[Pen-l] summary

[Jim Devine <jdevine03@xxxxxxxxx>]

from SLATE:
>Treasury Secretary Timothy Geithner formally unveiled the White House plan to clean out toxic assets from banks' balance sheets on Monday, and investors gave it the equivalent of a standing ovation. Contrary to what happened in early February when Geithner first outlined the plan in such general terms that everyone was disappointed, stocks surged around the world yesterday. The Dow Jones industrial average jumped 6.8 percent, its biggest gain since October, suggesting that "investors bet that the government may have finally found a way to fix the nagging problem at the core of the financial crisis," notes the Los Angeles Times. The Wall Street Journal says "the reaction seemed more a sigh of relief at seeing some details of the program, after weeks of waiting, than an overwhelming endorsement," particularly since "much fine print is still to be spelled out." The New York Times takes the broadest look at the three-part plan that could end up purchasing "up to $2 trillion in real estate assets" and points out that it was "bigger and more generous to private investors than expected." The Washington Post hears word that administration officials "made changes to the plan in recent days in a way that makes it more favorable to private investors." ...

> Under the complex plan outlined by Geithner yesterday, the government would join forces with the private sector to purchase individual home loans as well as mortgage-backed securities. The Treasury will use up to $100 billion from the financial rescue funds already approved by Congress to match contributions made by private investors. The public-private ventures would get further help from the government through loans from the Federal Reserve and loan guarantees from the Federal Deposit Insurance Corp. These programs could buy as much as $1 trillion in public assets. In addition, the government could put $1 trillion more into the toxic assets by using the Term Asset-Backed Securities Loan Facility, known as TALF, which will be expanded to finance existing troubled securities.

> Investors were largely enthusiastic, or at least some were. Almost all the papers quote Bill Gross, the co-chief investment officer of Pimco, the nation's largest bond investor, calling the program "perhaps the first win-win-win policy to be put on the table." Investors do have plenty to be optimistic about since "the Treasury was offering to lend up to $6 for every $1 of investors' own money," as the NYT explains, which means taxpayers would lose the most if the investments turn sour. The WP, which is the most openly skeptical about the plan, says some analysts think the government may be handing out too much of the potential upside to investors when it should be going to the taxpayers. The program also involves a major risk considering that if the Treasury uses all of the $100 billion from the $700 billion bailout plan, there will only be $12 billion remaining, which means Geithner will have fewer options if another financial institution desperately needs cash to survive.

> The WP and LAT highlight that the program simply might not work, considering that it's unclear how the government would persuade banks to sell assets if they see the prices as too low. USAT points out that in "prior situations in both the USA and abroad, governments have forced banks to sell their bad assets." The paper also says that the typical buyers of securities, such as hedge funds, don't have much cash lying around so it's likely that the biggest buyers would be so-called vulture investors, who would only be interested in the securities if they're real cheap, something banks may not be interested in since it'd mean they'd have to record big losses in their books.

> The WSJ says there's currently "a chess match of sorts" that is playing out between banks and investors. Banking executives are reluctant to sell assets at a deep discount since that could force them to raise more capital. Experts say banks that have already taken write-downs on their assets could be more willing to accept a cheap price for their assets. The LAT quotes the lobbyist of a financial trade group who says that even if many banks refuse to participate, the program should at the very least determine a market price for toxic assets. A shortage of information on how much these assets might be worth is part of the reason why the credit markets have seized up over the last few months....

> The WP fronts word that the White House is "considering asking Congress" to allow the treasury secretary to seize a whole slew of financial companies, including hedge funds and insurers, if their collapse would threaten the economy as a whole. Currently, the government only has the authority to seize banks. This would "mark a significant shift from the existing model of financial regulation" because someone in the president's Cabinet would have authority over companies that are currently overseen by a number of independent agencies. Geithner is set to talk about the issue today at hearing on Capitol Hill that will focus on the American International Group bonuses. Some think that if the government had been able to seize AIG when it was clear that the insurance giant was in trouble, the whole process of winding down its operations could have been cheaper for taxpayers. If the treasury secretary had this power, it could take a number of steps to prevent a firm's collapse, including, significantly, breaking contracts...

>The bad economy is sending people to the candy shop, reports the NYT. So-called "nostalgic candies" like Necco Wafers and Mallo Cups are particularly popular, and customers seem to prefer "cheaper, old-fashioned" sweets, which is a significant reversal from last year when mass-market candies were losing ground to luxury brands. Many candy makers are reporting surprisingly healthy profits and stores say they're struggling to keep up with demand. The owner of a candy store in San Francisco said it best: "All is well in candy land." <

-- 
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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