Good plan, bad plan, what is the difference? Any plan in any endeavor will most likely succeed on its execution. It takes some competence and some willpower to successfully execute any plan. That is where the Gubmint always comes up short. I have no confidence that the Gubmint can execute any plan successfully. This plan is no worse or no better than Paulson's original toxic buy out plan that is known as the bailout. That plan did not work because the Gubmint did not have the competence nor the will to even initiate it. There is no reason to believe the boys and girls in Gubmint now have the brains or the gonads to commit to the success of this plan, than the Paulson crowd had to commit to the plan that they originally offered.
Interesting article here... http://finance.yahoo.com/tech-ticke...xtremely-Dangerous"-Economist-Galbraith-Says;
Okay, so apparently the futures are popping because Geithner finally set some details ........... ---------------------------- Ahhhh, for the good old days -- Sell the news.
Interesting proposition by Galbraith: The banks, through shadow intermediaries, bid-up beyond FMV for their bad assets. Why? Because they get them off their books at an inflated value, and only sustain a max loss of 7.5% due to the non-recourse nature of the govt. loans to buy these assets. So, for example they pay 20% above FMV. Worst-case scenario, the banks take a 7.5% hit if these assets are evetually sold at a loss, and pocket an extra 12.5% over what they could have sold the assets for in the open (non-govt. supported) market.
Don't forget about populism. The public could get POed about any part of it and blow it all to smithereens. But it's not going to solve our economic crisis anyway. While the big problem for banks are all these toxic assets they cannot sell nor write off because it would tank them, it's not the problem with the economy. You can get loans, you can refi if you are not a risk. The underlying problem is too much debt, not enough money. Building up government debt by buying up the TAs is a nice shell game and a great payback for bank campaign donations, but it's not going to solve our debt addiction. And higher taxes and bigger government will only make things worse.
If I were an unethical hedge fund manager, I would subscribe to the program, then short an equivalent position in the market, thus getting a put for free. With my own cash I wouldn't touch it, because of the risk that Congress will renege on the deal once it gets far enough underwater.
The real problem is that the loans that are performing are the old ones that still have equity. 10% of Jumbo as not performing right now. What to guess what the dollar value of that 10% is vs the performing ones? Most of the loans made in the last 3 years are worth very little. There are trillions and trillions of loans that were worth 2 cents on the dollar or less. (just about all the junior liens made since 2004-2005. There are perhaps trillions of senior loans not worth 30 -40 cents on the dollar. What will they be worth in 3 years when real estate settles to its 1995-1999 value. (which is where it has to go because people have to qualify for the loans). The tax payer is going to be holding on to trillions and trillions of dollars worth of crap. I would not be surprised by the following. All the toxic loans get removed and then all of a sudden the fed starts talking about crushing inflation. Hit us with trillions of debt and then destroy inflation.