Sunday, March 22, 2009

Administration To Unveil Toxic Debt Plan

It’s getting worse.

The Obama administration’s latest attempt to tackle the banking crisis and get loans flowing to families and businesses will create a new government entity, the Public-Private Investment Program, to help purchase as much as $1 trillion in toxic assets on banks’ books.

The new effort, to be unveiled Monday, will be followed the next day with release of the administration’s broad framework for overhauling the financial system to ensure that the current crisis — the worst in seven decades — is not repeated.

A key part of that regulatory framework will give the government new resolution authority to take over troubled institutions that would pose a threat to the entire financial system if they failed.

Given the actions of the federal government lately, I can’t imagine any private business willingly going into a partnership with them.  There’s no way of knowing whether the government will just change the deal midstream (“pray I do not alter it further”).  I’d be hesitant to invest in any bank that gets into this.  Some people may make a fortune off of these toxic assets if they prove to be not so toxic, but who knows if the fed will allow anyone to keep the money?  Furthermore, where is this money going to come from?  We’re already talking about trillions and trillions of dollars in debt and the capital available in the private sector has been halved through market declines and looming tax increases.

That last sentence is downright scary.  The federal government is looking for command authority to take over any business that it thinks is “too big to fail.”  But who gets to decide which companies count?  And who gets to decide when the business is in enough trouble to justify nationalization? 

Scary stuff, folks.  We are in the process of abandoning capitalism.

(9) Comments
Posted by Owen at 1727 hrs
Economy + Politics + Politics - General

  1. Worked in Sweden in the 80’s and many people are wondering when we are going to do this.

    As usual, government is going have to come to the rescue of capitalism. It always does.

    Posted by .(JavaScript must be enabled to view this email address) on March 22, 2009 at 1916 hrs


  2. Keith:

    The Government doesn’t HAVE to do anything.

    And when the stock market drops tomorrow and Tuesday, Obama will be in front of the Cameras telling America we have nothing to worry about.(Although in fairness this COULD be something that boosts stocks too…..)

    Posted by Michael J. Cheaney on March 22, 2009 at 1952 hrs


  3. This is future capitalism coming to the rescue of the present government and its’ cronies as usual.    Capitalism is, as always, more than willing let these people fail.

    Posted by .(JavaScript must be enabled to view this email address) on March 22, 2009 at 2101 hrs


  4. This’ll do wonderful things to the dollar. The Federal Reserve already tanked the dollar on Friday with their monetization of the debt, but adding this to it will send the dollar into the tank and cause a huge blast of inflation here.

    We’re being led by the best of the lefties—straight into the sewer.

    Posted by .(JavaScript must be enabled to view this email address) on March 22, 2009 at 2156 hrs


  5. This is essentially the same thing that happened under Bush 41 to deal with bad assets from the S&L’s.  Except then it was called the Resolution Trust Corporation instead of whatever Geithner is calling it now.  It was a helpful tool then and it can be a helpful tool again.  I wouldn’t paint it out as government riding in on the white horse to rescue capitalism.  That’s a bit overstated.  But it will help, certainly.

    As far as currency valuation, this particular action won’t be of terrible consequence.  And the reality is that we are moving far more decisively than Europe to deal with our economic/financial situation.  The Eurozone nations are in a world of hurt right now, and something tells me that Switzerland might not be last European country to devalue its own currency in an attempt to remain competitive in the global marketplace.

    Finally, the market will close higher on Monday.  This will be well received, even if it’s only because Geithner put something more detailed out for people to consider.  At a minimum, the market won’t have to hem and haw about what might be happening.  I do think that anything that helps these banks to get toxic assets off their books and begin lending more freely will be smiled upon.

    Posted by Recess Supervisor on March 23, 2009 at 0049 hrs


  6. “...begin lending more freely…”   

    There’s the rub.  There is no particular reason to believe banks should be lending more freely.    Are borrowers now more qualified?  Is there any particular reason to believe the lenders who made the original bad loans have become more qualified to competently lend?

    In order to perform the amount of lending banks did in the past they resorted to making bad loans.    There is every reason to believe they will repeat that process.

    Posted by .(JavaScript must be enabled to view this email address) on March 23, 2009 at 1226 hrs


  7. There is no particular reason to believe banks should be lending more freely.  Are borrowers now more qualified?  Is there any particular reason to believe the lenders who made the original bad loans have become more qualified to competently lend?

    All personal experience, but I want to refi to take advantage of the drop in rates.  I’m on a 30 year fixed, with great credit, good income, good finances, yet am having trouble getting a lender.  Everyone is spooked and credit is tighter than I ever remember it being… even for the “good” borrowers.

    Posted by .(JavaScript must be enabled to view this email address) on March 23, 2009 at 1231 hrs


  8. So far it appears that I am wrong…...which I will freely admit to…..the market is/was up by about 300.

    So perhaps this is a step in the right direction…...

    Now as long as Geithner and the rest of Obamas team can keep their mouths shut…....we could be in for an up day.

    Posted by Michael J. Cheaney on March 23, 2009 at 1241 hrs


  9. “Legacy Bonds?”

    Who came up with that brilliant idea?

    I can hear the pitch now…....

    Legacy Bonds: Because our Toxic Assets have now become your Legacy as taxpayers!

    Posted by Michael J. Cheaney on March 23, 2009 at 1333 hrs


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