Yeah, short on content, but it was mercifully short.

I liked Roubini’s suggestion that the government buys the assets in exchange for senior preferred debt.

“Specifically, the Treasury plan does not formally provide senior preferred shares for the government in exchange for the government purchase of the toxic/illiquid assets of the financial institutions; so this rescue plan is a huge and massive bailout of the shareholders and the unsecured creditors of the firms; with $700 billion of taxpayer money the pockets of reckless bankers and investors have been made fatter under the fake argument that bailing out Wall Street was necessary to rescue Main Street from a severe recession. Instead, the restoration of the financial health of distressed financial firms could have been achieved with a cheaper and better use of public money.”

Sure, it dilutes (or wipes out) the equity of existing shareholders, but that seems fairer than rewarding investors for their lack of oversight while they made the profits.

But since Roubini might be considered a bit radical, I prefer the endorsement of Paul Krugman.

http://krugman.blogs.nytimes.com/2008/09/27/tricky-bailout-politics/

BTW, bad font.

I’m surprised they all agreed on the font to use in the letter.

Doesn’t say much, other than go slow, do it right. Hard to disagree with that.

http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm

Don’t see Krugman’s name on it…:)

Here’s the proposal in a letter to Pelosi.

http://republicanleader.house.gov/UploadedFiles/09-26-2008_lettertopelosioneconomy.pdf

I liked the part about transparency. Not so sure private money is jusy dying to get into the game, but that’s over my head. And I thought these buggers were insured, and that was AIG’s problem.

Again this is an excellent example of why the credit market needs to be stopped, today.
There should be no more money given from tax payers, at all.
Politicians who support this should be removed from office.

I meant: what are the “more informed forums” that you’re referring to?

Pls do not take this as an attack, but I’m just curious. When you said: “The term comes up repeatedly on just about all of the more informed forums, and seems to be pretty universally used and understood”, what are those blogs? I googled and the only things that came up are from TF or quotes from the financial petition site.

Thanks.

These are not easy concepts to grasp, much less so to translate to others.

Re the TARP, I’d feel SO much better if Paul Krugman were in the room with the Prez, Hank and Congress.

I know it’s lazy to place a lot of trust in one individual, but he has consistently talked sense, at least in terms that I can grasp and relate to.

Anybody consider adding him as a link on the side, like CR does?

In the long run, yes it will turn out to be a bargain. But the storm has to pass and JP Morgan has to survive the storm.
Remember that JPM is the biggest derivatives player in the world and with something like $80 trillion (notional) exposure. So, they are the Fed’s blue-eyed boy and “too big to fail”. If JP Morgan fails, we have a full-fledged financial meltdown.

The FDIC auctioned off the WaMu – JPM was the highest and perhaps the only serious bidder. Indymac and now WaMu will slowly add stability to JPM’s exposure.
There are only four players in the game – JPM, Goldman Sachs, Morgan Stanley and Citibank. From what I understand, the spoils will be distributed amongst these four.
Morgan Stanley and Goldman Sachs got their candy late last week. I am wondering where Citibank fits in this big scheme of things.

——
“Also (anyone can answer, really), if the Treasury buys the paper at less than face value, won’t that cause liquidity problems, too, as the banks will be forced to write down the asset as it is sold, and then have to borrow more to replensih reserves?”
——

There are two aspects to this –
1) For more liquid instruments : For the last 3-4 quarters most banks have written down losses based on the marked-to-market value of the more “liquid” instruments. So, a decent amount of loss has already been taken on the books. If the Fed buys near (below) face value, then in fact it is a profit for these banks, as they Fed will be buying above market prices. So, for these more “liquid” instruments, banks will show a marked-to-market profit for the next quarter. However, if you consider the cumulative sum of the last 3-4 quarters, it will still be a loss. One of the tricks of marked-to-market accounting !!

2) For lest liquid instruments : For less liquid and illiquid instruments these are more likely still accounted at face value for the last 3-4 quarters – this is what scares the banks. These are the toxic instruments that are being currently “marked-to-fantasy”. If the Fed takes it at near face value, banks as heave a sigh of relief as they do not have take huge losses in the next quarter.

As for liquidity problems – no it will not cause liquidity problems immediately or within 6 months. The Fed can borrow or print more money to increase liquidity.
However, it is this liquidity that will cause more problems – like inflation, bubbles, excessive speculation etc.
The problems we are seeing are a consequence of too much liquidity from 2005 onwards.

——
“Doesn’t that suggest that the Treasury plan is to buy the paper at or near face value?”
——
Honestly, I wonder if the Treasury has a serious robust plan. They are figuring it out as one crisis after another hits them.