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koganbotAgain, I'm hardly a person to have any idea what to do on this matter. I think this is a situation where "getting us out of this mess in a way that provides the greatest good to the greatest number" needs to trump "make the outcome fair," but people are questioning whether the plan will do either, or whether the people creating it know what they're doing, whether it really is a plan.
Markets Soar, but New Rules Upset Traders
Some traders said they were no longer betting on the intrinsic health of companies, but rather on what the government might do next. Others simply withdrew from the market.
Joe Nocera: Hoping a Hail Mary Pass Connects
as the day progressed it became increasingly clear that the Treasury Department didn't yet know how this mechanism was going to work. It is an idea of a plan more than an actual plan. In football, they would call it a Hail Mary pass. Sometimes, of course, a Hail Mary pass is completed for a touchdown. But most of the time they fail.
Paul Krugman: Uneasy feelings and No Deal
It seems all too likely that a "fair price" for mortgage-related assets will still leave much of the financial sector in trouble. And there's nothing at all in the draft that says what happens next; although I do notice that there's nothing in the plan requiring Treasury to pay a fair market price. So is the plan to pay premium prices to the most troubled institutions? Or is the hope that restoring liquidity will magically make the problem go away?
...
There's no quid pro quo here — nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving.
Markets Soar, but New Rules Upset Traders
Some traders said they were no longer betting on the intrinsic health of companies, but rather on what the government might do next. Others simply withdrew from the market.
Joe Nocera: Hoping a Hail Mary Pass Connects
as the day progressed it became increasingly clear that the Treasury Department didn't yet know how this mechanism was going to work. It is an idea of a plan more than an actual plan. In football, they would call it a Hail Mary pass. Sometimes, of course, a Hail Mary pass is completed for a touchdown. But most of the time they fail.
Paul Krugman: Uneasy feelings and No Deal
It seems all too likely that a "fair price" for mortgage-related assets will still leave much of the financial sector in trouble. And there's nothing at all in the draft that says what happens next; although I do notice that there's nothing in the plan requiring Treasury to pay a fair market price. So is the plan to pay premium prices to the most troubled institutions? Or is the hope that restoring liquidity will magically make the problem go away?
...
There's no quid pro quo here — nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving.
no subject
Date: 2008-09-20 11:52 pm (UTC)There are private investors willing to buy these troubled assets right now, but the banks do not want to sell at those prices. Why? Some banks believe the assets are worth more than the current bids (it all depends on future house prices, and different banks and investors have different projections). And many banks are unwilling to accept the current bids because the banks would then be insolvent...
So how does the Treasury plan help? It isn't clear yet. The first goal should be transparency of the troubled assets. What do the banks own, and what are the assets really worth?
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buying impaired assets at a steep discount reduces regulatory capital as losses are realized, and therefore will lead to less lending unless the banks are recapitalized.