Paulson's new plan

What do you guys think about the plan to transfer toxic mortgage assets from the balance sheets to a seperate entity?

what do you think a leftist congress would cook up?? something sensible?

I guess short term it looks good as judged by the markets reaction but how the heck does the government plan on paying for all this garbage they bought…down the road it seems there either will be hyperinflation which will lead to high interest rates or high taxes or both.

It makes simple sense. If you are going to take an action on a serious problem, you have to attack the root - the cancerous assets. You can either zap then into non-existence or contain them. Keep it simple, are there other options?

I thought it was a decent plan given the situation. I think the plan is to pay about 30% of book value for the assets and remove them from the BS of these banks. Once the toxic assets are removed banks will not be so averse to lending to each other which should provide some releif. Since these assets are backed by property a substantial amount of it can be disposed over a period of time, am I missing something here?

how much will this add to the federal deficit?

The plan is not out yet, today’s rally is just a reaction. If the turns out to be not efficient, then markets will tank…again! The gov.t will have to balance this investment off by imposing tighter regulations on lending, less gov.t spending and more taxes (as s 23dino pointed out)

I don’t know the details of the plan… 30% of the BV means 30% of already marked down BV? If banks feel that they are not getting a fair deal, they may chose not to sell those assets. Is that a possibility?

mik82 Wrote: ------------------------------------------------------- > The plan is not out yet, today’s rally is just a > reaction. If the turns out to be not efficient, > then markets will tank…again! The gov.t will > have to balance this investment off by imposing > tighter regulations on lending, less gov.t > spending and more taxes (as s 23dino pointed out) If they just let the banks bleed on the crappy mortgage assets, I think you’d see tighter regulation imposed by the banks, and skip the hassle of more taxes.

Haven’t heard any details on the deal, but if the govies buy all toxic assets at 30% of book, couldn’t they come out with a gain? :slight_smile: When I was in the WaMu REO/subprime department we would write shat down all the time…aggressively. Later after default we would sell the property and often come out with a gain which we booked as a “recovery”. So what if the govies get rich off this deal buying sweet a$$ subprime at 30 when the true valuation ends up being 45…then we can wipe out the national debt with all that bonus money! Okay this whole things trips my mind.

any banks that participate in the plan should give up equity to the govt. pay to play. its only fair.

cmbakerj Wrote: ------------------------------------------------------- > what do you think a leftist congress would cook > up?? something sensible? Are you smoking something? It is the pro no-regulation-whatsoever REPUBLICAN administration that crafted the plan and that is now lobbying the Congress to approve it. Stop being so ideological and start using common sense.

…and given the fact that no one in the market can mark these securities … the government is going price them for this vehicle? interesting…

supposedly the market is going to price them… via auction… although i imagine quantity (aka demand) will play a roll too. http://money.cnn.com/2008/09/19/news/economy/paulson_plan_cost/index.htm?cnn=yes

Hinestly, I think that anybody that thinks this plan is anything like fair and proper is crazy. In what universe do the taxpayers jump in and bailout equity holders? The idea that this is a good plan because the stock market says so is so self-centered and naive that it deeply offends me. If the govt decided that they were going to assume the pension obligations of every company in America, the stock market would like it too. This is disgusting, awful, gross, idiotic, unconstitutional, and the most offensive govt I have ever seen. Please write to your Congressmen and tell them how you feel.

nolabird032 Wrote: ------------------------------------------------------- > how much will this add to the federal deficit? http://www.bloomberg.com/apps/news?pid=20601087&sid=a.kAXACVdHTI&refer=home Bloomberg says it can increase the deficit to a Trillion. Cramer was talking about the gov not paying a dime. They’d simply bid for the bad debt and someone else would overbid them…not 110% if that would work but he stated specifics on his show (yes I know all of you LOVE HIS SHOW!). I don’t remember the exact percentages but he proposed 10% for x type of loan, 20% for x type of security, etc… Joey once again, you know more than me in the grand scheme of things but you were opposed to the Fannie Freddie bailout if memory serves me correct. But couldn’t come up w/ a better plan. Do you think if the gov didn’t step in and save AIG, and the 100’s of other financial institutions that will need help our nation/economy would really be F’ed up for a long time? Paralysis? We were at the brink of seeing a run on money market funds, a run on banks, and a crash. I agree it’s not “fair” or maybe even “disgusting” but I also believe that it needed to be done to save this country. This is a CRISIS, I think we all can agree with that- the gov can and should take extreme measures to minimize damage to the US Citizens… (investments in the market, fixed income and equity, and the banking system).

It is a good plan, but should have been enforced after a week. Now Paulson came to GS’ rescue just when they were catching fire.

cfa_mba_caia Wrote: ------------------------------------------------------- > It is a good plan, but should have been enforced > after a week. Now Paulson came to GS’ rescue just > when they were catching fire. I’ll agree with that- I know those guys were cheering yesterday…

I love Carl Icahn … did anyone see him on fast money tonight …JD - you would have loved him too … Carl also thinks this ‘package’ is the most ridiculous thing ever and should allow private equity to deal with this … yeah… amongst other things he raised, he was competely on the money (agreed with my thoughts) … I am going to apply for a job to work for him … he is my kinda business leader … efficiency and accountability … yeah!

JoeyDVivre Wrote: ------------------------------------------------------- > Hinestly, I think that anybody that thinks this > plan is anything like fair and proper is crazy. > In what universe do the taxpayers jump in and > bailout equity holders? The idea that this is a > good plan because the stock market says so is so > self-centered and naive that it deeply offends me. > If the govt decided that they were going to > assume the pension obligations of every company in > America, the stock market would like it too. > > This is disgusting, awful, gross, idiotic, > unconstitutional, and the most offensive govt I > have ever seen. Please write to your Congressmen > and tell them how you feel. So Joey, what do you suggest we should do? Possibly risk a major global financial system failure with run on banks, a complete freezing of credit market, asset deflation and a prolonged recession as businesses get locked out of credit and consumer panics? I am not saying that above is a certainty but the likelihood of us going that path is not immaterial at this point. Sometime you have to take the best of bad solutions, and unfortunately, I believe, we have been backed into a corner to do this. Also, btw, do you really believe Paulson and Bernanke are stupid? Or just very smart but weak individuals being forced into something they abhor by political considerations.