Posted on 09/21/2008 8:32:53 AM PDT by Flavius
Treasury Secretary Henry Paulson said Sunday that foreign banks will be able to unload bad financial assets under a $700 billion U.S. proposal aimed at restoring order during a devastating financial crisis.
"Yes, and they should. Because ... if a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution," Paulson said on ABC television's "This Week with George Stephanopolous."
(Excerpt) Read more at news.yahoo.com ...
A foreign investor bought insured AAA assets at say $100. They will now be selling them back to the US government for $30. How is that a bailout??
When I bought some bone head stocks that went belly up 'The Government' wasn't at my door bailing me out for $.30 on the dollar -- or anything. I LOST everything on my "investment" in that stock. (Wanna buy a Gold Mine?)And not that it apparently matters, but in my copy of the Constitution there's nothing about 'The Government' buying up foreign "investments" to maintain stability, or any reason. You can't even stretch the Commerce Clause that far.
How is it the current market value if the market won't pay it?
Why should the government be a buyer? Maybe the loans are only worth 10 cents on the dollar. If the government is willing to pay 30 then it is giving away money, i.e. a bailout. Governments pay no attention to price.
I’m keeping up with the various opinions and points of view, learning as I go.
Have you read the first draft of the legislation? Does it give you pause that Paulson will have power that cannot be checked by the judiciary, the president or the Congress?
Was this power granted during the S & L mess? Has it ever been granted to one person?
If banks already wrote the assets down to 30 cents on the dollar, and are still solvent, then they have no need to sell them. They can simply hold onto the debt till maturity and profit accordingly.
Personally, I don't believe the mark downs on level 3 assets have been anything close to "mark to market". That's why no one wanted to touch Lehman or Bear after they had a chance to look at the books. And that's why the government will overpay - so truthful markdowns don't result in insolvent banks.
There’s an incredible amount of propaganda in support of this deal. It is every bit as intense a propaganda effort as what was done in the Chinese Cultural Revolution or under Stalin’s agricultural programs.
SO it’s not really “foreign assets”, nor is it “american assets held by foreign banks”.
It’s american assets held by american operations that are owned by foreign banks.
You may be surprised but I actually agree with most of your points!! I would only add that we are talking about MARKET PANIC right now. If the government (yes, taxpayers) doesn’t do this right now we all crash. Remember the Great Depression? Good banks went down because everyone wanted to cash out at the same time. That is why FDIC insurance was developed. The only answer is to stop the panic. The upside it that the government (taxpayers) now own the collateral so there is a chance to recoup the payment!
“The only way for the government’s plan to actually “save” the banks is for them to buy the assets at well above market value. And that’s unlikely to be profitable for taxpayers.”
Yes, I quite agree. What we have in the credit markets is the refusal of the banks to realize the (impaired) values of the underlying assets. Other banks, full of the same crap, are understandably unwilling to buy these assets, plus they need to shepherd their cash for the sake of their own balance sheets.
So, what Hank is proposing is for the US Govt in the form of the Tsy and the Fed to create its own “off-balance-sheet” entity, a giant black hole of toxic, radioactive debt, which the Tsy and Fed will not only assign arbitrary values to, it can command the holders of same to sell at those values and presumably, it can command other banks to BUY those assets at those arbitrary prices. It’s beyond extraordinary. It’s truly Alice in Wonderland.
By the way, the “$700 billion” limitation is an obvious canard, because it is “$700 bil at any one time”, which means that the entire debt of a seized FNM or FRE or anyone else can be cycled through the system, tranche by tranche, until trillions have been laundered. Even if the $700 billion is exceeded, the act exempts the actions of the Tsy from any administrative or legal scrutiny. So that’s that.
Now, the Tsy can literally ORDER the banks to unload their impaired assets at a price or prices the Tsy in and of itself, in its absolute and unassailable determination, deems appropriate. If some banks become instantly insolvent as a result, then those banks’ deposits become the likewise immediate problem for the FDIC. Where might that money come from?
In the end, I believe the banking world will divide into three classes: 1: The recently vaporized. 2: the barely functional, and 3: The FOH’s, the Friends of Hank, who will become the owners of enormous swaths these assets at fire sale prices. It’s likely to be the greatest transfer of wealth in human history. The Tsy can indeed “apparently” make money on these forced transfers by forcing an impaired institution to sell at 20 cents, then resell same for 30 cents to GS or JPM. (Lkely to be at the top of Hank’s party list)
However, when it’s all said and done, if the Fed and Tsy are committed to making foreign debt holders whole and committed to making ALL money market depositors whole (an absolute logical impossibility) and all FDIC-insured deposits whole, then I don’t see how the world does not see this as a massive money printing exercise.
And furthermore, if the Tsy can so drastically change the rules in the middle of the game, I fail to see how this maintains the US as a desirable place in which to invest. Because there will be no functional nor discernable definition of “cheap” or “expensive” any more; there will just be those unknowable (except for the FOH crowd) price points where Tsy blows the whistle and changes the rules again.
Nice try. On another thread, where it said the Feds would try to set the value of the assets based on market conditions, a poster went off screaming that the fed was going to “set values” for stuff, and claimed it was wage and price controls all over.
I think that anyone who has a sense of our country’s history and of our Constitution would be feeling deep anger, helplessness and sick to the stomach.
Read his statement below:
“That’s a distinction without a difference to the American people. The key here is protecting the system. ... We have a global financial system, and we are talking very aggressively with other countries around the world and encouraging them to do similar things, and I believe a number of them will. But, remember, this is about protecting the American people and protecting the taxpayers. and the American people don’t care who owns the financial institution. If the financial institution in this country has problems, it’ll have the same impact whether it’s the U.S. or foreign.”
Amazing. Buy bullion and bullets.
All the press has said they will be buying them at current market values.
How is it the current market value if the market won’t pay it?
************
The current market is 20/30 cents on the dollar. The market won’t pay because we are in a panic situation. So, it is up to you to decide whether this is a great enought haircut. If a house in your neighborhood sold three years ago for $100,000 and it is now selling for $30,000 or $20,0000, is it a good investment??
Actually, that is true. There is such a large credit crunch at this MOMENT in time that nobody has the money to buy these assets, even at 30%, even if they think they are a great deal.
Meanwhile, banks need to SELL them, or else the banks can't lend money even to solid companies with excellent prospects.
When you see Warren Buffet running around snapping up companies (like Constellation Energy on Friday), you should realise that the people who HAVE money and are knowledgable seem to think that the market in some areas is oversold.
And in four months, it could well be the Friends of Barack who'll have access to that cash. Which is why you will see the Democrats falling in line to support this even if they don't get the pork they want included in the bill.
Psst.
Tulip bulbs are the next Big Thing.
Don't tell anyone I told ya.
The problem is that after the bank writes them down to $30, it lowers the banks capitalization so much that they need to sell the assets to get cash. But nobody wants to buy them, because nobody has cash.
The government is taking them for cash, in the hopes that it will free up the markets to go back to normal buying and selling. After a couple of years, the system will be working smoothly again, and the banks will be able to buy back these assets, or at least some of them.
on the other hand, some of these are mortgages on slums in the city that were way overpaid, by the liberal interest groups, in cronyism deals to shady developers. A developer buys a $100,000 rental unit, spends $100,000 making it into “condos”, and sells 2 million worth of mortgages for the property, collecting a windfall, while the banks look the other way because they had to make the loans because of CRA regulations.
In that case, the government could lose a bundle, plus the democrats will argue that the goal should be to let people who can’t afford mortgages OR to keep up a condo STAY in the housing, with the government subsidizing it.
That is my big fear. I’m not afraid of middle-class neighborhoods, I’m afraid of all the slum-lord democrats who made big bucks extorting the banks, and who now will be pushing government to use this “opportunity” to provide housing for all.
Of course, this will trap people in dependency, and hurt the cities, and be a drain on the government treasury.
But already Obama is making waves saying that the goal should be to bail out “main street” as well as “wall street”. In fact, the entire bailout is for MAIN STREET, not WALL STREET. Most of the people who own stocks in the brokerages are getting hammered. We are bailing out the banks because that’s where main street has their money and where main street business gets loans.
What Obama means is to make mortgages “affordable” for people, by writing down asset values and lowering interest payments. It will be more big-government giveaways to the poor, who will then vote Democrat.
Government is Robin Hood, and we’ve already lost because over 50% of the people think it’s OK to tax rich people to pay off poor people, since 50% of the people come out ahead, or so they think.
Neither MBIA or AMBAC has declared bankruptcy yet. Now, Lehman Brother already filed, so maybe it’s you who is not as familiar with the Real Estate Capital markets.
Get rid of Paulson, for he is NUTS!
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