshole criminal hedgefund would pony up let's say 16% and the Fed backs the rest. Wow, you say, it's too easy. They can just walk away from it if the value drops due to low demand.

    But calculate 16% of 10 billion.

    ONE BILLION SIX HUNDRED MILLION DOLLARS.

    Who thinks that any player would get into this without a lot of thought, not work it diligently, and not loathe like hell to lose that kind of money?

    Get some perspective, folks.  

    •  IF so we would not be here talking about rescue. (0+ / 0-)

      Who thinks that any player would get into this without a lot of thought, not work it diligently, and not loathe like hell to lose that kind of money?

      ME

    •  oh fucking please (1+ / 0-)
      Recommended by:
      trevzb

      all the rich have to risk is some numbers on a fucking piece of paper,  most american have their asses on the line thanks to these rich punks.  

      Cant go to the doctor, cant pay the mortgage, cant find a job, cant send a kid to college,  THESE ARe thepeople with shit at risk.  FUCK the rich,  they have Nothing and continue to have nothing to really worry about.

      (regarding the bank mess) They want to cure the patient but not deal with the disease.

      by dark daze on Mon Mar 23, 2009 at 08:58:37 AM PDT

      [ Parent ]

      •  well you better pray they succeed (1+ / 0-)
        Recommended by:
        SingularExistence

        in order to save your bitter ass.

        •  oh fuck them (0+ / 0-)

          we dont need the rich any more than serfs needed the lords.

          They abuse us and our money and we are suppose to bow to them.  Get over it and wake up.

          Oh masta masta I'm so thankful your alive, oh what would I do without a masta

          (regarding the bank mess) They want to cure the patient but not deal with the disease.

          by dark daze on Mon Mar 23, 2009 at 10:31:28 AM PDT

          [ Parent ]

        •  Here we go... (0+ / 0-)

          ...thank the rich for the crumbs.

          I say we get the people skimming millions off the billions we're giving their companies out of the way...maybe lock them away somewhere. Somebody else (perhaps even somebody competent) will do their jobs for less.

          It's the working man making the rich rich. Let's see the response to a general strike...

          ...shit works both ways.

        •  Bob Bob Bob... (0+ / 0-)

          Your response seems to be recognition or admission that Team InvestoBank is holding the Republic hostage in exchange for NOT pushing the Economic Armageddon Button.

          When have hostages NOT been bitter? What did you expect?

          For the record, I am not bitter. I am old, and have had a great life, and have been responsible. I do not fear any more, so, bitter is not something I taste.

          I just am offended that the word Bitter keeps coming up as the fall off the cliff accelerates. We should all be so happy as you and I, but not all have had their chances.

          I hope you can see that, humbly, as a fellow Oregonian.  

          Figures don't lie, but liars do figure-Mark Twain

          by OregonOak on Mon Mar 23, 2009 at 12:34:48 PM PDT

          [ Parent ]

          •  I understand (0+ / 0-)

            and believe me, I've spent more nights in my truck than some kids have been in college.

            There are a couple of issues we're conflating. The first is the legacy of greed that wrecked the car. The second is that some of the same class of people (rich Wall Street guys) are needed to restart the engine while mechanic Geithner sprays the starter fluid.

            A whole lot of people here are resentful that some of these people are getting away with something, even as the market goes up 500 points and it looks like the car is back on the road.  That's just self-defeating. For one thing, some people have too much money. Money isn't the answer. I wouldn't sell my soul to Wall Street for anything. It's a shallow existence there, and the limitless greed shows how crazy that life is.

            For normal people there are just as many opportunities today as ever, but we have to dislodge ourselves from old patterns to take advantage of them. If I was 19 years old I might take some trade courses and work in the solar or wind industries. I might have to put down my mouse and move to another town, but BFD, that's life.

            •  I understand (0+ / 0-)

              At best, this rescue package is meant to pin the responsible parties in place while they "labor" to mitigate some damage. I get that, but we should remember that we should not mind them getting away with something as long as it doesnt hurt us. So far, I have no confidence that they will keep their fingers out of the new pie as it comes rolling off the presses.

              And, I reject to some extent that the ones who broke the car should be the ones to fix it. I think the car is a 1946 DeSoto. Even if it gets fixed, I doubt its the right vehicle for 2010.

              I have restored enough old cars and houses to know that most of them are simply not worth it in the end, unless one is striving for a cool nostalgic feeling of tradition and solidity. Its an illusion, of course, because any modern car will outperform any 60 year old car in any way you want to name. I don't think we can restore the old system.

              There is something to be gained by having them try. When it doesnt work very well, that is the time when we can say, ok. Now we build new WITHOUT you guys.

              Figures don't lie, but liars do figure-Mark Twain

              by OregonOak on Mon Mar 23, 2009 at 03:08:10 PM PDT

              [ Parent ]

              •  right, do it on your own (0+ / 0-)

                So far, I have no confidence that they will keep their fingers out of the new pie as it comes rolling off the presses.

                and this resentment consumes you to the extent that you can't see anything but greed everywhere you look, apparently.

                •  What is it with you and the concept of justice? (0+ / 0-)

                  Back to resentment. You are a true believer in the principle that wealth somehow naturally flows to them that truly deserve it, and I am not so convinced. I believe it flows to them who are aggressive. That is not the same thing, and the role of a democracy is to regulate that flow. Many conservative economists agree with me, to the extent that we have outlawed Cosa Nostra, Slavery, and Inside Trading.
                  All is not sunshine, my friend, when the most able among us are thieves.  

                  Figures don't lie, but liars do figure-Mark Twain

                  by OregonOak on Tue Mar 24, 2009 at 06:18:31 AM PDT

                  [ Parent ]

                  •  you have no idea what I believe and (0+ / 0-)

                    that kind of statement - mind reading the dark thoughts of others - is part of a negative syndrome. Let's just say that I believe in something greater than wealth, and so I'm free of childish resentments over who has it and who doesn't.
                    Go deeper.

                    •  Bob... (0+ / 0-)

                      When a group of uberaggressive people steal the wealth of the next three generations, as in slavery, then I think this demands some sort of reflection, and some sort of justice in THIS world.

                      I dont mind people being wealthy. I have enough, and its enough for me. But what has happened is a power play to paralyze democracy, build a personal state beyond control of anyone, and they have nearly succeeded. I merely suggest we dont add to their power as we reclaim our republic.

                      I hope you can see this is not a spiritual quest, but a very practical series of steps to prevent a new version of totalitarianism. Its not negative to be fighting the most extreme greed grab in the history of western civilisation.

                      It IS negative to bury your head in the sand and chant happy thoughts. Its also delusional.

                      Figures don't lie, but liars do figure-Mark Twain

                      by OregonOak on Tue Mar 24, 2009 at 03:25:50 PM PDT

                      [ Parent ]

                      •  Have you read my comments and diaries??? (0+ / 0-)

                        You don't know who you're talking to. And don't mistake spirituality for weakness!

                        Look, I'm a veteran of the sixties. I went to jail for protesting. I led a camapign against nuclear power and helped stop the WPPSS project. I started an alternative school for children.  I lived outside the system for 15 years, on the road, in a tipi, a driftwood shack, boats, campers, farmhouses, and tool sheds, the only reason I got back into society was to get a degree to be a counselor, which I did for low income people.

                        And speaking of low income I live on a pension of under $1000 per month. Where in the world do you come up with this picture of me, just because I defended GEITHNER??? Give me a break, oaky.

                        Speaking of oaks, I planted thousands of seedlings and acorns in Klamath Falls, literally thousands, because it made more sense than anything else for about two years.

                        Cut me some slack, bro.

                        •  Consider some slack cut.. (0+ / 0-)

                          I apologize if my comments have been offensive. I, like you, have spent many years teaching and traveling all over the Pacific, from Alaska to Palau and everywhere in between. I still own next to nothing, and like it that way.

                          I do not want to leave the impression that I am angry with you personally. I just wanted to be clear about why we discuss these issues. I do not think Geithner has you or me in mind when he proposes his fixes. At best, he is looking to save his own ass from the whirlwind which will occur if he fails. I think Obama knows this and is using him to get into the minds of the truly responsible parties. He is someone they trust, and they think they are using Obama. Our task is to make sure that Obama stays true to us in the Washington Bubble. I know we are on the same side.

                          Beautiful country in K Falls. I just bought some Juniper fence posts for a steal.. less than the cost of a 4 by at Lowes. Oregon. You gotta love the place.
                          And... the junipers need to go.. they are sucking up all the water out east, as you know. Win Win.

                          Figures don't lie, but liars do figure-Mark Twain

                          by OregonOak on Fri Mar 27, 2009 at 11:38:06 AM PDT

                          [ Parent ]

  •  F--- these incompetent insolvent banks. (3+ / 0-)
    Recommended by:
    Superpole, Tanya, JesseCW

    They screwed up.  We have too many banks as it is.  Direct help to the actual problem would work best.  If you want to give money to the securitized toxic asset, go ahead, then transfer it to a bank that is not insolvent.

    Experience is a hard teacher because she gives the test first, the lesson afterwards

    by publicv on Mon Mar 23, 2009 at 08:45:26 AM PDT

  •  Why Not a "1 for 1" Formula? (0+ / 0-)

    For every undervalued asset with some tangible value (like a piece of real estate itself)the plan might wanna mandate a pairing with a legacy asset or a swap based on a crap loan, as long as taxpayer moolah was in the mix?

  •  Pimco Plans to Participate (2+ / 0-)
    Recommended by:
    omgitsparishilton, dougbob

    The world's largest bond fund describes the Obama-Geithner plan as a "win/win/win."

    The plan is stimulating risk appetite.  Worldwide.  As demonstrates the English pound.

    Economic recovery subtly, but with building momentum (and this plan will help the momentum accelerate) is underway.  Existing home sales took gigantic (and unexpected/unpredicted) leap in Feb. -- up 5.1%.  So where the problem started is beginning to look like where the problem may end.

    "Give me but one firm spot to stand, and I will move the earth." -- Archimedes

    by Limelite on Mon Mar 23, 2009 at 08:55:23 AM PDT

  •  its all (8+ / 0-)

    its all a circle jerk and one that will lead to NOTHING but more of a sticky mess.  WHY?

    Because housing isnt artificially low, it is merely correcting itself, and it still has a long way to go.  Wages in correlation to home prices is out of whack and needs to go back to the historic averages.  May need to drop another 25% at least.

    Next, NOTHING is being done about the real problem.  We are losing the middle class job.  We find a trillion bucks to bail out the rich, yet we havent been able to find that money for the average american for decades?

    We still have failed schools, we still have failed healthcare, we still ahve a bloated pentagon and wiped out military, we still have no real job creation beyond govt jobs in this nation.  NONE of the real issues that are at the foundation are being addressed.  Plus this crisis is about to implode some countries overseas.

    ALL this plan is, is giving the rich junky some more monies to shoot in their veins..  It will all be for not later this year.

    I really really have about given up on the leadership of this country, it is SO obvious they are nothing but pawns for the rich crooks of this nation.

    (regarding the bank mess) They want to cure the patient but not deal with the disease.

    by dark daze on Mon Mar 23, 2009 at 08:55:59 AM PDT

  •  Still have to wonder about the 500 trillion in (2+ / 0-)
    Recommended by:
    JesseCW, ohmyheck

    derivatives that still have deal with at some point. But hey, that's for another day.

  •  It Won't Help Anyone Being Laid Off (1+ / 0-)
    Recommended by:
    Brooke In Seattle

    Or losing their home. If rich people get helped but the regular guy doesn't, then it's merely more of those that gots, getting.

    The Road to 2010: More Democrats. Better Democrats.

    by Splicer on Mon Mar 23, 2009 at 08:59:40 AM PDT

    •  of course not, but the stimulus package does (2+ / 0-)
      Recommended by:
      SingularExistence, lockewasright

      This is an Executive Branch plan to aid the large near-death banks. It's not designed to help with employment. There was a reasonably good stimulus package passed (by the Legislative Branch) just last month (you may have missed it?!) that specifically helps by increasing unemployment benefits, reducing taxes, and spending on a lot of government programs.

      car wreck : car insurance :: climate wreck : climate insurance

      by HarlanNY on Mon Mar 23, 2009 at 10:14:17 AM PDT

      [ Parent ]

  •  Management fees (3+ / 0-)
    Recommended by:
    trevzb, JesseCW, washunate

    Do the hedge funds care whether the assets ever appreciate, if they get to skim off a fortune in management fees every year?  Taxpayers put up the bulk of the money for the banksters to manage more assets than they would have bought otherwise.  So the taxpayers are hiring hedge funds to manage the assets at their usual inflated rates.  

    Why couldn't some sort of government agency manage the assets itself, paying the managers government salaries.  Then the taxpayers would get all the upside, which seems fairer since we have almost all the downside.

  •  maybe this was answered somewhere in the thread.. (1+ / 0-)
    Recommended by:
    PeggyD

    who is determining the value of these assets? What metrics are they employing to get a relative value?

  •  Question (0+ / 0-)

    "Finally, will these assets increase in value over time to where a profit can be made?  No one really knows the answer to this question either, although assuming the maturity date is far away enough (say 10+ years) the answer is probably yes."
    There is massive computer power available in this country so why aren't these numbers being determined.
    How many and at what par value mature in 10+ years?
    How many and at what par value mature in 9 years?
    How many and at what par value mature in 8 years?
    How many and at what par value mature in 7 years?
    down to 1 year and then less than 1 year.
    As these mature and loses are sustained right now is that what are tax dollars are paying for so we the taxpayers are taking the loses.

    •  Because the asset pricing (1+ / 0-)
      Recommended by:
      danmac

      models are crap. This is another thing that isn't talked about in the MSM regarding this crisis. They have used massive amounts of computing power to try and determine the value of these assets. But it's all based on historic statistical trends that didn't reflect the reality of the mortgages being made. Because statistics is not the math that will let you understand finance.

      And reality has bit them in the ass. That is why Galbraith says we should do fucking due diligence on these things before we put up a single penny.

      But the banks don't want due diligence because then they would be forced to face the reality that their assets are worth a lot less than they think they are worth.

      In every cry of every man, In every infant's cry of fear, In every voice, in every ban, The mind-forged manacles I hear

      by Areopagitica on Mon Mar 23, 2009 at 02:24:13 PM PDT

      [ Parent ]

  •  depressflation (0+ / 0-)

    There can't be a depression and inflation at the same time--or--this could lead to that.  

  •  Brave Statement (0+ / 0-)

    Objectivity is a brazen and brave move.  I hope you don't find the villagers pitchforks suddenly pointed at you!  

    These are crazy days, indeed.

    I'm not sayin'... I'm just sayin'.

    by AriesMoon on Mon Mar 23, 2009 at 09:03:21 AM PDT

  •  Thank you, (2+ / 0-)
    Recommended by:
    Boston to Salem, Texanomaly

    I appreciate your continuing analysis and perspective on this.  It helps clarify things that I'm just never going to be an expert in.  

    Because our individual salvation depends on our collective salvation.. Barack Obama, 5-25-08

    by sherijr on Mon Mar 23, 2009 at 09:04:34 AM PDT

  •  "distressed assets" (2+ / 0-)
    Recommended by:
    Sparhawk, Losty

    or as Krugman calls them "misunderstood assets" because the free market misunderstands their true value.   Well, it's pretty easy to figure out what the market value of these assets are.. auction them off to the highest bidders.    If those bidders think they're worth 90% of the original value then they will pay that.    If not.. maybe they'll only pay 25%.   Tough.

    Of course that means nothing if the banks will be allowed to make bids in this auctioning process because their bids will be way too high (knowing the taxpayer will backstop them.)

    Some will argue mark-to-market should be suspended.     Okay.  Fine, do it.  But what happens when your local bank goes bust or needs to raise capital to stay afloat?   Here's what happens.   They sell those "distressed assets" to the highest bidder and a market price is set..  

    I suppose if the taxpayer is forced to keep every bank alive until these assets mature then it doesn't matter.   Ya, that's the ticket. heh.

    Brothers and sisters, the name of the game is power. If you ain't playing for power you're in the wrong place.

    by soros on Mon Mar 23, 2009 at 09:05:21 AM PDT

  •  Companion Piece (1+ / 0-)
    Recommended by:
    PeggyD

    to this excellent diary of explanation and analysis, is a diary I wrote this morning in anticipation of this announcement, which is a long view of the implications and the indications that Geithner's toxic debt absorption plan, in hand with the stimulus/bailout that has taken place has already put us on the footing of economic recovery.

    Longterm Economic Outlook: Slow Growth and Better Health

    "Give me but one firm spot to stand, and I will move the earth." -- Archimedes

    by Limelite on Mon Mar 23, 2009 at 09:06:01 AM PDT

  •  some think Krugman is wrong. (3+ / 0-)
    Recommended by:
    askew, freakofsociety, Fury

    http://www.thedailybeast.com/...

    another opinion.  None of these opinions can be proved right or wrong, so people should keep their powder dry!

    •  What does Brad DeLong say about.... (3+ / 0-)
      Recommended by:
      freakofsociety, RainyDay, JesseCW

      ...nonrecourse federal loans?  The loans that the government, ie us, are giving the fatcats?  The loans that back 85% of the purchase.  The ones we will still be holding when these are assets are found to be worthless.

      http://krugman.blogs.nytimes.com/...

      Our plan is to fatten the fatcats coffers while we all hold the bag.  Of course, the Dow will love this but it will still be a "dead cat bounce".

      •  check it out! (2+ / 0-)
        Recommended by:
        askew, freakofsociety

        and do your own analysis!

        •  He doesn't take them into account.... (0+ / 0-)

          that is what I'm saying.

          •  as I understand it the entire plan is based (0+ / 0-)

            on the fact that both the banks, which are over valuing, and the market which is under-valuing, these bundled securities, will find a middle ground and spread the risk.

            If as you seem to indicate all these assets are totally worthless then why would nationalising the banks, thereby basically turning over a bunch of worthless assets to the taxpayers to hold, make the nation any stronger financially.

            The taxpayer then takes all the risk, this way the private sector acquires some of the risk. The risk is spread.

            If it doesn't work then i suppose the only answer is to allow those that hold too muich toxic waste to collapse, and the taxpayers then take over the rest.

            Bit of a gamble either way.  Who knows!  not you, not me, not Krugman, not De Long and not the Obama team either.

            The market today at least seems to think somewhere in there is a glimmer of a chance to make some money.  Tomorrow might be different.

  •  Is this accompanied by CDS regulation? (2+ / 0-)
    Recommended by:
    IndySteve, RainyDay

    Giving Wall Street a new way to feed their gambling monkey, with the taxpayers shouldering the majority of the risk, is all well and good for those who are in a position to take advantage of such a thing, BUT...

    ...if there's nothing stopping the overall financial market from using the same scams and flams that they used before (like the credit default swaps) then what's to stop the financial market from getting even deeper into the hole by trying to "run their money up" through the same gambling schemes that got them into the hole in the first place?

  •  Rec'd for not name-calling. (3+ / 0-)
    Recommended by:
    Lupin, Livvy5, Darkmoth

    Remember Robot-Wars from the 90s?  I say we get a bunch of actual Obamabots to fight the Mecha-Krugmans.  The Stiglitz-trons fight the winner.

  •  Assuming??? that the banks WE OWN are (2+ / 0-)
    Recommended by:
    trevzb, Superpole

    "willing to play"...?????

    That's rich. I assume that the banks will do exactly what the Geithner plan tells them to do - nothing short of that will enable the reformation of markets that will establish prices.

    This is known as "stirring the pot." I would call it masturbation, but at least with masturbation there is a predictable end in sight. The hole in the marketplace, just to remember, is $23 trillion to $60 trillion of toxic assets, and this is only an estimate.

    More Truth Here: www.exiledonline.com

    by ezdidit on Mon Mar 23, 2009 at 09:14:47 AM PDT

  •  Here's the key (2+ / 0-)
    Recommended by:
    Sparhawk, Superpole

    the only bidders who would rationally want to participate in the auction are the banks holding these assets.  Bank A buys Bank B's problems, Bank C buys Bank A's and so on.  Maybe Bank A can buy its own worthless paper.  The auction prices will prove a one time deal, the value of the assets inflated  thanks to the government subsidy.  But only those currently holding the assets have incentive to buy them.   A prudent investor would not want any part of this auction.  To whom will he subsequently resell these assets if no subsequent purchaser is similarly subsidized?  

    A bank holding these assets would buy, preferably its own problems, and at face value or more if it can because the government portion of the funds essentially takes the asset off the banks hands.  That the bank cannot later find a buyer willing to pay anything is OK because it has already sold the asset to, largely, the Government receiving many more cents on the dollar than the bank would if it sold it today or tomorrw to a buyer without such Government subsidies.

    My first and only question to Geithner is, can the banks holding these toxic assets participate as buyers/bidders in the auction.  If yes, then this is the government buying the waste, if no, then the auction will have a difficult time attracting any bidders.

  •  R'd But PPIF is Nothing But A Massive Wealth (2+ / 0-)
    Recommended by:
    josephcast, Areopagitica

    transfer, from the poor to the wealthy investor class.

    it cannot be any more crystal clear what is being done to us by the Obama administration and the Wall St. insiders/protectors running the U.S. Treasury.

    I don't believe for one second that ALL of the toxic paper these idiot Zombie banks are attempting to stick us with is related solely to the housing market going south. that's a lie.

    there's the credit default swaps and all of the other exotic financial bullcrap these guys were involved in which we do not even know about (yet).

    Obama/Geithner MUST demand a full, independent audit of the Zombie banks begging for federal money to determine the actual debt of these banks.

    Don't believe what the banks are currently saying about their debt, they are LYING.

    "The most dangerous thing in any economic crisis is denial". Simon Johnson, MIT

    by Superpole on Mon Mar 23, 2009 at 09:15:57 AM PDT

  •  It comes down to the nonrecourse loans..... (3+ / 0-)
    Recommended by:
    trevzb, RainyDay, Wolf10

    ..if you don't know what those are, you really need to.

    http://krugman.blogs.nytimes.com/...

    I'll say it again: we are giving money to the fatcats while we all hold the bag.  Wall Street gets all the gain, while we assume all the loss.  

    •  Wall Street doesn't get all the gain (0+ / 0-)

      Though it is true that we would assume all the loss.

      The mortgage programs Obama has announced, plus Bernanke lowering interest rates, should help find the floor of the housing market.

      What I'm most curious about is this: Mortgages backed securities (CDOs) only appeared to be about a third of the toxic asset problem when I tried to look at this a couple months ago.  

      So what the hell are all those other toxic assets?  If they're different kinds of CDOs, what's inside those CDOs?

      We must pick ourselves up, dust ourselves off, and begin again the work of remaking America.

      by Minerva on Mon Mar 23, 2009 at 09:32:03 AM PDT

      [ Parent ]

    •  All in an effort... (0+ / 0-)

      ...to keep them playing the game, as if they've threatened to take their ball and go home. The money-sellers have us by the short hairs and, having raised the spectre of martial law back in September, are counting on the American people's fear of uncertainty and change to make sure they get what they want.

      Meanwhile, what they deserve, richly, is to lose their bets and suffer the repercussions when their customers lose theirs, as well.

      No way in hell taxpayers ought to be insuring (and reinsuring) payouts in stocks and bonds. Those are bets made with money people have to bet with. I'm sorry about your retirement, but you probably shouldn't have had your entire future tied up in the market.

  •  why OBAMA is like Capt Sully (8+ / 0-)

    because he is in a situation he didnt make and he is calmly trying to land 'the plane' and keep it level on water and have it NOT SINK before the 'passengers' can get out and be rescued.

    Sully did it,  lets hope OBAMA can too.

    becoming educated is now a Patriotic Act, our President said so!

    by KnotIookin on Mon Mar 23, 2009 at 09:20:20 AM PDT

    •  But is Sully really the hero we think he is? (2+ / 0-)
      Recommended by:
      askew, sgrAstar

      After all the passengers did not arrive at their destination, they got wet, and lost all their luggage.

      ;)

      In other words there will always be something for someone to bitch about.

      "When the power of love overcomes the love of power, the world will know peace." - Jimi Hendrix

      by on board 47 on Mon Mar 23, 2009 at 10:42:04 AM PDT

      [ Parent ]

  •  Sorry but I can't rec or tip this (2+ / 0-)
    Recommended by:
    fuzed, josephcast
    Can people please stop linking to the Wall Street Journal? That news paper might as well be toilet paper.
  •  Question for nationalization fans (4+ / 0-)
    Recommended by:
    askew, Fro, freakofsociety, PasstheBill

    If Geithner and crew are 1) incredibly incompetent and 2) wholly-owned lackeys of Wall Street why would you trust them to do nationalization right, either?

    They've essentially nationalized AIG, and sure haven't gotten that right...

    We must pick ourselves up, dust ourselves off, and begin again the work of remaking America.

    by Minerva on Mon Mar 23, 2009 at 09:26:44 AM PDT

  •  Another economist not happy (5+ / 0-)

    John Hussman runs an investment advisory and manages mutual funds. He has always been very sober with his analysis.

    It appears that the Treasury envisions allowing private investors to bid for toxic mortgage securities, but only to put up about 4% of the purchase price - the remainder being "non-recourse" financing from the Fed, Treasury and FDIC.

    This essentially implies that the government would grant bidders a put option against 96% of whatever price is bid.

    This is not only an invitation for rampant moral hazard, as it would allow the financing of largely speculative and inefficently priced bids with the public bearing the cost of losses, but of much greater concern, it is a likely recipe for the insolvency of the Federal Deposit Insurance Corporation, and represents a major end-run around Congress by unelected bureaucrats.

    Hmmm, insolvency of the FDIC,,, that doesn't sound encouraging.

    Ultimately, funding the bailout of lousy assets comes at the cost of debasing our currency and selling our good assets to foreigners.

    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.

    I'm not an economist, I don't know all the behind the scenes complexities that Obama has to deal with, but I surely thought he would have not been so "helpful" to the financial elites as he is appearing to be.

    Also, I understand economist like Hussman, Roubini, Krugman, Stiglitz. They make sense to me and appeal to my own financial sense of responsiblity, fairness and prudence.

    I don't always understand Geithner and Summers. Their "reasoning" sounds like opaque gobbley-goop and that makes me very cautious. I am very perplexed as to why Obama chose these guys.

  •  How the f*** is an average person supposed to (2+ / 0-)
    Recommended by:
    Brian B, mrchumchum

    understand any of this?????

    I'm reading, reading, reading, and am, as a reasonably intelligent person, supposed to be able to form an opinion.  I have to say, none of this makes any sense to me.

    So if I have it straight:  they are calling it a "partnership", but it's 97/3.  And all that's going to happen is that hedge fund managers are going to get richer but it's not going to really help any of us.  

    And the banks assume no risk?  

    So, could someone please tell me what a reasonable alternative is?  I get the sense that this is a crappy plan, but no one really knows what else to do.  The banks have us in a wrestler's hold right now.

    Am I getting this straight?

  •  You know there will be a BIG LOOPHOLE...somewhere (0+ / 0-)

    I can imagine that even the most perfect process has a crack or two in it that these bankers would exploit heavily. I just hope the pounce hard on anyone playing fast and loose in this process. Because if there is a way to game the system these guys are the ones to find it and abuse it!

    "I think it's the duty of the comedian to find out where the line is drawn and cross it deliberately." -- George Carlin, Satirical Comic,(1937-2008)

    by Wynter on Mon Mar 23, 2009 at 09:29:00 AM PDT

    •  Yeah it's called (0+ / 0-)

      CDS's where these guys will participate in the program and continue to bet on the failure of these assets.

      They will have no incentive to fix anything. This program is another cash machine for the shadow banking system.

      In every cry of every man, In every infant's cry of fear, In every voice, in every ban, The mind-forged manacles I hear

      by Areopagitica on Mon Mar 23, 2009 at 02:17:39 PM PDT

      [ Parent ]

  •  David Sirota...gets it... (3+ / 0-)
    Recommended by:
    fuzed, RainyDay, josephcast

    His column crossposted from OpenLeft:

    The discussion about the sanctity of contracts really shoved the double standard right up in our grill. The government at once insists it had zero power to revise contracts at a company it owns (AIG) while asserting almost total power to revise contracts at companies it merely lends to (GM and Chrysler). Then, in a reversal, the government insists it has total power to renegotiate mortgages for vacation homes that the super-rich own, but zero power to renegotiate mortgages for primary residences that the Rest of Us own.

    I guess the good news is that in becoming so overtly hypocritical, the government is educating the public in a more effective way than ever before. Whereas there used to be the pretense of "fairness" and "equal protection under the law," those platitudes are being debunked by very clear, very easy to understand actions. And that's where the populist anger is now coming from - America is finally awakening to the fact that this is not a democracy, it's a kleptocracy.

    Some say realization is "dangerous" - but that's the same thing the Establishment was saying when the country demanded transformative change from the Roosevelt administration. Indeed, the term "dangerous" is an epithet routinely thrown around by the staunchest defenders of the status quo. What this moment really is, IMHO, is a huge opportunity - and if progressives shirk that opportunity and use it for our positive agenda, you can bet conservatives will seize it and use it for their negative one.

    That would be the politics, but, hey, I'm in favor of a class action suit against the Federal Treasury.

    More Truth Here: www.exiledonline.com

    by ezdidit on Mon Mar 23, 2009 at 09:36:51 AM PDT

  •  Good, Lucid, Explanation... (2+ / 0-)
    Recommended by:
    Sleepwalkr, on board 47

    of the program.  Thanks.  It may or may not work, but now I understand some of the rationale.

  •  "Leave the Bankers AAAALLLOOOONEEE" (0+ / 0-)

    They've been abused soooo much by the horrible glaring populist spotlight.

  •  heckuva job!, timmy and larry n/t (0+ / 0-)

    If the only tool you have is a hammer, every problem looks like a nail.

    by BlueColoradoSky on Mon Mar 23, 2009 at 09:42:57 AM PDT

  •  Is part of the incompetence, a fear of success?? (0+ / 0-)

    Is part of what's going on here- the multiple plans, the inconsistency, the lack of transparency, the timidity - is part of the problem that Obama is afraid of establishing a precedence of competence at such a huge takeover?

    Are we still afraid of Socialism, the boogeyman? Is it a fear of demonstrating that the Government can swiftly and easily (relatively) come in, take over a huge swath of the private sector, and restore order, thereby threatening the very idea of private capital as an independent force? Would success at such a venture be such a threat to the establishment that Obama is consciously or unconsciously unable to take the steps that are really needed to right the financial institutions of this country?

    What do you think? I think that is a lot of what's behind the failure to demand full accountability and to take real ownership of what the public is paying for- the feeling that "we just can't go that far", that it's too "socialistic" to consider. And that if he did it once, it could be done again, which would be a slippery slope.

  •  WHen you say assetes are you talking ahout (1+ / 0-)
    Recommended by:
    Snarcalita

    CDS or CDO's?

    It's about the people.

    by JerichoJ8 on Mon Mar 23, 2009 at 09:47:30 AM PDT

  •  What's to stop us from putting our money together (2+ / 0-)
    Recommended by:
    MontanaMaven, Snarcalita

    and creating a community bank?

  •  Amazing all of the economic geniuses (6+ / 0-)

    posting in the comments section of a political blog.

    "[R]ather high-minded, if not a bit self-referential"--The Washington Post.

    by Geekesque on Mon Mar 23, 2009 at 09:49:16 AM PDT

    •  Kinda like all the military geniuses... (0+ / 0-)

      ...who posted in the comments sections of this exact same political blog for the majority of the BushCo regime, eh?

      •  If you saw Iraq as a purely military issue (2+ / 0-)
        Recommended by:
        Newsie8200, Geekesque

        you were doing it wrong.  I don't remember anyone talking about troop movements.  They were talking about what everyone saw as the necessity, that is, a political solution.

        Congress! Pass a 100% tax on Bush's pension, because tax dollars shouldn't reward incompetence that blew up the country.

        by Inland on Mon Mar 23, 2009 at 11:15:56 AM PDT

        [ Parent ]

    •  It used to be (0+ / 0-)

      called 'political economy' and deference to authority is not a trait that should be preached amongst the left.

      Economics is very much a political issue, and this plan affects all of us, so people have the right to point out the flaws that they see.

      In every cry of every man, In every infant's cry of fear, In every voice, in every ban, The mind-forged manacles I hear

      by Areopagitica on Mon Mar 23, 2009 at 02:50:10 PM PDT

      [ Parent ]

  •  Nothing good will come of this (1+ / 0-)
    Recommended by:
    RainyDay

    Obama seems unwilling or incapable of taking the drastic actions needed to save our economy.

    The problem is that it's the system's that's broken. The whole system needs to be revised. Somehow I don't see how continuing to give trillions to our corporate overlords is going to reform the system.

    I am quickly losing faith in Obama. For all his populist talk, his actions so far are showing him to be a servant of the oligarchy. I hope I am wrong. But his actions are very troubling.

    •  That's barely disguised whining. (6+ / 0-)

      No one expects Barack Obama to do anything apart from what his experts recommend.

      Burn down Wall Street ??? -- Absurd.

      As well, any system will include greed as a motive. "The New Class" explained what happened to Eastern Europe in this direction, decades ago.

      Obama is doing what he can.

      Longer term ??? Reforms are possible. But for now the problem is to avoid a Depression.

      He seems to be doing that much. Perfectly, not likely.

      Droogie is as Droogie does....

      by vets74 on Mon Mar 23, 2009 at 10:06:24 AM PDT

      [ Parent ]

  •  The absurity (3+ / 0-)

    of calling betting on debt with no money to back it up when you inevitably lose, 'growth' or necessary or even our 'economy' blows me away. How can they talk of Main Street being hooked into Wall Street when these giant zombies, which offer the real economy nothing but debt and extortion still get to be the conduit for borrowing our own money? Insane, we are now all involuntarily gambling to keep alive these entities that eat our government our real economy.

    Were all insuring that they grow and continue to malfunction. Were told that if we don't the universe will end. Perhaps the unreal universe that only serves 'investors' and the ATM that used to be the government, but not the real universe the one they quaintly call 'Main Street'. The Street they speculate on and fill with nasty big box malls and cheap toxic crap from China. The place where Wal-Mart is the only place to work.

    of calling betting on debt with no money to back it up when you inevitably lose, 'growth' blows me away. How can they talk of Main Street being hooked into Wall Street when these giant zombies, which offer the real economy nothing but debt and extortion still get to be the conduit for borrowing our own money? Insane, we are now all invountarily gambling to keep alive these entities that eat our government our real economy. Were all insuring that they grow and continue to malfunction. Were told that if we don't the universe will end. Perhaps the unreal universe that only serves 'investors' and the ATM that used to be the government, but not the real universe the one they quiantly call 'Main Street'

    For the privilege of borrowing for student loans, cars and so called 'small' businesses we keep the gambling going. The extortion now comes down to us all, they lost we pay or else. Or else what? The corporations might actually have to produce something other then short term phony profit, the 'free market ' will cease, the Ponzi schemes will fall apart. This is not a solution this is the final hostile takeover of our government and society by the 'investor class'. They invest in swapping funny money backed up by nothing and in return get power, and leave the rest of us with no jobs, no real money, and become even bigger zombies who are feed by the partners our government our treasury. BS that this is the only solution.

    of calling betting on debt with no money to back it up when you inevitably lose, 'growth' blows me away. How can they talk of Main Street being hooked into Wall Street when these giant zombies, which offer the real economy nothing but debt and extortion still get to be the conduit for borrowing our own money? Insane, we are now all invountarily gambling to keep alive these entities that eat our government our real economy. Were all insuring that they grow and continue to malfunction. Were told that if we don't the universe will end. Perhaps the unreal universe that only serves 'investors' and the ATM that used to be the government, but not the real universe the one they quiantly call 'Main Street'

    For the privilege of borrowing for student loans, cars and so called 'small' businesses we keep the gambling going. The extortion now comes down to us all, they lost we pay or else. Or else what? The corporations might actually have to produce something other then short term phony profit, the 'free market ' will cease, the Ponzi schemes will fall apart. This is not a solution this is the final hostile takeover of our government and society by the 'investor class'.

    From  The Big Takeover Matt Taibbi

    People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

    The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

    The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.

    "And if my thought-dreams could be seen They'd probably put my head in a guillotine" Bob Dylan

    by shaharazade on Mon Mar 23, 2009 at 09:55:45 AM PDT

  •  I am taking this link from "expatjourno" and (3+ / 0-)
    Recommended by:
    suresh, Snarcalita, Areopagitica

    posting it in full here.  I wish he had.  No, I don't agree with him that Bondad is a shill.  Yet this is important.  The commenter says, "I am SAC Capital.  I get to be a "bidder".  here's what he would do.

    "Check out this from Economist's View:

    Update: More from Yves Smith, Investor on Private Public Partnership: "One would have to be a criminal to participate in this":

    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.

    You're wrong for thinking I'm wrong, so that makes you wrong twice.

    by ohmyheck on Mon Mar 23, 2009 at 09:56:58 AM PDT

    •  Then again... (3+ / 0-)
      Recommended by:
      Jay, Snarcalita, Areopagitica

      pimping from "pollwatcher"'s diary:

      The key to the plan is an open auction for the trash assets.  That's the Presidents secret tunnel escape route out of this mess.
      In fact, since the housing market continues to drop and the commercial real estate crash is just getting underway, my guess is that few managers will be willing to pay more than 50 cents on the dollar.
      So the President may get a chance for Plan B, when they give an auction and nobody comes to bid.  
      But here's my path to despair.  The worst case scenario is the hedge funds pay the higher price for the trash, then buy a ton of Credit Default Swaps from some company that is desperate to raise cash (AIG, Citi ?) and the hole gets a lot deeper when the real estate bubble can't be reinflated.

      A Comment from "Wheever":

      My hope is still that this plan is a fake-out to force market valuation of the so-called toxic assets--which no one will want to buy--thereby showing which banks are actually too insolvent to participate. This could then be a politically neutral way to force nationalization on those banks because it would be undeniably necessary.

      OK, I may just be getting to confused.........

      You're wrong for thinking I'm wrong, so that makes you wrong twice.

      by ohmyheck on Mon Mar 23, 2009 at 10:26:18 AM PDT

      [ Parent ]

  •  Congradulations America! (1+ / 0-)
    Recommended by:
    Areopagitica

    You know own five shares of Milo Minderbinder INC.!!

  •  My concern (0+ / 0-)

    I'm less concerned with how much investors pony up than I am with protecting my upside in this as a taxpayer.  If we're on the hook for 80% of the value, well, what's in it for us if the toxic waste gets successfully cleaned up?  If the taxpayers are going to be speculators in this, at least treat us as equal partners.

    I'm even more concerned, though, that nothing is being done to fix the underlying dysfunctionality that got us into this mess.  "Securitize to lend" is an understatement of the problem: "knowingly falsify the prospectus of a public securities offering" is a lot more accurate.  If we don't fix the underlying structural issues (regulation, transparency of this type of securities) we'll be right back here again three or four years from now, only with a much weaker underlying economy.

  •  a better plan would be (3+ / 0-)
    to say fuck you to the banks and just offer direct government loans and refinancing to homeowners making under $60,000 at a 1% interest rate. furthermore, for people who are about to lose their homes and can't even afford a 1 % rate, force tarp banks to offer a certificate in exchange for a reduction in principal to keep people in their homes. if the home is ever sold the banks would get that principal back. much easier to understand and has the additional benefit that it would work.

    "the christian in me says it's wrong, but the corrections officer in me says, 'i love to make a grown man piss himself.'" - cpl. charles graner

    by mindtrafficcontrol on Mon Mar 23, 2009 at 10:00:46 AM PDT

    •  what a wimpy solution. Just let them (0+ / 0-)

      all off the hook. Forgive all their mortgages, and give them all a down payment on buying another house they can't afford.

      •  who said anything about giving anyone a down (0+ / 0-)
        payment? learn to read, "wimp"

        "the christian in me says it's wrong, but the corrections officer in me says, 'i love to make a grown man piss himself.'" - cpl. charles graner

        by mindtrafficcontrol on Mon Mar 23, 2009 at 10:19:04 AM PDT

        [ Parent ]

        •  did I say that was your suggestion? that was (0+ / 0-)

          my suggestion. Ditto, learn to read, wimp.  This is getting too swampy.

          I'm out of the pool! Have a nice day folks.  

          •  swampy? (0+ / 0-)
            you're the one who can't have a civil discussion. if you disagree with someone you don't have to use words like wimpy if you want to engender a civil back and forth. i quoted your own language right back at you and you couldn't take it. and i have a hard time believing that your "suggestion" was offered in any serious attemt at a solution. sounded more like ridicule to me. i could be wrong, your dickishness makes it hard to tell.

            "the christian in me says it's wrong, but the corrections officer in me says, 'i love to make a grown man piss himself.'" - cpl. charles graner

            by mindtrafficcontrol on Mon Mar 23, 2009 at 10:51:19 AM PDT

            [ Parent ]

            •  oh for christ's sake I was being sarcastic (0+ / 0-)

              in my original post. You called me a wimp, I snarily said your suggestion was wimpy.  There is a diffeeence. i don't have time for this.

              Your suggestion seemed to idiotic to me i didn't truly believe it was offered in all seriousness. So I responded with sarcasm, not ridicule, altho, I suppose it could be construed as being ridiculous.

              Have  a nice day.

               

              •  you were rude (0+ / 0-)
                and i responded with rudeness. if you wanted to be treated with respect then you should have shown it. would you have said the same thing to someone's face at a cocktail party? if so then i feel sorry for you because i sure wouldn't invite you to my house. but who knows, i don't know you, maybe that's how you typically speak to people who you disagree with.

                "the christian in me says it's wrong, but the corrections officer in me says, 'i love to make a grown man piss himself.'" - cpl. charles graner

                by mindtrafficcontrol on Mon Mar 23, 2009 at 11:11:41 AM PDT

                [ Parent ]

                •  Yes, absolutely, I would say anything I say (0+ / 0-)

                  online, to anyone in a public forum, a private conversation or if i ever went, even at a cocktail party.  For me it is more like in the supermarket or at a soccer game.

                  I am not a hypocrite hiding behind anonymity.  If i think a person's position is off base I say so.

                  So, yes, that is how i speak to people i disagree with. I am not looking to make friendsa and influence people, especially in a forum such as this.  Sorry to have offended you.

  •  you guys figure out (1+ / 0-)
    Recommended by:
    Jay

    you elected a Republican yet?

  •  Also hinges on a third point. (0+ / 0-)

    There are three hinges on this door, not two.

    All of this hinges on two points:

    1.) The banks wanting to sell an asset, and

    2.) Private bidders arriving at a price the banks are willing to take.

    The third will be that the government not limit executive compensation for all companies involved (buying AND selling).

    It rubs the loofah on its skin or else it gets the falafel again.

    by Fishgrease on Mon Mar 23, 2009 at 10:03:25 AM PDT

  •  More handwringing, please. (17+ / 0-)

    (Regardless of the position taken.)

    This diary is not alarmist or angry enough to qualify as rational discourse here. Please take it down and try again later.

    Thank you.

        -- The Management

    I'll give $100 to the first person to pull George Will's bad rug off his noggin in public.

    by Bob Johnson on Mon Mar 23, 2009 at 10:04:22 AM PDT