Monday, March 23, 2009

Dow Up 500 Points On Treasury's Toxic Asset Plan

The day ended at 7775.86. The plan is here. Read Treasury Secretary Tim Geithner's WSJ piece "My Plan For Bad Bank Assets."

In short, the plan will take over nearly $1 Trillion in bad mortgage securities. Tim Geithner, and the Obama Administration, have some significant critics on this, including recent Nobel winner Paul Krugman in "Financial Policy Despair," and other voices found at The Opinionator.

To see the graph in larger format, go to


Scott Pershing said...

Having voted for President Obama I am seriously disappointed in this plan, Geithner, and consequently President Obama.

This is basically a sham that gives the same bad banks money to buy assets that have no value. Believe me nobody will be selling any assets that have a chance of retaining their value.

Let me make an analogy. Imagine that banks took all of their money and just bought lottery tickets instead of investments. They were hoping to win big and they pumped large amounts of money into lottery tickets and none paid out.

Now that the banks are teetering the government is auctioning off the non-winning lottery tickets to other non-lottery winners. They all have zero value but you can borrow money from the government to buy them from other lottery losers. Sounds like a winning recipe doesn't it???

There is no skin in the game, the government is guaranteeing 95% of the purchase. At $500B that is just $25B to be fronted by the investors. Conveniently we have already fronted most of the bad banks that much money to play with. While the Treasury continues to print money like this is some game of Monopoly.

Banks should be forced to write down their toxic assets. If they go out of business that is their own fault. Otherwise their bad decisions get forced upon other performing banks in the form of FDIC fees.

I agree with Paul Krugman on this plan:

Anonymous said...

Surprising, house prices drop and sales go up 5%. Craziness, who would have thought it.
The government should get out of the way and let the market determine the value of these assets.

In the Belmont Hood said...

Sales of houses only went up 5% between January and February. Nearly half of these sales were foreclosures or REO properties.

YOY, sales were down. Foreclosures were up 30% yoy in February.