Toxic Assets Plan: “Sweetheart Deal for Investors,” Says Sen. Graham
By SusanUnPC on March 24, 2009 at 7:00 AM in Tim Geithner
BELOW: “Taxpayers will lose if toxic assets deals fail,” from Fancy Frisco Nancy’s paper, the San Francisco Chronicle AND “Bank of America’s Bernstein Says Sell Bank Stocks After Rally,” from Bloomberg (via Memeorandum) AND “U.S. recession to last well into 2010: Feldstein.”
First, from Greta Van Susteran’s Fox News show, Senator Lindsey Graham (R-S.C.), who I always heed. He asked Mr. Anti-Regulation, Alan Greenspan, about Timmy’s “toxic assets” plan. Greenspan told him that investors can’t lose. “If I put a million dollars in the pot, the government will LOAN ME $9 million. And if I lose the $9 million, the government can’t come and get it back. The only thing I lose is the money I put in the pot.” HOLY MOTHER OF GOD.
Now, from “Taxpayers will lose if toxic assets deals fail,” a column by Kathleen Pender in Fancy Frisco Nancy’s paper, the San Francisco Chronicle (and, by the way, probably the second newspaper that’ll go out of business, following the Seattle Post-Intelligencer‘s stoppage of printing newspapers):
The Treasury Department’s plan to form public-private partnerships to buy illiquid assets from banks looks like a much better deal for private investors than public ones.
Under one example provided by the Treasury, the public (i.e. taxpayers) and private investors will buy these assets, hold onto them and hope their value goes up. If they do, the public and private investors will share profits 50-50. If they don’t, the public will bear a much bigger share of the losses because the government is guaranteeing a large portion of the money used to buy the assets.
Whether the plan works depends on whether the partnerships and the banks can agree to a price for these so-called legacy assets and whether participating banks will use the money they get to make new loans. Banks aren’t required to plow the funds back into new loans, but they most likely will because that’s how banks make money, a Treasury spokesman says.
Although investors clearly welcomed the plan, sending Dow Jones industrial average up nearly 500 points Monday, its success is far from certain. …
You have to read the full article because Ms. Pender breaks down the main parts of the plan.
Then there’s this doozy from Bloomberg News, “Bank of America’s Bernstein Says Sell Bank Stocks After Rally,” which contains these key points:
- WHY people should sell bank stocks:
Investors should sell bank stocks after they rallied 12 percent today because the Treasury Department’s plan to buy toxic assets won’t stop profits from dropping, Bank of America Corp.’s Richard Bernstein said.
Removing devalued loans and securities from banks’ balance sheets is a short-term solution that will delay the problem’s ultimate solution, which is bank takeovers, Bernstein said. The government won’t be able to inflate the prices banks receive for selling bad assets indefinitely, he added. …
- WHY we’re going to end up just like Japan in the ’90s:
Bernstein compared the U.S. plan to Japan’s response in the 1990s, when the government, faced with public opposition to its bailouts of banks, waited before trying to fix its financial system. That resulted in the “Lost Decade,” in which economic growth averaged less than 1 percent a year and the unemployment rate more than doubled.
I think I’m going to advise my young neighbors, friends and relatives — along with all children — to begin learning Chinese. It takes a long time to master. They’d better start now because it won’t be long …
“The End of Dollar Dominance?”
Are the Chinese just worried about the sagging value of the $1.4 trillion in U.S. Treasuries they hold or are they really on to something? That’s the big question now that China’s central banker, Zhou Xiaochuan, has called for the greenback to be jettisoned as the world’s dominant currency and replaced by a new type of benchmark controlled by the International Monetary Fund.
Zhou made his call in an essay that appeared on the website of People’s Bank of China, China’s central bank, on Monday. It was clearly timed to make a splash in the run-up to the G20 meeting that starts in London on April 2.
Calling the use of the dollar as the world’s benchmark currency “a rare special case in history,” Zhou urged the “creative reform of the existing international monetary system towards an international reserve currency.” Zhou said the reserve currency, managed by the IMF, should be “disconnected from individual nations and is able to remain stable in the long run.” Talk about a vote of no confidence on the future of the U.S. economy!
China’s leaders are worried that actions taken in the United States to yank the U.S. economy out of recession could hurt China. As such, they have voiced fears about the estimated $1.4 trillion China holds in U.S. Treasuries. … Read all.
See also: Larry Doyle’s latest story, “China Ups the Ante.”
Here’s a pithy summary from Reuters Video:
And a short quote from the Reuters article, “U.S. recession to last well into 2010: Feldstein“:
BEIJING (Reuters) – The United States will probably continue to be in recession well into next year, potentially prompting the need for another large fiscal stimulus package, prominent economist Martin Feldstein said on Tuesday.
U.S. President Barack Obama signed into law last month a $787 billion fiscal stimulus plan, comprising $287 billion in temporary tax breaks and $500 billion in public spending.
Feldstein, a Harvard University professor who is a member of Obama’s Economic Recovery Advisory Board, told Reuters that the existing stimulus package would offset only a relatively small fraction of the likely fall in consumer spending, exports and residential construction.
“I’m afraid that the economy will continue to slide down well into next year,” Feldstein, a former head of the National Bureau of Economic Research, said in an interview in Beijing where he was attending a conference.
“I don’t know when it will end, but the forecasts that it’ll end later this year I think are too optimistic,” he said of the recession.
“The fiscal stimulus is just not large enough to offset the downward pressure that comes from reduced consumer spending. So unless somehow fixing the financial markets is enough to offset that, which I very much doubt, I think there will be a need for another fiscal stimulus package at some point.” …
Isn’t large enough. Now where have I heard that before? I know. I’m just testing you. We all heard it and read it when we saw Fareed Zakaria’s interview of the great Financial Times columnist Martin Wolf. There’s review reading, class:
“Paul Krugman Points To Obama’s Timidity“:
Like Martin Wolf of the Financial Times — as you’ll see in my recent article, “The economy: Scarier than we thought, and Obama’s plans are too timid to fix it” (to which Larry Johnson added his invariably sage commentary in an update) — Krugman points out that Obama’s plans are simply not big enough. By the way, Obama’s “caution” (as the media like to call it) is in actuality timidity that can be chalked up to the fact that he has NO SKILLS OR KNOWLEDGE to construct a plan that lets him dive in, and is thus so terrified — really terrified — that he’s daintily toe-dipping right now. When you don’t know what you’re doing, you cannot be bold and decisive. Since Obama has no experience or expertise in economics or government planning, he cannot be bold and decisive. And now, here’s Paul:
And I bid you good night. I stayed up far too late but wanted to get this done. I’m clicking Publish without proofreading. Scary thing to do.
by Ronald Scott
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