The Treasury Department is expected to unveil early next week its long-delayed plan to buy as much as $1 trillion in troubled mortgages and related assets from financial institutions, according to people close to the talks.
The plan is likely to offer generous subsidies, in the form of low-interest loans, to coax investors to form partnerships with the government to buy toxic assets from banks.
It's just a scheme to transfer losses from the bank to the taxpayer with an egregious payout to a middleman (SAC) to effectively money launder the transaction.
You've also transmuted a $30mm economic loss into a $36.75mm economic loss because of the laundering. So its incredibly inefficient.
How did fraud and money laundering become the national economic policy of the US?
One would have to be a criminal to participate in this.
Treasury has decided that what we have is nothing but a confidence problem, which it proposes to cure by creating massive moral hazard.
This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan that might actually work.
I will admit - I am experiencing shock and awe at the level of leverage in the latest proposal (and I am not alone) - I wasdefending the notion with a hypothetical leverage of 2-1; the leaked plans contemplate leverage of 6-1 (i.e., 85% debt). If time permits I will present a dramatic example illustrating the problem with the Geithner plan on offer. But nothing I saw last week could have left people thinking that Congress is poised to oversee some of the largest, most complicated banks in the world.