Monday, March 23, 2009

New Geithner Plan Thoughts

I've linked to Hussman's thoughts on the new Geithner bank plan and I think you should read it, I think Hussman is right.

My initial thoughts about this plan are "what's new"? I don't see anything being brought to the table other than taxpayer money. Banks are going to suddenly decide to sell their "toxic" assets cheap because the Federal Government is supplying $970 billion of the $1 trillion in PPIP money, I don't think so.

And what about the homeowners? Nothing for them....except more foreclosures.....which means even lower prices for these "toxic" assets.

Is it me or did nobody blink when the administration announced another $1 trillion plan (after the Fed just last week)? The market went up, go figure. I guess the thinking is the government will make money on the deal....deja vu anyone - isn't this the same plan from six months ago? A plan to buy troubled assets from banks? Didn't we commit $700 billion for a plan called the Troubled Asset Relief Program (at a commission mind you of over $150 billion to congressional pork)?

If the banks wanted to get rid of these assets at market prices, they'd have done so by now, the fact that they haven't is proof that they won't at some special auction - why would they? If the market for a specific asset TODAY is say 40 cents on the dollar, why will the market 60 days from now be 60 cents on the dollar? Is it because the government is supplying financing? If nobody is willing to pay 40 cents today, does it sound like a good taxpayer investment to pay 60 cents 60 days from now?

I'm not getting it.

I was wrong. I thought the government might get it right by the fourth try, not so. I wonder why everyone is so upset about AIG when our Treasury Secretary basically just announced a plan that will supply hedge fund managers with $970 billion in tax payer dollars (Yes, $850 billion in FDIC notes is essentially taxpayer money as we will be the one's on the hook if the plan goes wrong....bailing out the bail out).

The Humpty Dumpty problem is not addressed, the foreclosure problem hasn't been solved and congress is wasting there time trying to confiscate money legally earned. Did anyone notice we have a financial crisis going on that deserves real attention?

I'll admit that I don't have all the answers, but this plan scares me. I'm glad Wall Street has thus far applauded, but I wonder how long it will last.

A better plan would be to require all these assets be placed into a Book Value and as they are worked out over the years the gains and losses would accrue to the institutions who contributed them, with some maximum loss and gain criteria attached. Of course, if nothing is done about the underlying collateral, the houses......nothing else really matters.

Scott Dauenhauer CFP, MSFP, AIF