Archive for Tuesday, March 24, 2009

Government to help investors buy banks’ troubled assets

March 24, 2009


— Financial markets roared ahead Monday as investors reacted with near-euphoria to the Obama administration’s new trillion-dollar plan to stabilize banks by relieving them of their troubled assets and risky loans.

But even as markets exulted, conflicting interests among participants in the program — banks, investors and taxpayers — were emerging, leaving in doubt the fate of a program meant to revive bank lending and in turn reinvigorate the overall economy.

Some banks are resisting government pressure to sell assets at prices they believe to be too low. And despite the risk of an outcry from Congress, the Treasury this weekend made the program more attractive to private investors, according to industry and some government officials. Treasury officials said the last-minute changes were not intended to sweeten the deal.

In the short run, the rollout of the plan gave a much-needed boost to the administration and beleaguered Treasury Secretary Timothy Geithner, as officials on Wall Street and Washington in general spoke favorably of the plan. The Standard & Poor’s 500-stock index rose 7.1 percent in the best day for the stock market in five months.

“The policy-makers definitely have the right ideas in their head right now, but whether they can execute it I don’t know,” said Daniel Alpert, managing director of Westwood Capital, a boutique investment bank.

The Obama administration is now preparing its next move, planning this week to send legislation to Congress granting the government new powers to seize troubled nonbank financial companies whose collapse would threaten the broader economy, according to three sources familiar with the matter. Administration officials said the proposed authority, for instance, would have allowed them to seize American International Group last fall and wind down its operations at less cost to taxpayers. Geithner is expected to argue for the new powers at a hearing today on Capitol Hill.

The new Public-Private Investment Program, which Geithner announced Monday, includes programs to buy up real-estate-related loans and securities backed by those loans. It will combine $75 billion to $100 billion in financial rescue funds already approved by Congress with investments from private investors, loan guarantees by the Federal Deposit Insurance Corp., and loans from the Federal Reserve to buy up to $1 trillion in real-estate-related assets.


Godot 9 years, 2 months ago

Three card monty. And the taxpayers are the losers.

madameX 9 years, 2 months ago

I'm not sure how I feel about this program (don't know enough of the details) but it seems to me that the banks want to have it both ways. On the one hand, they're crying "We can't lend! We have all this worthless, bad debt on our books!" but someone offers to take it off their hands and suddenly it's worth something, and that something is evidently more than is being offered. Again, I don't know the details, which means I don't know how much their being offered vs. the estimated value of the debt, but those are my thoughts.

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