EXCELLENT DKos Post (Bonddad) On The Geithner Plan

[Beetwasher]

http://www.dailykos.com/story/2009/3/23/711975/-The-Geithner-Plan

I'm encouraged and here's why: If (and perhaps you think this is a BIG 'if') there is competent/trustworthy oversight of the loans, this can work. It all boils down to making sure the buyers who receive loans don't overpay for the assets. As long as the assets are purchased at a reasonable price, this plan can and should work. So it boils down to if you trust Obama's (and by extension Geithner's) judgement and ability to regulate these loans competently and honestly.

I trust Obama and I think he has every intention of regulating competently. I think the plan can work. Will it? We'll see.

[NewJeffCT]

1. Bonddad is usually pretty knowledgeable

It remains to be seen if it works - nobody can really say for sure.

I believe Obama will bring back stronger and far more competent regulation - but, he's got a low bar to clear there. The longer term issue is if we can ensure the regulation stays strong under future Republican administrations, who normally kowtow to big business.

[marketcrazy1]

2. this COULD work IF

IF the banks DO NOT find a way to bid on their own crap through hedge funds they control or have an interest in. if the banks find a way to "game" the system they will bid up the prices ( overpay ). if they overpay these deals will lose money over time but since the taxpayers are on the hook for MOST of the losses they wont care, they cant lose!!! so if banks find a way to "back door" their way into these auctions we will get screwed..

[Beetwasher]

3. That's Why Oversight Is Important, And I Think We WILL Have Competent Oversight

That's why we elected Obama and why I voted for him. I trust in his competence and I believe he will toughen oversight and regulations.

[Gin]

4. when does regulation get factored into the equation? I would thing that would

be a foundation...not after the program is announced.

[Beetwasher]

5. It Is A Foundation

* Banks Identify the Assets They Wish to Sell: To start the process, banks will decide which assets – usually a pool of loans – they would like to sell. The FDIC will conduct an analysis to determine the amount of funding it is willing to guarantee. Leverage will not exceed a 6-to-1 debt-to-equity ratio. Assets eligible for purchase will be determined by the participating banks, their primary regulators, the FDIC and Treasury. Financial institutions of all sizes will be eligible to sell assets.

* Pools Are Auctioned Off to the Highest Bidder: The FDIC will conduct an auction for these pools of loans. The highest bidder will have access to the Public-Private Investment Program to fund 50 percent of the equity requirement of their purchase.

* Financing Is Provided Through FDIC Guarantee: If the seller accepts the purchase price, the buyer would receive financing by issuing debt guaranteed by the FDIC. The FDIC-guaranteed debt would be collateralized by the purchased assets and the FDIC would receive a fee in return for its guarantee.

* Private Sector Partners Manage the Assets: Once the assets have been sold, private fund managers will control and manage the assets until final liquidation, subject to strict FDIC oversight.

[marketcrazy1]

6. Leverage will not exceed a 6-to-1 debt-to-equity ratio.

I found this statement confusing, in one example given of how these "LOANS" would be funded the example indicated leverage of 14 to 1???

[Beetwasher]

7. Was That Including The Private Funding?

Or just the gov't portion? Maybe it was a bad example? :shrug:

[kentuck]

8. Cash for trash

FOr each dollar, the banks will only have to put up .06 cents to cover their share. They will make huge profits off of these assets that sell and we, the taxpayers, will take huge losses off the ones that do not sell.

[Beetwasher]

9. I'm Not As Pessimistic

If they are bought for a reasonable price and we're close to a bottom, they could in fact make money. We'll see. The plan has risks, but so does everything, but I don't think it's as horrendous as many are making it. Bonddad has not been an Obama cheerleader and he seems to think it's workable. I trust Obama to apply the oversight necessary to make sure the loans are wisely apportioned.

[marketcrazy1]

10. trust is ALL we will have since there will be NO trancparency

in these deals.......""The Legacy Loans Program will facilitate the creation of individual Public-Private Investment Funds which will purchase asset pools on a discrete basis.""

Discrete means that they are not going to tell you who bought the assets. I am NOT optimistic!!! IF they announce the prices at wich the assets are sold, ( and there is no guaranty that they will ) but IF they do and the prices turn out to be "significantly higher" than estimates, I for one will conclude that the program has been "gamed" ( rigged in some fashion ) and that taxpayers have been screwed....

[Beetwasher]

11. That's Your Perogative

I give Obama the benefit of the doubt.

[marketcrazy1]

12. if the banks selling these toxic assets turn out be among the buyers

of these same assets then this is nothing more than a taxpayer funded money laundering scheme....... but I do not know YET if this is going to happen. although it should most certainly NOT be allowed..... I have a bad feeling about this plan but I very much hope i am wrong.

[Beetwasher]

13. "but I do not know YET if this is going to happen. "

I do not think Obama will allow that to happen. That is what I mean when I say I trust him to make sure there is competent oversight of the transactions. This is why I (and many others) voted for him.

[marketcrazy1]

14. I voted for him too.

and I contributed to his primary race and GE campaign. the first and ONLY time i have ever given MY MONEY to a political candidate. but I do not like this part. ""Public-Private Investment Funds which will purchase asset pools on a discrete basis."" why a discreet basis?? what is so secret?? it makes me nervous..... where is the transparency we were promised? we are constantly being kept in the dark about these programs and it is wrong IMO!!........... sorry! I need to calm down, the program was only just announced, I guess I need to be patient and wait for ALL the details..... did not mean to sound argumentative..........

[empyreanisles]

18. *discrete*, not discreet

""Public-Private Investment Funds which will purchase asset pools on a discrete basis.""

Discrete as in something that is countable & identifiable. Not discreet as in "secret". Just mixing up the two words, actually.

I take it to mean that asset pool transactions are independent and taken on a case-by-case basis.

[Beetwasher]

20. Correct

n/t

[marketcrazy1]

23. thank you

I stand corrected .... ( I hope! )

[specimenfred1984]

15. Banks committed fraud, their products/toxic assets are frauds

Finding complicated ways to not call them frauds is a fraud itself. The people who committed the crimes need to be held accountable and Americans know it. I read the plan and read the article, I'm sorry to say it's mostly bullshit that pretends the fraudulent bank assets can somehow be reconciled if they are mislabeled as something else other than frauds.

Only 1 thing will work and that is arresting, trying and convicting the criminals who committed the frauds, otherwise they'll just keep coming up with new ways to lie to, steal from and cheat every American.

[debbierlus]

16. Exactly. The corporate thieves RUN the show. It will take the dollar crashing to wake America up.

And, crash it will.

You can't borrow trillions, buy toxic assets, and spend a pittance on tangible economic stimulus (infrastructure, grid, alternative energy) and expect anything else.

People thought Obama was a change agent. They haven't woken up to the fact that he is ALLIES with these frauds and thieves, not a advesery.

Trojan horse. If Bush did this same shit, this board would be up in arms.

[empyreanisles]

19. Obama is a change agent. You're just blinded with hate. (n/t)

[Beetwasher]

21. No, We Need To Stabilize The System FIRST

Then we can go an hold people accountable, and I do believe that will happen as well. Yes, there is a lot of fraud, however most of the mortgages are good and while overvalued during the bubble, the obligations are worth something and will continue to be worth something.

[D-Lee]

17. THANKS for the post -- others, please recommend it

We've heard a lot of groans and references to Krugman. We need to hear alternate takes on the plan.

The fact is that there are fewer existing mortgages in default than the bundles of mortgages wrapped up into these debt obligations.

And it remains true that markets over-react and prices can fall below the true worth of an asset.

There is also the lurking problem that we need to keep our bonds and other debt obligations at some sort of worthwhile level or else "others" might get interested in dumping dollar-based obligations (hey, when all those contracts got outsourced and paid by our dollars, those Repugs forgot that they were giving big parts of our economic power to those who might not have our US interests at heart ...).

Taking these factors together, there seem to me to be some reason that this plan might be a constructive one.

I'd like to hear some factors in favor of this plan, so thanks so much for posting the link.

[Beetwasher]

22. "The fact is that there are fewer existing mortgages in default..."

Correct. In totality there are FAR more good mortgages than bad mortgages. Most of the debt obligations while overvalued due to the bubble, are far from worthless and in the long term will have decent returns.

I have to think that what is going to happen is through Geithners plan the administration will be able to open up each one that is being sold and be able to assess it's value more accurately and get an even better picture of the scope of the problem.