One of the great (awful) things about TARP was the brilliant (daft) plan to buy assets at above fire-sale (intensely overvalued) prices. This bit of financial wizardry (outright fraud) would have permitted banks with temporarily encumbered assets (irredeemable toxic sludge) to reprice their balance sheets based on the marks (fantasy) set by the Treasury’s purchases. This has the added effect of improving the tenor (thickening the miasma) of the market and restoring confidence (validating pessimism).
Given the innate brilliance (intellectual bankruptcy) of this part of the plan, it is not surprising to see it back, as clever solutions are few and far between (we have nothing else to do but sit and watch).
Valuing toxic assets on bank balance sheets is among “real key issues” as the Obama administration devises a plan to mend the financial system and steady credit markets, Comptroller of the Currency John Dugan said.
The biggest challenge is how to “pick and choose which assets to take from open institutions and how much you pay for them,” Dugan, the supervisor of U.S. national banks, said in an interview in his Washington office today.
Asset Valuation ‘Key Issue’ in Bank Plan, Dugan Says [Bloomberg]
I don’t understand how NO ONE with any economic sense or financial clout is on the news somewhere saying “We need to wait this shit out and stop the Candyland valuations.” Is it really that difficult for someone, anyone, to do that?
@ 1. Barney Frank is running the show.
no worries – everything will be equitably re-distributed by changes to the tax code
I love how they are discussing creating a good bank with an internal “bad” bank using SIVs. Are you kidding??? How does this solve the problem? Out of sight, out of mind? How did we get to the the strongest country in the world with dumbasses running the country?
@1. It is. Because the people currently WITH the financial clout will gain the most by allowing the existing banksters to keep their jobs.
Look up “oligarchy”.
All of America is fantasy now. The trick is keeping the peasants from loosing faith. When the teaming-masses loose faith in the mythologies of their society, bad things happen.
Look, over your shoulder, one of “those people” got yer tax money. Go git im. Wait… look, behind ya, evil-doers ‘n trrrrst.
You can’t wait this shit out unless you have 27 years. I have written Bernanke and Geithner with the right thing to do to arrive at an immediate and accurate fair value for any structured finance bond. However, I can not disclose it here.
If Barney Frank was on the balance sheet would he be considered a “Toxic Asset” or a Long-term Liability?
@6 your tinfoil hat is slipping
()@#$@*#$(@#$
@5
It’s LOSING.
L-O-S-I-N-G.
Someone in an earlier thread made an astute observation that the comments on here have recently declined heavily in quality.
@ 6 — Go get’em, Ackman.
yea, so ‘valuation’ is ‘key’?
uh, no sh!t sherlock!
@9 the comments are going downhill Lycan overweight congressman on a sled
@11
you can’t Lycan this plan to the Tarp, because this time the model will be open source
-The other IT guy
in honor of the CitiPawn, I say we set up TARPPawn. Buy the assets for 10c on the $, split the profits beyond that on sale. The banks will get a pawn ticket where they buy them back for sale+interest unless someone else buys them first.
@13. I’m Lycan it!
It’s because brilliant economists are telling Obama that “stimulus” will not crowd out private investments without making a distinction between putting the money towards toxic assets versus lending to small businesses. It’s all indistinguishable to them. Plus, how can anyone trust the government’s ability to price this sh*t in a matter of weeks? The only people capable of pricing this stuff aren’t exactly unbiased.
@15 this stuff can not be priced by people. there are too many bells and whistles (or if you prefer, assumptions allowed for in Intex). it can only be priced by markets. I want to thank @9, who puts me in the same stratosphere as Ackman.
I can hardly wait for the villagers with torches and pitchforks to start.
Enough of Washington
@16, “this stuff can not be priced by people…it can only be priced by markets. ”
I like any plan that relies on diffusion of responsibility. That way no one gets blamed.
too here, didn’t again
@18 don’t worry. if the govt. lets the markets price toxic structured finance assets the way it should be done in the absence of any visible market for these securities, there will be plenty of blame placed where the blame is due, expressed as losses to senior bondholders.
Too Kevin Nealon, didn’t Weekend Update.
18,
Are you fucking retarded?
@16 I think it’s possible to arrive at a fair value for this stuff that is close to the model price with reasonable assumptions. I don’t think the government will make the banks pay the liquidity premium, at least I doubt it. But, unless the government has miraculously learned how to price this stuff, they’ll be getting numbers from the dealers anyway, which is not smart.
-15
“people can’t price this, only markets can”
And the participants in said markets would be, who, exactly?
Please folks, repeat after me:
B
A
N
K
R
U
P
T
C
Y
Imagine there’s no Wall Street. It’s easy if you try!
Anal,
You know I love you, but value continues to plummet day in/day out. Do you honestly think the majority of aaa’s are priced fairly? The market is a mixture of people and time (time being most important). No one knows what they’re holding, because the market continues to deteriorate. Time doesn’t heal, but it surely shows where we fucked up.
LA
HAHAHA…I laugh b/c we are right back to same problem of original TARP. If “bad bank” buys said toxic assets where they’re (over)marked, tax payer eats the loss. If bad bank buys toxic assets at market prices, banks eat the loss (presumably a big one). So until banks mark down these assets, bad bank/toxic asset removal is NEVER GOING TO WORK.
Why is this so difficult to understand? More writedowns are needed. If assets were priced properly, they wouldn’t need to be taken off balance sheets.
@24
“And the participants in said markets would be, who, exactly?”
that’s very easy to answer. Market participants!
@27
there are no market prices for CDOs unless you take ML’s 0.22 (really 0.07) at which = Citi can just close shop. There is a better way.
@5: People should not fear their government, but government should fear their people.
also: “any political system eventually evolves into an oligarchy. This theory is called the “iron law of oligarchy”.”
and if you’re just figuring this out now, welcome back.
What the heck did Jim Cramer say that has “everyone’ in a lather?
Bernanke figured this out already. What’s the question again? Read the transcripts of the congressional hearings where Paulson and Bernanke were given the time to explain. Though Paulson was characteristically evasive, Bernanke was basically saying mark to model.
By the way, I don’t like the bad bank idea. It’s a bad idea.
@26 (“LA”)
The reliance on ratings is part of the problem, and frankly I’m at a complete loss as to why the Ratings Agencies have not been absolutely freighttrained by the Gov’t for their role in this whole debacle.
Not to mention, of course, the fact that institutional investors still have BS clauses in their charters (etc) that determine what they can/cannot hold based off ratings. This sh!t boggles the mind, argh…
When Congress authorizes the money, it should specify that prices paid should 1) not force the banks to realize crippling losses and 2) not force the taxpayer to take losses.
Problem solved! Next up: replacing oil with windmills.