Markets Leap On Treasury's Troubled Asset Purchase Details
Markets jumped after the Treasury presented the fleshed-out details of its plan to buy troubled bank assets. The need for getting toxic assets off bank books has been around for quite some time, but has stalled because banks and investors couldn't compromise on the price. Banks didn't want to sell for less than 60 cents on the dollar, investors didn't want to pay more than 30. The Treasury plan makes the two ends meet by providing $75-$100 billion in financing for buyers. For it to work, private investors will have to step up, but with the S&P leaping up 7.1% the street is betting they will and it will unclog the credit markets.
Geithner Relies on Investors for $1 Trillion Plan [Bloomberg] (Photo: {Guerrilla Futures | Jason Tester})
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can anyone say - SUCKERS RALLY?
Once again, repeat after me:
'The stock market is NOT the economy!'
Got it? Good!
This seems like a perfectly sound proposal. My fear is that the same crowd which is currently castigating AIG bonus-takers (see other Consumerist post), and which is making noises about capping executive compensation, will be out in force against any private investors who make considerable returns from this scheme. How long will it take for the first expose of some "evil banker type" who actually dares to turn a few million dollars profit on what is still a taxpayer-funded system? Cue Congressional condemnation and public outcry. I wonder how many prospective investors see the current circus and figure this isn't worth the potential price of admission.
Could it be? A plan? Geithner has...a plan?
@AtomicPlayboy Well said. I'm afraid far too many people will walk away from this mess with the perception that profit=greed in all cases.
the markets leap on the news that they are being given a massive chunk of other people's money? Whodathunk. It seems sometimes as if the market is holding itself hostage against the government's stupidity, and demanding money or it will shoot itself. Like an unfunny version of the scene in Blazing Saddles where sheriff Barf first comes to Rock Ridge.
+1 regarding the stock market not equaling the economy.
A plan like today's inherently causes inflation and receives institutional investor support because it simply increase the dollar value of stocks and assets, but not the actual value (i.e. inflationary pressure upwards). J6P might be happy their "stock" appears to be rising in the short term, but they tend to ignore the price of everything else ... food, fuel, etc.
We've already seen a plan to bring in equity partners to take control of an off-balance sheet toxic asset hedge fund in a no-loss deal at inflated prices ... it was called Enron. Enron managers hid where the real losses occured and who was responsible. Later, the same losses could be transferred back to shareholders (now the taxpayers) when no one noticed and Enron management (this time the banks) have made a profit and divested their shares.
I am glad everybody is in rough agreement with me. I hate, HATE how the media and the government ties the damn market to EVERYTHING. The market loses some points, BAM! layoffs begin. It is so absolutely stupid. Makes me angry.
I think this plan makes a lot of sense. I hope it will be successful, because the alternatives are not very nice (i.e., nationalization). Pearlstein has a good article on this in this morning's WashPost.
@minsky: I'm sure you're extremely educated on this subject, but could you please explain why stocks and bonds are bad for economic growth? I have yet to receive my full amount of daily laughter from the internet.
@minsky: Goddamn lack of an edit key. I mixed up two ideas. Basically, I was going for a snarky comment about how the gains and losses in capital for companies within the stock and bond market do reflect the economy in ways.
For what it's worth, your mangled attempt at snark/trolling definitely helped me get my DV of interweb lulz
All this crazy debt will create hyperinflation that will make the last 6 months of madness seem like a easy walk in the park.
We shouldn't be slaves to the street. That's part of what got us here in the first place. Also, what about those whose toxic assets were insured by AIG. I hope we're not paying out on those. Or, the most likely and most messed up is that we (government) pay for the assets, but then we can file a claim against AIG under the policy, which we help fund.