By Biloxi
The man who inherited financial crisis mess vs. the man who left financial crisis mess. The man in front of the curtain vs. the man behind the curtain.
Let's review. Didn't former Treasury Secretary Hank Paulson beg to Congress that the use of $700 billion dollars of taxpayers' money or Troubled Asset Relief Program [TARP] was supposed to be buying up toxic assets. Remember this quote from Hank?:
"It was clear to me, by the time the bill was signed, that we needed to act quickly and forcibly and that purchasing troubled assets ... would take time to implement." And when Congress and public started to questioned Hank's plan, he called for patience, saying: “the turmoil will not end quickly and significant challenges remain ahead”.
In a nutshell:
Under Hank's plan, for example, Bob the Banker and the government have identified a pool of about $306 billion in troubled assets. Bob the Banker will absorb the first $29 billion in losses in that portfolio. After that, three government agencies, the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp.,would take on any additional losses, though Bob the Banker could have to share a small portion of additional losses.
The plan would essentially put the government in the position of insuring a slice of Bob the Banker's balance sheet. That means taxpayers would be on the hook if Bob the Banker's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour.
"It was clear to me, by the time the bill was signed, that we needed to act quickly and forcibly and that purchasing troubled assets ... would take time to implement." And when Congress and public started to questioned Hank's plan, he called for patience, saying: “the turmoil will not end quickly and significant challenges remain ahead”.
In a nutshell:
Under Hank's plan, for example, Bob the Banker and the government have identified a pool of about $306 billion in troubled assets. Bob the Banker will absorb the first $29 billion in losses in that portfolio. After that, three government agencies, the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp.,would take on any additional losses, though Bob the Banker could have to share a small portion of additional losses.
The plan would essentially put the government in the position of insuring a slice of Bob the Banker's balance sheet. That means taxpayers would be on the hook if Bob the Banker's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour.
In exchange for that protection, Bob the Banker would give the government warrants to buy shares in the company [or be a shareholder in the company].
Well, he later scratched that plan of buying toxic assets and focused on thawing credit markets. He said the administration was looking at injecting more capital into banks on a matching basis, in which government funds would be supplied to banks that were able to raise capital on their own.
I found this nugget from The Guardian's article that was entitled "US government reluctantly adopts Brown's bank rescue blueprint":
Well, he later scratched that plan of buying toxic assets and focused on thawing credit markets. He said the administration was looking at injecting more capital into banks on a matching basis, in which government funds would be supplied to banks that were able to raise capital on their own.
I found this nugget from The Guardian's article that was entitled "US government reluctantly adopts Brown's bank rescue blueprint":
The Bush administration has reluctantly followed Britain's lead by pumping $250bn (£143bn) into shares in leading banks after a stockmarket meltdown scotched earlier efforts to shore up crumbling confidence in the financial system. . . .
Buying banks' shares amounts to a U-turn for the embattled US treasury secretary, who initially wanted to spend a $700bn emergency fund by simply picking out distressed assets from banks' balance sheets.
Paulson told Congress last month that "the right way to do this is not going around and using guarantees or injecting capital", arguing that Japan had limited success with such a policy during a banking crisis in the 1990s.
Six months later, current Treasury Secretary Geithner released his three step plan to buy toxic asset, called The Public-Private Investment Program, the plan that Paulson originated when he needed the $700 billions of TARP money approved by Congress last year. Geithner's plan: Private sector will set prices. Taxpayers will share in any upside.
WSJ:
Six months later, current Treasury Secretary Geithner released his three step plan to buy toxic asset, called The Public-Private Investment Program, the plan that Paulson originated when he needed the $700 billions of TARP money approved by Congress last year. Geithner's plan: Private sector will set prices. Taxpayers will share in any upside.
WSJ:
The Public-Private Investment Program will purchase real-estate related loans from banks and securities from the broader markets. Banks will have the ability to sell pools of loans to dedicated funds, and investors will compete to have the ability to participate in those funds and take advantage of the financing provided by the government.
The funds established under this program will have three essential design features. First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors. Second, the Public-Private Investment Program will ensure that private-sector participants share the risks alongside the taxpayer, and that the taxpayer shares in the profits from these investments. These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.
Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.
3 comments:
Biloxi,
I totally agree, no one is remembering that the original tax payer funded bailout was the previous regimen's ordeal that did not work and a second, redone bailout had to be done since the previous one was another dissaster, just like Katrina, the Iraq war.....etc and so on
Chicago Native:
I just wish that Congress and Senate get some schooling about why they handed Paulson $700 billion and what exactly was the Paulson plan.
Geithner inherited this mess. And now Congress is grilling him as though he is under investigation. I know that Goldman Sachs and Paulson positioned themselves to make a profit from this finanical crisis but so did alot of the AIG counterparties and banks that merged with other banks that received TARP money.
But, I am glad that Obama and Geithner are having strict rules on compensation of recipents that receive bailout money. Too many finger pointing between lawmakers and not one of them are taking personal responsibility to the fact that they handed an inexperienced former CEO Treasury Secretary billions of taxpayers' money with no accountability and no plan from the get-go.
The Hankster left with his pockets fulled and his personal business in good shape. He made sure his shares in Goldman Sachs were over millions and the plan worked. Look for Goldman Sachs to start buying up pieces of AIG.
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