Public Private Investment Partnership: The Fix is In

Friday, April 3, 2009

So the Financial Times reports that:

US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals under the Treasury’s $1,000bn (£680bn) plan to revive the financial system.

Which means that, (as Joe Wiesenthal at Clusterstock points out):

Banks buying assets from each other to inflate their books has nothing to do with “price discovery” or any such nonsense. It’s all about using taxpayer money to create bids that are higher than what the market currently prices those assets at. And if it turns out those bids were too high and the cash flows never materialize then, oh well, it’s the taxpayer left holding the bag.

Which prompted this from Rep. Spencer Bachus:

Spencer Bachus, the top Republican on the House financial services committee, vowed after being told of the plans by the FT to introduce legislation to stop financial institutions ”gaming the system to reap taxpayer-subsidised windfalls”.

Mr Bachus added it would mark ”a new level of absurdity” if financial institutions were ”colluding to swap assets at inflated prices using taxpayers’ dollars.”

You will never stop Wall Street greed and gall unless you legislate it (and even then…). People keep saying that it is the end of an era on Wall Street. My feeling is that it might be, but the end will only be temporary, of course. After all, they repealed Glass-Steagall, and that, in part, led to where we are today. But, if, for some reason, Congress and the international community doesn’t act to firmly regulate the financial industry, we are doomed.

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Stiglitz Hates Good Bank/Bad Bank

Wednesday, April 1, 2009

And so do I.

This is the age of the moral hazard. There is no absolutely incentive to do the right thing.

From Stiglitz in the NY Times:

Assume that one of the public-private partnerships the Treasury has promised to create is willing to pay $150 for the asset. That’s 50 percent more than its true value, and the bank is more than happy to sell. So the private partner puts up $12, and the government supplies the rest — $12 in “equity” plus $126 in the form of a guaranteed loan.

If, in a year’s time, it turns out that the true value of the asset is zero, the private partner loses the $12, and the government loses $138. If the true value is $200, the government and the private partner split the $74 that’s left over after paying back the $126 loan. In that rosy scenario, the private partner more than triples his $12 investment. But the taxpayer, having risked $138, gains a mere $37.

Ya got that? 1-to-4 odds for that wager. Stiglitz continues:

What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses.

When the high costs of the administration’s plan become apparent, confidence will be eroded further. At that point the task of recreating a vibrant financial sector, and resuscitating the economy, will be even harder.

With no good options, Obama, while staving off desperation, is courting true, epic disaster. You spell it with four letters and it got us into this mess in the first place.

Where, I ask, are the criminal prosecutions for AIG, Bear, Lehman, Citi, WaMu, Merrill, etc?

And why is Chris Dodd still in office?

I am not placated by congressional hearings. I want blood.


Stimulus and Bank Bailout Fiasco

Tuesday, February 10, 2009

Just read Yves Smith from Naked Capitalism:

I am so disgusted with this entire proceeding that I am going to dispatch it quickly.

Let’s start with the basics. The US banking system is insolvent. Got that? Insolvent.

It goes on as Smith decries that stimulus bill, the bank bailout, and the Obama/Geithner roll out. What I continue to read from Smith and others is that these insolvent banks need a clean slate – meaning temporary nationalization, recapitalization, and resale. It’s not happening on Obama’s watch any more than it was under Bush.

There are variations on the theme: the government can take them over and recapitalize them, clean them up and re-sell them, a la Sweden; you can wipe out equity investors and bondholders; you can try new twists, like various good bank proposals that have surfaced lately (making new entities out of the deposits and good assets and leaving the dreck with the existing bond and shareholders). While there would be many important details to be sorted out, this is not path breaking, except in the scale at which it needs to occur. And now, having had four acute phases of a credit crunch, the Fed and other central banks have plenty of liquidity facilities ready to deal with any initial overreaction. Rest assured, although radical measures would not be pleasant or easy, there are plenty of models and precedents.

Since we aren’t doing any of the sensible things (ripping off the band-aid quickly), what does all this ultimately mean?

Exactly what I’ve been saying for months. We’re in for a long, drawn-out, and miserable malaise.

The bottom line is, we won’t do the right thing until it’s too late.

(Unless…)


Obama Disappointment

Sunday, February 8, 2009

I’ve been stewing about this for a couple of weeks.

It’s a matter of integrity.

I know that it’s probably hard to find qualified people who are outside the Beltway and have paid their taxes, but I am sorely disappointed with Geithner.

He clearly lied. Before Congress, no less. His excuses were B.S. and everyone knows it.

And yet, Obama supported him and he was confirmed. In one simple move, Obama killed my enthusiasm.

Now I am simply left hoping for the best, but I am not, after all I gave this time around, inspired any longer.

It’s still the same shit as always. It just talks the talk better than most.

Was Geithner really worth it?


Market Closes at 8046.42

Friday, November 21, 2008

All hail Geithner!

Seriously, though, this was well-timed relief.

I don’t like being below 8000. It’s a complete arbitrary number, but it feels really wrong to go below it. When we’re there, I fear that there is nothing stopping us from Dow 3000.

Let’s just tread water for a while at around 8000 (Citi, what say you?). We’ll call a market bottom at 7,200 at some point in the future and never go below that number again.