Here's Brad Setser:
Implicitly, Geithner and his colleagues seem to have concluded that the
“great unwind” has limited the private sector’s ability to absorb the
banks troubled assets. Key players no longer can borrow the funds
needed to make large bets on troubled mortgage-backed securities. By
providing credit to those willing to buy bad assets, the US government
hopes to push up their market price up, and in the process induce the
banks now holding these assets to sell. The US government in effect is
providing the financial system with leverage to facilitate – one hopes
– a transition to a less leveraged financial system. The amount that
private investors have to put down – relative to the amount they are
spending – is a key detail.
The post is interesting throughout.
This looks like the Flexner plan, as described here.
http://money.cnn.com/2009/02/06/news/economy/cohan_wallstreetbailout.fortune/index.htm?postversion=2009020611
Banks: “We’ve upped our capital, now up yours!”
It is astounding how much faith people have in the motives of these actors. They are stealing trillions of our dollars. And yet many seem to see no obvious problems with letting the same thieves designt he next trillion dollar bailout. They are only using the money to increase their power, buying up smaller banks etc….choking asset valeus so they can sap them up with our money later on. Why would extending more credit to families help over-indebted families? If you want to be socialist then give money to the poor…not the richest. We already know the middle class is gonna get screwed but this is insane.
I’m now reading Geithner’s plan (http://www.ustreas.gov/press/releases/tg18.htm)
1st. step — capitalization of banks. Clearly the people that designed this program has no idea of what it entails. The only way to perform a stress test quickly is by relying on the assessment made by the bank staff. This is a joke.
2nd. step — public/private investment fund. Again to implement it quickly the Fund will have to make “la vista gorda”. This is an opportunity to waste the public funds committed to the Fund. Pay attention to how BHO’s supporters in the financial system benefit from this program.
3rd. step –a lending program to support loans to consumers. Its effects will depend on how it is implemented but most likely it will an opportunity for consumers to refinance their debts.
4th. step — another attempt to promote bad lending.
5th. step — a plan to refinance mortgage loans. Chris Dodd will take advantage of it.
Once again the same question arises for me…..Why are they doing this?
There is no historic evidence to suggest that this type of stimulus spending is effective. The last two rounds of stimulus spending haven’t worked and Japan’s continuing fiasco argue pretty conclusively that it won’t. At the same time, there are measures with a definite positive impact that have been shunned at every opportunity. Suspend/modify ‘mark-to-market’ rules, suspend payroll taxes, reverse auction for ‘toxic assets’, etc. These measures would get things moving, but no one wants to do them.
Instead we just keep pouring borrowed money down an overleveraged rabbit hole. Has it dawned on anyone yet that we are doing the same thing over and over (with ever increasing price tags), and yet expect a different result? That action cycle used to be used as a working definition of insanity……
Obama & Geinther speak, market crashes 375 points.
We really need to know whether these guys are short selling.
Superheater,
Do you really not know?
“Obama & Geinther speak, market crashes 375 points.”
On the other hand, every time really bad news about rising joblessness comes out, the market skyrockets – it likes to hear that workers are poor, scared, and easily controlled. The market often reacts inversely to the best interests of the average person or the society at large. Using the market as your benchmark is okay if you are a wealthy investor, but not if you are a normal, average American who is worrying how to pay his bills on substandard pay, worrying if he will keep his job (and health care), or worrying how he is going to survive long enough to find a new job after getting his layoff notice (which are now coming at a rate of almost 20,000 a day).
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