E 'from the day the new U.S. president took office at the White House that the world waited for an answer to the problem of toxic assets still on banks' balance sheets. The hope that the Secretary of the Treasury chose Obama, Timothy Geithner, he quickly made a bold and decisive plan, he died soon. Geithner proved awkward and unprepared, caught between the desire of bankers to help his friends out of their impasse head-on - and above all with deep pockets - and the need to resolve the situation convincing the taxpayer that very little state money would be used.
For weeks rumors have shot many as Geithner meant to behave to achieve those goals, but few precise details are leaked about it. Then, yesterday morning, the turning point. Finally, the U.S. government has thrown a bit 'light and he did release an official document . It shows in some detail, the operation of the plan early in the past by Geithner, even if only in words.
The lists have reacted to the event by making a take euphoria and unbridled skyrocketing. The project put forward by U.S. Treasury Secretary, then appears to have grossed approval of the market.
objectives that the plan aims are twofold: to clean up banks' balance sheets from Legacy Legacy Loans and Securities. If you're wondering who is meant by those two terms, well, imagine a big pile of stinking garbage. The term
Legacy Loans born last July by the CFO for the JP.Morgan Mike Cavanagh, as a way to distance the banks in the collective imagination gone bad loans granted in previous years. It is simply a word whose sound was found to be more reassuring than "assets at risk". The same goes for Legacy Securities, although in this case means all those assets which were then resold on the secondary market, translated: derivatives built on mortgages and the like.
In the case of Legacy Loans, the plan provides that an auction is carried out between individuals to determine the price at which they will be sold from time to time, by this or that bank. Most of the amount in question will be disbursed by the state in the form of a guarantee FDIC. An amount of money equal to that undertaken by the private, will then be ripped directly from the treasury.
To understand better, let's say the illustrative example in the document of government:
The American taxpayer then will called to account for 92% -96% of the total figure and the private answer the remaining 8% -6%. Once purchased, the $ 84 of toxic assets, pardon Legacy Loans, will be managed until the final settlement approved by managers FDIC itself.
whole operation conceived by Geithner, it reduces the introduction of a third party, used to give the illusion that there is behind this blatant trick, not the state, but a group of individuals. This intermediary will pocket a nice nest egg for the work of recovery and the management of capital assets, while every loss - which does not exceed 92% -96% of the total - will fall on the shoulders of the U.S. government.
Who would not want to participate in a project like this?
Project which Krugman summed up as: "head I win, tails you lose".
The part of the plan regarding the Legacy Securities is different, but again most of the money comes from the government. We see the example shown in the official document about it:
For weeks rumors have shot many as Geithner meant to behave to achieve those goals, but few precise details are leaked about it. Then, yesterday morning, the turning point. Finally, the U.S. government has thrown a bit 'light and he did release an official document . It shows in some detail, the operation of the plan early in the past by Geithner, even if only in words.
The lists have reacted to the event by making a take euphoria and unbridled skyrocketing. The project put forward by U.S. Treasury Secretary, then appears to have grossed approval of the market.
objectives that the plan aims are twofold: to clean up banks' balance sheets from Legacy Legacy Loans and Securities. If you're wondering who is meant by those two terms, well, imagine a big pile of stinking garbage. The term
Legacy Loans born last July by the CFO for the JP.Morgan Mike Cavanagh, as a way to distance the banks in the collective imagination gone bad loans granted in previous years. It is simply a word whose sound was found to be more reassuring than "assets at risk". The same goes for Legacy Securities, although in this case means all those assets which were then resold on the secondary market, translated: derivatives built on mortgages and the like.
In the case of Legacy Loans, the plan provides that an auction is carried out between individuals to determine the price at which they will be sold from time to time, by this or that bank. Most of the amount in question will be disbursed by the state in the form of a guarantee FDIC. An amount of money equal to that undertaken by the private, will then be ripped directly from the treasury.
To understand better, let's say the illustrative example in the document of government:
Step 1: If the bank has a pool of residential mortgages with a face value of $ 100 and wants disinvest, it will continue to do this with the FDICThe first thing you might notice is that the private investor at $ 84 investment, it pays out only physically 6. 6 others are put directly from the treasury. The remaining 72 are scrape on the market by selling bonds for this purpose. The value of these bonds is guaranteed FDIC, since no one would dream private, without a guarantee behind it, to lend money because it is then used to buy junk. The FDIC is an institution that depends on the government itself. Its primary purpose should be to liquidate the failed banks, while protecting the deposits of account holders. In this case, however, is used as the guarantor of the value of bonds issued under the PPIF. In a nutshell, even the possible loss of leverage over $ 72 (otherwise known as debt) will answer the U.S. Treasury.
Step 2: The FDIC will determine, according to the process above (referring to the original document ed), willingness to provide the pool in question is a leverage of 6 to 1 based on the debt-investment
Step 3: The pool will then be auctioned FDIC, with other private sector actors who will present an offer. The highest bid of the private sector - in this case $ 84 - will win and will form a fund for public-private investment pools that buy the loans in question.
Step 4: On the $ 84 purchase price, the FDIC will provide guarantee of funding to $ 72, leaving uncovered $ 12 initial investment.
Step 5: Treasury then provide 50% of this initial investment alongside private investors. In the example, the Treasury will invest about $ 6, while the private sector will provide another $ 6.
Step 6: The private investor then will manage the pool of assets and the time of its disposal - asset managers using approved and supervised by FDIC.
The American taxpayer then will called to account for 92% -96% of the total figure and the private answer the remaining 8% -6%. Once purchased, the $ 84 of toxic assets, pardon Legacy Loans, will be managed until the final settlement approved by managers FDIC itself.
whole operation conceived by Geithner, it reduces the introduction of a third party, used to give the illusion that there is behind this blatant trick, not the state, but a group of individuals. This intermediary will pocket a nice nest egg for the work of recovery and the management of capital assets, while every loss - which does not exceed 92% -96% of the total - will fall on the shoulders of the U.S. government.
Who would not want to participate in a project like this?
Project which Krugman summed up as: "head I win, tails you lose".
The part of the plan regarding the Legacy Securities is different, but again most of the money comes from the government. We see the example shown in the official document about it:
Step 1: The treasure will launch the subscription process for managers involved in the Legacy Securities Program.
Step 2: A fund manager may submit a proposal and it will pre-qualify for the recovery of private capital, aiming to participate in a program of joint investment with the treasure.
Step 3: The government agrees to provide a dollar of capital for every dollar of private capital that the fund manager will be able to recover and provide a certain level of leverage to finance the proposed Public-Private Investment Fund.
Step 4: The fund manager then makes from the sales process for the investment fund and is able to recover it for $ 100 of private capital. The Treasury provides another $ 100 as an investment that goes to support private capital and will provide a loan of $ 100 to the Public-Private Investment Fund. The Treasury may also consider requests from the fund manager for an additional loan that could total up to a maximum of $ 100.
Step 5: As a result, the fund manager has $ 300 (or in some cases $ 400) of the total capital available and we can start the program for the purchase of the securities in question.
Step 6: The fund manager has full discretion over investment decisions, although in principle follow a strategy of long-term "buy and hold". The Public-Private Investment Fund if the fund manager so decides, will also have access to the expanded version of the rule on legacy TALF securities, when it is launched.
Legacy Securities Even in the case of the bulk of the money is spent by the government although numerous details not yet known, especially on the conditions that relate to loans under the program. What is clear is that compared to an initial investment of $ 100, you can get up to $ 300 for state funding grant (it is non-recourse loans). In addition, a good number of these securities is likely to be discharged later on the state budget through the TALF.
The whole plan worked out by Geithner is nothing but a giant rape operated by a group of bankers and speculators against the entire U.S. population. All with good peaceful and under the supervision of the government.
The whole plan worked out by Geithner is nothing but a giant rape operated by a group of bankers and speculators against the entire U.S. population. All with good peaceful and under the supervision of the government.
disgusting is an understatement.
The reason why the government does not buy all the toxic assets directly from banks making it over once and for all, it was not possible in a scenario similar to dilute in spending time, as it believes it can do by applying the plan Geithner. In addition, the pressures of a population increasingly exasperated against the banking sector, would prevent the adoption of such a strategy and the simultaneous rescue of bankers Friends Geithner.
I think even the U.S. Secretary of the Treasury - as going around to ensure that such a miracle will happen - I truly believe that his plan would bring about a market for junk. Individuals will have access to funding state will eventually bounce between them until the toxic assets the government funds will last, meanwhile pocketing a fee for each step. Who will invest in these funds will not risk its nothing any gain will end in his pockets, and any loss will be marked on the state budget.
Another question that arises, from the document issued by the government, whether there is any mechanism that prevents a bank to establish an ad hoc structure to participate in the Treasury.
In essence, the bank could raise at the bottom pincopallo, do participate in an auction for a brand of the same pool of assets at the bank, win the auction by offering a stratospheric figure, sborsare solo il 5%-6% della cifra in questione liberando così i bilanci della banca ed accollando allo stesso tempo, ogni perdita allo stato.
Un gruppo di managers della Goldman Sachs qualche tempo fa, abbandonò l'istituto ed annunciò l'intenzione di fondare una società per sfruttare le possibilità di investimento che il governo avrebbe messo a disposizione del mercato tramite il PPIF (Public-Private Investment Fund). Cosa vieterebbe a questi signori di farsi prestare un 6% di fondi iniziali dalla loro ex banca ed utilizzarli per acquistare, pagandola eccessivamente, spazzatura dalla Goldman stessa?
Il sospetto che lo scopo dell'intero progetto sia proprio questo è forte.
Ovviamente the stock has appreciated enormously the plan. The rest would be strange otherwise. The government has promised to give money at all, banks and brokers and pocketing every loss. For investors and bank balance sheets because it is very positive. It remains to be seen how this will actually fix the books of lenders and how many losses will ultimately absorb the U.S. Treasury.
Just yesterday, the Fed announced he had transferred the assets of the state budget of AIG and Bear Sterns that kept parked at the bottom called Maiden Lane (actually divided into three funds: Maiden Lane 1-2 and 3 ) and whose value according to the latest available data, would amount to 72.1 billion dollars. How many losses creeping in these assets is not known. We only know some background. For example, 3 Maiden Lane, paid a number of banks, 62 billion dollars for the purchase of certain insured CDO dall'AIG through CDS, so that these CDS were canceled. In return for these 62 billion, the Fed has got assets worth 30 billion dollars.
All losses contained in Maiden Lane now have a problem with the U.S. government. This shows how Willem Buiter wrote in a recent article , that the Fed is able to fail (at least in theory). It relies heavily on the U.S. government and is unable independently to cope with huge losses. Any loss will inevitably turn from the Fed on the state budget.
It also seems to be quickly reinstated the uptick Rule. It is a rule adopted by the SEC in 1937 with the objective of limiting the sale of securities on the cheap. According to it, before you can play on a title fall, expect the value of that goes back and it appears, however, higher than that seen during the immediately preceding sale.
The uptick rule was abolished in 2007 by the SEC, after several studies have demonstrated its irrelevance. It must be said that the tests in question were made by examining the conditions of a market under great stress, those where we are surrounded by year, for example. In a volatile market like that of recent months, sales decline are considered "evil" (true or otherwise). Pressure from many sides have come to a reintroduction dell'Uptick Rule and everything suggests that the SEC, at the next meeting on 8 April will sell to them.
in recent weeks have taken a series of measures extremely heavy. To recap: the Fed has launched with $ 300 billion buying direct long-term Treasury bonds, Geithner has submitted its plan scam (at least to the taxpayers), has been suspended mark to market, it will (almost certainly) reinstated the uptick Rule and the Fed has just released part of its balance sheet, download the losses on the accounts of the Treasury.
We are witnessing a veritable barrage.
The reasons behind these measures could be trivial.
For a couple of months of taking office was not Obama's long overdue action, the submission of details of the plan Geithner had been delayed too long. Markets was essential to show the intention to grab the bull by the horns. Might as well, then, act in a massive and coordinated by adopting a series of measures frowned upon by major financial players.
The other possibility is that the Fed and the U.S. government are to have first-hand data on the economy. Data that does not really want to know because it takes away the sleep and based on them have decided to take action in advance with a shock therapy in an attempt to stabilize the credit market and to trace the lists.
In the latter case, we would be facing the economic equivalent of the Maginot Line.
Whatever the truth, the United States are very close to playing for everyone and everything as you find hideous most of the measures taken, I can only wish them to win this risky bet doubled.
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