Skip to main content

Charlie Gasparino Is Hearing Things About The Good Bank/Bad Bank Plan

Lots and lots of things (and stuff). Some of it conflicting, some not. All of it fluid. Sayeth Gasparino:

I can't remember the Treasury Department bailing out Steve Cohen and Art Sandberg. They're bailing out Citigroup and Bank of America and the bailout plan they have on the table right now, at least one that's been recently teed up in the press which is essentially this aggregator bad bank where you buy all the bad assets between $1 and 2 trillion. It's been leaked out they're looking to do this.
This thing, according to sources, telling CNBC, this thing is now officially been put on hold. It's hit a major snag. They can't figure out how exactly to make it work. It was the same problem back in September when we broke the story about the TARP when the market went up 500 points because it makes great conceptual sense. If the government cancome in and buy up all the bad stuff off the balance sheets of all the big banks. If this stuff can trade up it's worth 50 cents on a dollar and not 22 cents on the dollar. Everybody's happy.
Making that thing work has proven very difficult. The Treasury Department, the FDIC and the Feds recently, the last couple of days, have been having meetings with senior CEOs at the major Wall Street firms to price the stuff sold to this aggregator bank. You know, they're more confused now than ever before. The feeling I get, at least these talks are ongoing. There was talk about a meeting this weekend with all the CEOs to try to do this thing. I heard that. That is not happening, at least as of 10 minutes ago. No meeting called. No way Wall Street expects that meeting to be called. They can't figure out how to make this thing work. The pricing is at issue. If you hold the stuff, Wall Street holds it on the balance sheet, they can mark it up to their model 50 cents on the dollar. Or they sell it, the market says it's 22 cents on the dollar. If the government buys it at 22 cents, most of the banks would take major losses. We'll be back to where we were a couple of weeks ago. If the government buys it at 50 cents on the dollar, the taxpayer could be taking it on the chin. That's the problem we have here. While they may shelve this aggregator bank, they may come up with some other alternative like insurance or some sort of guarantees on this stuff blanket across the board.

These are the things being talked about right now. These are conversations between senior-- this is at the CEO level and with the Treasury Department. One of the problems with doing this thing real fast, they understand there is a sense of urgency and markets want it bad.
Steve Liesman broke this two days ago, the market went up 200 points. Tim Geithner, the Treasury Secretary, doesn't have senior staff assembled yet. It's pricing and very difficult to pull off. The feeling I get, at least right now, is that the aggregator bank has been put on hold indefinitely. They may go for something else. They may do a hybrid. Aggregator bank guarantees-- it's hit a major snag.

Gasparino, 3:26 PM: "They're not shelving it. But it's hit a snag...everything is on the table."