Sunday, March 22, 2009

Geithner to Announce "Toxic" Plan before 9:30 AM ET

by Bill McBride on 3/22/2009 07:54:00 PM

From Kevin Hall at McClatchy Newspapers: Treasury to deliver details of "toxic asset" treatment plan

Treasury Secretary Timothy Geithner will meet with reporters shortly before the 9:30 a.m. opening bell for trading on the New York Stock Exchange. ...

Geithner is expected to announce a plan in which Treasury will use $75-100 billion from last year's $700 billion Wall Street bailout. ...
Mark Zandi supports the plan, although I'm not sure what he means by "fair price" since the price will be above market prices (because of the low interest rate, non-recourse loans):
"This plan has a good chance of success; certainly much better than the plan Treasury put forward six weeks ago," said Mark Zandi, chief economist at Moody's Economy.com, a forecaster in West Chester, Pa. "This plan relies much less on private investors and much more on direct government purchases of banks' troubled assets. Only a handful or so of private investors need to participate in this plan to establish workable auctions for the assets and thus determine a fair price for the assets."
...
"The government can then come in and buy these assets on a large scale at these prices. (Roughly) $1 trillion is not enough; it probably needs to be twice that," said Zandi. "But if the plan works well enough, I think Congress will provide more money to solve the problem once and for all. This plan makes me more optimistic about the financial prospects for the financial system and the economy".
Brad DeLong also supports the plan, but thinks much more is needed:
Our guess is that we would need to take $4 trillion out of the market and off the supply that private financial intermediaries must hold in order to move financial asset prices to where they need to be in order to unfreeze credit markets ...
Krugman and Atrios disagree with DeLong.

It is pretty clear the administration opposes nationalizing insolvent large banks, and is instead willing to have taxpayers subsidize shareholders of the banks. So the question isn't "Is this the optimal solution?" (it isn't) but "Will it work?" Maybe, but at what cost?

Oh well, what's a few trillion between friends?

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