Paulson hits back at ‘superfund’ critics

Hank Paulson, the US treasury secretary, on Friday night hit back against critics of the plan to create a $75bn-plus investment fund to buy the assets of troubled investment vehicles, suggesting it is based on a misunderstanding of how the new “superfund” would work.

“The concept is not to buy bad assets” that have credit problems, Mr Paulson told the FT. “The concept is for the end investors working with the banks to buy assets that are not credit impaired.”

http://www.ft.com/cms/s/1b921838-7e...ml&_i_referer=http://www.ft.com/world/economy

 

Huh?

 

He protest too much.

 

it's almost as if he's saying the lack of liquidity doesn't represent the real market... so they're going to manage an intermediate transaction to the conduit and create a new price point to try and fish out some liquidity above what the market currently thinks the paper is worth. how much does the suggestion of a bailout raise the value of the paper?

as if nobody could see it coming to this all along with the exponential growth in credit derivatives... when a bank has several times their balance sheet in leveraged, risky off balance sheet paper that they piled into with such intense leverage that any real adverse move would be a catastrophic hit... it seems like they were betting on a bailout and are probably just the tip of the iceberg.

when your gigantic squeeze machine breaks... tough luck!

let's say for example a coordinated group of players in the market are afforded infinite leverage or the ability to create money. there would be no real market, they would simply force the hands of any counterparty with less leverage.

is there a point at which leverage reduces the 'freeness' of the markets, creates asymmetrical advantages, etc? when politicians facilitate bad trades as they finally begin to lose, have we officially reached that point?

 

markets where any players are too big to fail are intrinsically not free markets. the institutions that willfully entered these leveraged positions have to pay for their risk ... otherwise it will always be bailouts and regulations in place of a free market

 

Your two posts are precise and correct.

 

ty. it's like they're trying to pick the corn out of shit and repackage it as corn shit never should have been packaged as corn in the first place

what about moody's .. what are people really using to value creditworthiness these days.

 

We need more bankruptcies associated with CDOs to bring back risk premiums into the market. This federal government bailout is tinkering with the economics of it.

The credit agencies are a joke. CDOs should have never been given a AAA rating. The bankruptcies will hurt in the short-term, but it will make our economy stronger in the long run. The house of cards has to end sooner or latter.

The real issue is no one wants to write down CDOs to a point in which they will sell in the market (could be a 20 to 30% write-off).

 

Even those who support the fund admit that it is, at best, a temporary solution, buying time so SIVs can find other sources of finance or wind down gracefully. It may also provide breathing space in which to sort out deeper problems facing the market, such as the unstable structure and opacity of SIVs. “The market has to move to a new business model,” says a senior Treasury official.

http://www.economist.com/displaystory.cfm?story_id=9993423

 

temporary or not, i just don't see what the treasury has to do with diffusing the fallout of citibank's toxic greed. this situation approached us like a glacier. what do all these US economic policy makers suddenly have against free markets?