Hello Mr. Treasury Secretary I must say you look very dapper today, oh buy the way I like to put in my bid now!
By Melvin J. Howard
When fear is in the market someone always makes money this time selfishly I want to be one of them. The open-ended government bailout of Wall Street has set off a frenzied competition among the biggest banks and financial firms to grab big profits to be reaped from the program. Banks, brokerage houses, insurance firms, mortgage lenders, private equity companies and asset managers are lobbying the Bush administration and Congress to make sure that the legislation authorizing the bailout gives them the biggest possible share of the pot of gold. “Nobody wants to be left out of Treasury’s proposal to buy up bad assets of financial institutions not even me!” There are still some key questions I have to ask which institutions will be covered by the plan; what kinds of assets will the government buy; how much will it pay; how will the assets be valued that are shoved off to the government; which financial firms will get the franchise to manage the program and thereby cash in on fees and the eventual resale of the assets? The big winners of the bailout plan the financial companies that will be hired by the government to manage the plan. There could be over $1.5 billion a year in fees. There is one serious problem can anybody say “conflicts of interest”. I am not sure how the Government will be able to prevent it. Some of these financial firms and executives that are bidding created the mess in the first place. Will the public make a profit they could if the government purchased the MBS’s mortgage back securities at below their theoretical values. But I don’t see that happening the way the plan is drawn now. If they are purchased above their theoretical values, which to me make no sense how, are you going to attract private bidders? The clear winner in all this will be the US Treasury they could net over 2 Trillion Dollars for their $700 Billion don’t be fooled United States Treasuries are still in demand. Lets say what this really is a costly recapitalization of the banking system. The losses purchased are going to be guaranteed i.e. equity infusion into the system.
If you really want to revitalize the financial system bring back securitization it’s all but dried up. This market worked well for decades. Don’t throw the baby out with the bath water.
Even with the bailout program it will not address the long-term problem of liquidity of the credit markets the main source of funds for the global financial system. Until then I am lobbying the the Goverment for a piece of the $700 Billion Dollar American Dream!
