We are back in the casino now, ready to play a hand that could make us whole again or leave us broke for a long time to come.
After huge bets on bailouts and stimulus plans, we are about to go all in with $1 trillion to buy bad loans and toxic assets from ailing banks in partnership with private investors.
As Obama pushes our chips into that pot, there is a sinking feeling that the game may be rigged for the Wall Street players around the table who have been hoarding theirs, waiting for a time when the odds are with them.
It's unnerving that the President's chief advisers, Tim Geithner and Larry Summers, have been house men so long that their vision of the game may be inadequate to the needs of a nation that is gambling real money--rent money and what could put food on millions of family tables--on the outcome.
The Public Investment Corporation to be announced tomorrow sounds like a rehash of ideas that have been floating around for months and been picked apart by economists and knowledgeable financial operators. It has the look and feel of another Wall Street heads-I-win, tails-I-break-even proposition.
Before taking the plunge, we should hear the case for temporary and/or partial nationalization of the banks that has been pushed aside for political reasons, which amounts to leaving our fate in the hands of the Congressional clowns who have been showing us who they are in the past week.
As we try to clear our heads of AIG bonus madness and other distractions, let's take the time to get this one right. We have been betting everything on Obama's judgement. There is too much at stake to make the wrong call.
Showing posts with label toxic assets. Show all posts
Showing posts with label toxic assets. Show all posts
Sunday, March 22, 2009
Wednesday, March 11, 2009
Upcoming: Ultimate Bank Bailout
As piecemeal rescue plans sputter, Washington is moving toward a consensus on a huge public-private partnership to strip banks of bad assets and get them moving again.
Like spoiled children of families facing hard times, financial institutions have whining about their allowances and the chores they have to do to earn them. Some are stamping their feet and returning or refusing to take the money.
In the face of public outrage, the government has been demanding more and more reform--delaying evictions and modifying mortgages for strapped homeowners, letting shareholders vote on executive pay packages, cutting dividends and canceling expensive junkets.
As banks reach out for help but complain about the strings, the outline of a simpler but more drastic approach is taking shape, as Sheila Bair, head of the FDIC, and others have been suggesting in recent days.
The government would partner with private investors to buy troubled assets, in part by providing financing at low cost. Federal officials are debating the amount of the subsidy that would allow investors to pay higher prices, limiting the losses that banks would record but also exposing taxpayers to greater risk.
"You end up with two healthy institutions," Bair contends. "It's not a good bank and a bad bank; it's an aggregator bank with good upside potential because it bought at good discounts and you've got a clean balance sheet over here with an opportunity to raise private capital."
But critics like Paul Krugman will take a lot of convincing. He contends that "by using taxpayer funds to subsidize the prices of toxic waste, the administration would shower benefits on everyone who made the mistake of buying the stuff. Some of those benefits would trickle down to where they’re needed, shoring up the balance sheets of key financial institutions. But most of the benefit would go to people who don’t need or deserve to be rescued."
In any event, when the administration decides on the right formula, perhaps in the next week, the Ultimate Bailout will be unveiled for a global vote of confidence--by investors, politicians, the financial industry and world markets. That tally will tell us much about where the economy is headed and for how long.
Like spoiled children of families facing hard times, financial institutions have whining about their allowances and the chores they have to do to earn them. Some are stamping their feet and returning or refusing to take the money.
In the face of public outrage, the government has been demanding more and more reform--delaying evictions and modifying mortgages for strapped homeowners, letting shareholders vote on executive pay packages, cutting dividends and canceling expensive junkets.
As banks reach out for help but complain about the strings, the outline of a simpler but more drastic approach is taking shape, as Sheila Bair, head of the FDIC, and others have been suggesting in recent days.
The government would partner with private investors to buy troubled assets, in part by providing financing at low cost. Federal officials are debating the amount of the subsidy that would allow investors to pay higher prices, limiting the losses that banks would record but also exposing taxpayers to greater risk.
"You end up with two healthy institutions," Bair contends. "It's not a good bank and a bad bank; it's an aggregator bank with good upside potential because it bought at good discounts and you've got a clean balance sheet over here with an opportunity to raise private capital."
But critics like Paul Krugman will take a lot of convincing. He contends that "by using taxpayer funds to subsidize the prices of toxic waste, the administration would shower benefits on everyone who made the mistake of buying the stuff. Some of those benefits would trickle down to where they’re needed, shoring up the balance sheets of key financial institutions. But most of the benefit would go to people who don’t need or deserve to be rescued."
In any event, when the administration decides on the right formula, perhaps in the next week, the Ultimate Bailout will be unveiled for a global vote of confidence--by investors, politicians, the financial industry and world markets. That tally will tell us much about where the economy is headed and for how long.
Friday, January 23, 2009
Bad Banks, Worse Choices
The attempt to save the banking system is looking more and more like a suicide mission for the US government as estimates of bad loans rise above $3 trillion.
* Losses may reach $3.6 trillion, according to New York University Professor Nouriel Roubini, who predicted last year’s economic crisis. “If that’s true," he says. "it means the US banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”
*At confirmation hearings for the new Treasury Secretary, Sen. Chuck Schumer reveals that Wall Street sources tell him that, if the government wants to clean out all the toxic assets from the financial system, it will cost $3-4 trillion dollars..
*Financier George Soros criticizes the "bad bank" solution of taking troubled assets off balance sheets.
Such measures, he says, would provide "artificial life support for the banks at considerable expense to the taxpayer, but would not put the banks in a position to resume lending at competitive rates."
He argues instead for "partially nationalizing" banks, which "would inflict great pain on a broad segment of the population--not only on bank shareholders but also on the beneficiaries of pension funds" but "would clear the air and restart the economy."
For non-economists, this has the makings of a headache-inducing debate in the coming weeks. When Congressional politicians (pace John Boehner) get into it, there will be a lot of garbage talk about socialism, free markets, tax cuts, etc--all of it beside the point as the financial system teeters at the edge of an abyss.
If President Obama's economic team decides to try for long-range answers rather than Paulsonish quick fixes, it's going to take all his eloquence to get the public and legislative support needed to start on them.
* Losses may reach $3.6 trillion, according to New York University Professor Nouriel Roubini, who predicted last year’s economic crisis. “If that’s true," he says. "it means the US banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”
*At confirmation hearings for the new Treasury Secretary, Sen. Chuck Schumer reveals that Wall Street sources tell him that, if the government wants to clean out all the toxic assets from the financial system, it will cost $3-4 trillion dollars..
*Financier George Soros criticizes the "bad bank" solution of taking troubled assets off balance sheets.
Such measures, he says, would provide "artificial life support for the banks at considerable expense to the taxpayer, but would not put the banks in a position to resume lending at competitive rates."
He argues instead for "partially nationalizing" banks, which "would inflict great pain on a broad segment of the population--not only on bank shareholders but also on the beneficiaries of pension funds" but "would clear the air and restart the economy."
For non-economists, this has the makings of a headache-inducing debate in the coming weeks. When Congressional politicians (pace John Boehner) get into it, there will be a lot of garbage talk about socialism, free markets, tax cuts, etc--all of it beside the point as the financial system teeters at the edge of an abyss.
If President Obama's economic team decides to try for long-range answers rather than Paulsonish quick fixes, it's going to take all his eloquence to get the public and legislative support needed to start on them.
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