Thursday, September 18, 2008

The Socialization of Wall Street Continues: "US Plans to Clean Up Finance System...."

The WSJ reports:

The Federal government is planning a sweeping series of programs/rescues/bailouts that would represent the biggest intervention in financial markets since the 1930s:

"At the center of the potential plan is a mechanism that would take bad assets off the balance sheets of financial companies, according to people familiar with the matter, a device that echoes similar moves taken in past financial crises. Its size could reach hundreds of billions of dollars...."

A Treasury spokeswoman said: "Treasury Secretary Paulson joined Federal Reserve Chairman Bernanke in a meeting with House and Senate Republicans and Democrats to discuss current market conditions. They began a discussion with them on a comprehensive approach to address the illiquid assets on bank balance sheets that are at the underlying source of the current stresses in our financial institutions and financial markets. They are exploring all options, legislative and administrative, and expect to work through the weekend with Congressional leaders to finalize a way forward."

Those "illiquid assets" are subprime mortgages and CDOs--Collateralized Debt Obligations, which are the Securities formed by bundling subprime mortgages together and selling them to investors as mortgage-backed securities.

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