| Submit your comments on this article |
| Home Front Economy |
| Why Paulson's Wall Street handout is - well - a handout |
| 2008-09-23 |
| One of the aspects of the Paulson bailout bill that was not clear until today is that the Treasury has no intention of running a true action for the toxic assets on bank balance sheets. An auction would tend to set very low prices on the current value of mortgage-backed paper. Based on the few transactions which have taken place in the past, this might be as low as 30 cents on a dollar. It has been widely assumed that banks would need to take large write-downs on the devalued assets, creating the need for them to raise more capital and further dilute shareholders. All of those assumptions were mistaken. In testimony today, Ben Bernanke described the plan by saying "it is designed to avoid forcing banks to sell or value their mortgage assets at a `fire-sale' price. In a harsher tone than he has ever used in testimony, Bernanke spelled out the benefits that would accrue when the government can buy these mortgage assets at close to "hold to maturity" prices instead of the "fire-sale price." The plan puts taxpayers at a substantially greater risk than a true auction system. Buying these toxic assets inexpensively gives the Treasury a chance to profit from its risk if the paper appreciates in value over time, providing taxpayers some "upside" . The more that assets appreciate, the better the chance that the American public's long-term liability is low. What has become clear is that Treasury plans to purchase bad assets from banks at prices very near their original value. The risk to taxpayers under this program would be tremendous. If housing prices continue to fall, so will the value of the paper the government has purchased. Under this set of circumstances the public could be at risk for underwriting the great majority of the Treasury's purchases and never having a chance to recoup their investment. Buying troubled bank assets at above where they would be valued in a free market now and at a price which is near to the potential price when they mature is a great handout to the banks but undermines almost any chance that the Treasury will ever get any meaningful yield from the bailout. Taxpayers lose any chance of being made whole |
| Posted by:Zhang Fei |
| #1 Fred was in the fertilized egg business. He had several hundred young layers (hens), called pullets, and ten roosters to fertilize the eggs. He kept records and any rooster not performing went into the soup pot and was replaced. This took a lot of time, so he bought some tiny bells and attached them to his roosters. Each bell had a different tone, so he could tell from a distance which rooster was performing. Now he thought he would sit on the porch and fill out an efficiency report by just listening to the bells. Fred's favorite rooster, old Butch, was a very fine specimen but during the first week after the bells were put on, Fred noticed old Butch's bell hadn't rung at all! When he went to investigate, he saw the other roosters were busy chasing pullets, bells-a-ringing, but the pullets, hearing the roosters coming, would run for cover. To Fred's amazement, old Butch had his bell in his beak so it couldn't ring. He'd sneak up on a pullet, do his job and walk on to the next one. Fred was so proud of old Butch he entered him in the Renfrew County Fair and Butch became an overnight sensation among the judges. The result was the judges not only awarded old Butch the No Bell Piece Prize but they also awarded him the Pulletsurprise as well. Clearly old Butch was a politician in the making. Who else but a politician could figure out how to win two of the most highly coveted awards on our planet by being the best at sneaking up on his populace and screwing them when they weren't paying attention. Vote carefully this year...the bells are not always audible. |
| Posted by: Besoeker 2008-09-23 20:41 |