Rid Banks of Toxic Assets?
Still, this is not exactly a silver bullet that'll usher in victory. It's some giant faults -- we will get to those in just a second. First, here are some pros of the new plan. Instead of having taxpayers give non-public stockholders a free go to no-risk profits, the quantity of equity put up to buy poisonous assets from banks will be split fifty / fifty.
To paraphrase, if personal investors earn money, taxpayers will make just as much. As Geithner announced this a.m.
"We do not need the governing body to think all of the risk. We need the non-public sector to work with us.". That would turn out to be a blessing for taxpayers, with practical potential for large upside. Since Fed Chairman Ben Bernanke came out swingin' last week with the desire to buy $1 trillion or so worth of debt stocks, rates are nearly as low as humanly possible. The plan also has a provision that permits buyers to distibute debt assured by the FDIC. The lower the price of capital is, the bigger the price personal stockholders will be ready to pay and still make it worth their -- and taxpayers' -- whilst. For banks, private speculators, and taxpayers, that is a win-win-win. The plan will leverage $75 billion to $100 bill of TARP funds into $500 bn. to $1 trillion worth of buying power. That sure is a stupendous amount of cash, but it would not be sufficient to get banks out of the mud. So though this plan is a huge step in the right direction, there is no reason to believe it will not finish up like any other bank rescue plan so far : not enough, too late.
Problem is, banks need a large subsidy from somebody. Personal capital can already purchase these assets if it wants to ; the market has ground to a halt because ( a ) there is no transparency in these assets, and ( b ) banks are not accepting bids, because selling assets for too low a price means writeoffs that they will not be in a position to swallow. Thus , there is a chance the opening between what non-public speculators are prepared to pay and what banks are prepared to accept will not be met.
Personal financiers could be willing to pay only $0.50 on the $ for assets that banks will be ready to sell for just about $0.80 on the greenback. After the AIG ( NYSE : AIG ) brouhaha topped last week with an emotionally fueled piece of legislation to retroactively tax bonuses, any sane financier will have some qualms about making Uncle Sam a business partner. No sane person will take part if he suspects Congress will stomp its feet and retroactively tax profits at 90%. As one financier colorfully put it this A. M. , "No one is putting any cash to work because each time you dip your toes in, they are getting cut off." do not be stunned if collaboration in this grand experiment comes up well short of what Geithner and Corp expect. Read up on the latest stock market investing news and tips at mystockmarkettips.com.
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