Monday, February 9, 2009

This Bailout Smells Real Fishy

The latest news on the bailout plan to be announced Tuesday by Treasury Secretary Timothy Geithner comes from NYT's Floyd Norris.

Administration officials told Norris that the plan was likely to depend in part on the willingness of private investors other than banks — like hedge funds, private equity funds and perhaps even insurance companies — to buy the contaminating assets that wiped out the capital of many banks.

The officials say they are counting on the profit motive to create a market for those assets, according to Norris. The government would guarantee a floor value, officials say, as a way to overcome investors’ reluctance to buy them.

Details of the new plan, which were still being worked out during the weekend, are sketchy. And they are likely to remain so even after Geithner announces the plan.

Hmmm. Private operators like Carlyle Group have been sitting on the sidelines with tens of billions in cash, waiting for the right time to pounce and feast, and now they are supposed to turn patriotic or something? Of course, Treasury officials are counting on the "profit motive" of the private investors. The "profit motive" in this case means you sell assets to these private investors below their true value. How far below, well that's "sketchy" and is "likely to remain so even after Geithner announces the plan."

A sketchy plan designed by a man who is noted for once saying, “Most consequential choices involve shades of gray, and some fog is often useful in getting things done." And being negotiated with the sharks of Carlyle Group and the like. At a time when banks still remain hesitant about selling their mortgages far below what they believe their ultimate true value is. Somewhere there is a piece they are not telling us about if they really think all these players will come together to get a deal done. The taxpayer is probably that piece. Watch your wallet.

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