Archive for Monday, March 23, 2009

Toxic asset plan could cost $1 trillion

March 23, 2009


Other developments

  • Congressional Republicans on Sunday predicted a doomsday scenario of crushing debt and eventual federal bankruptcy if President Barack Obama’s massive spending blueprint wins passage. But a White House adviser dismissed the negative assessments, saying she is “incredibly confident” that the president’s policies will “do the job” for the economy.
  • Obama wagered significant political capital Sunday, signaling opposition to a highly popular congressional drive to slap a punitive 90 percent tax on bonuses to big earners at financial institutions already deeply in hock to taxpayers.

    Obama defended his stance by saying the tax would be unconstitutional and that he would not “govern out of anger.” He declared his determination, nevertheless, to make Wall Street understand it must shed “the old way of doing business.”

— 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 today, 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.

Administration officials believe this new power will save taxpayers money and avoid the type of controversy that erupted last week when insurance giant American International Group paid employees of its troubled financial products unit $165 million in bonuses even though the company had received more than $170 billion in support from the federal government.

Under the new powers being sought by the administration, the treasury secretary could only seize a firm with the agreement of the president and the Federal Reserve.

Once in the equivalent of a conservatorship, the treasury secretary would have the power to limit payments to creditors and to break contracts governing executive compensation, a power that was lacking in the AIG case.

The plan on toxic assets will use the resources of the $700 billion bank bailout fund, the Federal Reserve and the Federal Deposit Insurance Corp.

The initiative will seek to entice private investors, including big hedge funds, to participate by offering billions of dollars in low-interest loans to finance the purchases. The government will share the risks if the assets fall further in price.

When Geithner released the initial outlines of the administration’s overhaul of the bank rescue program on Feb. 10, the markets took a nosedive. The Dow Jones industrial average plunged by 380 points as investors expressed disappointment about a lack of details.

Christina Romer, head of the Council of Economic Advisers, said Sunday that it’s important for investors to know that the administration is bringing a full array of programs to confront the problem.

“I don’t think Wall Street is expecting the silver bullet,” she said on CNN’s “State of the Union.” “This is one more piece. It’s a crucial piece to get these toxic assets off, but it is just part of it and there will be more to come.”

But private economists said investors may still have doubts about whether the government has adequate resources to properly fund the plan and whether private investors will be attracted to participate, especially after last week’s uproar concerning the AIG bonuses, which has added to the anti-Wall Street feelings in the country.

Romer said the new toxic asset program would utilize around $100 billion from the $700 billion bailout fund, leaving the fund close to being tapped out.


Godot 9 years, 3 months ago

This plan is unconstitutional. Already NPR is covering for Obama on this one, stating that because the $1 trillion is in the form of "loans," that it is not an appropriation, and therefore does not need to go through Congress. That is a lie The plan anticipates that some of the loans will default and that the taxpayers will bear the loss. The banks and investors that receive the benefit of the non-recourse loan that defaults will receive a grant from the taxpayers. It is an appropriation by the executive branch and is illegal.

Godot 9 years, 3 months ago

Here is the entire plan. Clear as mud.

This is interesting:

" Will the Legacy Loans Program be subject to executive compensation restrictions? The executive compensation restrictions will not apply to passive Private Investors."

Flap Doodle 9 years, 3 months ago

"Barack Obama hasn’t nominated 17 of 18 positions at Treasury needing Senate confirmation after more than two months on the job. The Financial Stability Oversight Board (FINSOB) has yet to meet during his administration despite a legal requirement to do so on at least a monthly basis. Politico now reports that President Obama’s vaunted Presidential Economic Recovery Advisory Board has yet to meet since its inception in early February: Six weeks after President Barack Obama appointed a blue-ribbon panel to help him dig America out of its economic crisis, the board has yet to hold an official public meeting. The White House initially said that the 16-member Presidential Economic Recovery Advisory Board, headed by former Federal Reserve Chairman Paul Volcker, would meet “every few weeks.” Last month, a spokesperson told POLITICO the group would meet monthly. And more recently, the White House said the high-powered board, set up to address what Obama has called the worst economic emergency since the Great Depression, would gather only about four times a year, with the next session due in “late spring.” But comments from board members and Obama himself indicate that some members of the panel are meeting, in smaller gatherings that have not been announced or opened to the public. And that raises the question of whether an administration that prides itself on openness and transparency is in fact finding it more convenient to conduct public business in private. Now, the administration finds itself in a Catch-22: It does not want to say that the president’s economic panel, announced amid much fanfare, is not meeting during the worst economic crisis in generations. But if it is meeting, where’s the announcement, the agenda, the minutes? In short, where’s the sunshine?"

Godot 9 years, 3 months ago

Bill Gross of PIMCO is on the Obama economic team:

Big conflicts of interest for PIMCO, BlackRock? March 2, 2009 — 4:30pm ET | By Jim Kim

Pacific Investment Management Co. and BlackRock, two esteemed asset management firms, have raised lots of money with an eye on profiting from distressed securities. California-based PIMCO raised $3 billion for a distressed credit fund to invest in mortgage-backed securities, reports Bloomberg. But both firms have also inked deals with the U.S. government to advise it on various distressed securities. PIMCO has been hired to advise the government on about $118 billion in debt that it now guarantees. BlackRock manages more than $80 billion in various toxic assets previously owned by Bear Stearns and AIG.

"Pimco and others potentially have two masters to serve: The U.S. taxpayer and their own fiduciary obligations to clients," Rep. Scott Garrett, a member of the House Financial Services Committee, told the news service. Neither firm is commenting, but we can expect that they'll set up some firewalls and such. Whether that will appease is the critics is unclear. "

and now this:

"NEW YORK (Reuters) - Bill Gross, the manager of the world's largest bond fund, gave the Obama administration's financial stability effort a much-needed endorsement on Monday, saying Pimco will participate in the public-private plan.

"This is perhaps the first win/win/win policy to be put on the table and it should be welcomed enthusiastically," the co-chief investment officer of Pimco told Reuters.

"We intend to participate and do our part to serve clients as well as promote economic recovery," he added."

This is the definition of impunity. The insider traders, the influence brokers, the market makers, the crooks are self-dealing right out in public.

feeble 9 years, 3 months ago

We're having spam, spam, spam, spam, spam, spam, spam, toxic asset relief, spam, spam, spam, and spam!

Hey LJW online editors, when are you going to start enforcing fair use standards in the user comments?

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