It strikes us that the PPIP plan requires a certain faith by the administration. Specifically, that balance sheets are not actually so underwater that even a 30% subsidy is a hollow gesture. What's more, how sure is the administration that actual price discovery is something that any of these institutions actually want? Clearly, given the seller-financing leverage shell-game baked into the plan, the hope is that bids will buoy up. The problem, however, was perfectly highlighted on today's FDIC call.
What, a banker effectively asked, if his participation were to "blow a hole in the capital?" Would capital requirements be waived or adjusted to keep the institution from running afoul? (Probably not). The meaning was somewhat veiled, but the broader implication was that actual price discovery would so impact the balance sheet and impact equity capital so negatively as to reveal this particular institution to be liver sausage.
What about bids or asks that resulted in no actual transaction? Would they, one voice trembled, constitute... (gulp, deep breath)... pricing data sufficient to trigger mark-to-market treatment? (Could be!)
As if on cue, another questioner wondered if the FDIC could force participation. (Probably not). You could almost feel the exhale of held breath.
Would participation exempt an institution from special examination? (Laughter). No exhale on this one.
Could it be that the biggest problem confronting the nation isn't that Goldman Sachs might make money buying assets in the PPIP because Tim "The Safecracker" Geithner is in league with the devil? What if almost no one participated at all? One side of us thinks that we are reading too much into all this. Another thinks that if you can read between the lines you can almost hear the cracks widening.
Posted by guest , Mar 26, 2009 5:13PM
The whole idea of the "private partnership" is a) to delude the public that gov money is used b) to stuff gov by overpaying and then pawning it of to gov @ "no recourse". We are back to square one. (Will say fall 08) When the idea was there but nobody knew how to delude the public. Took them 6 month to find a way. Now all we need is the "private partners" to step up to the plate.
How to do it: Get names of 50k tax evaders from Swiss banks confiscate the money and invest in "private partnership".
Posted by guest , Mar 26, 2009 5:17PM
The whole idea of the "private partnership" is a) to delude the public that gov money is used b) to stuff gov by overpaying and then pawning it of to gov @ "no recourse". We are back to square one. (Will say fall 08) When the idea was there but nobody knew how to delude the public. Took them 6 month to find a way. Now all we need is the "private partners" to step up to the plate.
How to do it: Get names of 50k tax evaders from Swiss banks confiscate the money and invest in "private partnership".
Posted by guest , Mar 26, 2009 5:23PM
This is the problem with any "Bad Bank" plan. Once the US government buys a quantity of X, then they've set the price, the other banks must mark to market, and the whole house of cards comes crashing down. No one can say "The Emperor Has No Clothes" because everyone is naked!
Let them all crash and burn and start over with new companies. Ditto for Detroit. This business of propping up criminals and incompetents is a huge theft of the American Taxpayer!
Posted by guest , Mar 26, 2009 5:25PM
Its amazing to me that the same ideas that were proposed by Paulson a number of months ago have been dressed up and given lipstick. Now "Safecracker" is proposing them and these same proposals seemingly are getting more air time. If you can't make that half-wit Maxine Waters understand why will the public go along. Oh wait, if Obama is behind this it must be good. BTW did anyone notice that 20% less people watched his press conference last week versus the first one. Oh, I forgot the NCAA women's hoop tourney is on...my bad.
Posted by guest , Mar 26, 2009 5:27PM
Actually this isn't a plan to solve the banking crisis. In reality, it is an experiment designed by Ben Bernanke to examine how the value of deep out-of-the money options is affected by the coeffecient of risk aversion.
By way of example, how much would you pay for a 1/100 chance to make a 10 million bucks. Not $100,000, maybe $50,000. Ask 6 or 7 fund managers. Then, Ben and Tim can plot the data and submit a paper to the Journal of Econometrics.
Posted by Investorcluzo , Mar 26, 2009 5:28PM
the parallels to the field of dreams are not lost on this guy...guy is about to be foreclosed on, but has friends at the bank that holds his mortgage. did moz write the screenplay?
I've been wary of this plan all along. even with the government safety net, there is no incentive to bid up prices. thus, going back to the well fargo example, if they sold loans at par they would take a $14 billion hit. their footnote clearly states that they intend to hold certain loans to maturity, so they are carried at par.
https://www.wellsfargo.com/downloads/pdf/invest_relations/2008_Exhibit13_pg103_168.pdf (pg. 143)
even the blind squirrel knows that any bid will come in well south of par. you have to love "management's judgment" (or lack thereof). the bottom line is that yes, there will be holes (dare I say craters) left behind if assets do get sold. however, the hope is that investors will come in afterwards with fresh capital because they believe the banks’ remaining “legacy” assets are actually good.
Posted by Investorcluzo , Mar 26, 2009 5:33PM
"wells" not "well" fargo
one more clarification, should read: "if they sold the loans at fair value" (whatever that is) they would take a $14 billion hit.
my bad, trying to wrap up so I can watch the games tonight.
Posted by guest , Mar 26, 2009 5:50PM
@7 I think we all knew what #6 meant as the URL shows. We don't you concentrate on the substance!
Posted by guest , Mar 26, 2009 6:02PM
@8 - Pretty sure @7 is @6.
Posted by PatrickBateman , Mar 26, 2009 6:07PM
I agree with EP. No private investor will show up to this circus unless given highly preferential treatment in their investment with certain irrefutable terms that the government cannot override retroactively.
The rules are being changed daily. Obama is making this up as he goes along. It doesn't matter how smart you are if the government snaps it's fingers and changes the rules of the game.
Posted by guest , Mar 26, 2009 6:11PM
@9, pretty sure?
Posted by Lowly Assistant , Mar 26, 2009 6:20PM
10,
Well, at least the lawyers will be busy.
-Tim "We Speak in Abstractions" Geithner
Posted by guest , Mar 26, 2009 6:24PM
10- Don't take this personally as you are hardly the only offender, but it saddens me greatly that even someone such as yourself who wrote a fairly intelligent post does not know the difference between its and it's.
Posted by Investorcluzo , Mar 26, 2009 6:33PM
@8/11 - notice I have a pseudonym (screen name for the uninitiated). therefore, you know it’s me and not another random “guest”, but thanks for playing.
@9 - good lookin' out.
Posted by guest , Mar 26, 2009 7:36PM
I would hope that the stress tests don't just account for further deterioration in the economy but also assume a level of pricing that the assets could actually sell for. Banks that would fail the tests will be forced by the gov to lower prices to a level they can deal with, but not lower. Let's face it, the government has the cards right now, at least with respect to banks like C. So it says to C, let's get this over with - you will take big losses, but we will only let things go so far. The challenge is controlling the private investors and the pricing mechanism to find that sweet spot. The problem with the bad bank was a political problem. The PPIP is intended to create the perception of actual pricing, but it is hard to believe that is what the government actually intends.
Posted by guest , Mar 26, 2009 8:01PM
Is it even worth debating anymore? There is no "right" way to go socialist. Once the government got its grubby little (ok, enormous) hands in there ... all bets were off.
Yay, socialism!
Wait, I'm giving them too much credit. It's privatized gains and socialized losses ... even better.
Posted by guest , Mar 26, 2009 8:12PM
@ Cluzo, um... I think 11 understood that. I sense some very subtle sarcasm there.
Posted by guest , Mar 26, 2009 8:30PM
quit it with the lame grammar insults
Posted by guest , Mar 26, 2009 8:37PM
BAC and C want to play, they're busily buying up all they can at 30 cents on the dollar...
Posted by guest , Mar 26, 2009 9:17PM
Marks too low? The other possibility:
Scene - smoke filled Barroom
Boyd Lankfein: "Say, Damie, I'd really like to get these assets off my books. How about you buy them at 80 so I don't have to take a write down?"
Damie Jimon: "Mmmm - I dunno. I've got some level 3 stuff too. Maybe if you'd buy them for 84 . . .
Boyd: "Well, how are we better off?"
Damie: [snickering] "We'll get Timmy to kick in half the "equity", and Sheila to guarantee the 6-to-1 seller financing, we'll do it in an SPV and . . "
Boyd: "Wait! I get it! If things don't go right, we put it to the government, right?"
Damie: "Right. We get to sell crap worth 15 cents at 84 for an extra six bucks of "equity" commitment."
Boyd: "It's the government buying it, in the future, at inflated prices,although since it's in the form of "debt guarantees" and "equity participation" it sounds like they're not overpaying to help us avoid marks!
Damie: [sarcastically] "Damn I hate government intervention!"
[Glasses clink]
Both: "Bartender! Another round!"
Posted by guest , Mar 26, 2009 9:39PM
Where's Bush ???
His team was less retarded
Posted by guest , Mar 26, 2009 9:40PM
Obama doing Leno again as the country burns
.
Posted by guest , Mar 26, 2009 9:44PM
I think Obama is dong Oprah
tomorrow and the new
Rosie O'Donnell show
next week
Posted by guest , Mar 26, 2009 9:45PM
ever since the wideclops (heh, heh, i still laugh everytime i see that) thread this board has been overrun by HR and admin types. always with the grammar posts. please, go be a school marm elsewhere and leave the financial boards to the actual participants.
Posted by guest , Mar 26, 2009 9:46PM
24
chimp
Posted by guest , Mar 26, 2009 9:47PM
24
chimp
Posted by guest , Mar 26, 2009 9:47PM
@ 24
loser
Posted by guest , Mar 26, 2009 9:50PM
24
wideclops
Posted by Anal_yst , Mar 27, 2009 9:12AM
@20 FTW
Posted by guest , Mar 27, 2009 11:06AM
@29 - "Fuck the World"?