US Treasury Details Latest Bailout

This morning, Timothy Geithner, US Treasury Secretary, announced the administration’s use of $75-100 billion of the existing $700 billion bank bailout fund to entice a broad array of private investors - to include hedge funds, pensions funds and insurance companies - to free up the Federal Reserve and the Federal Deposit Insurance Corp. with the purpose of getting financial loans flowing to families and businesses at a better pace.

We would agree with Christina Romer, head of the Council of Economic Advisers. To paraphrase, “These toxic assets are a crucial piece of the puzzle, but it’s just part of the problem. The administration is bringing a full array of programs to confront the problem, but there is more that needs to be done.”

As part of the announcement, the focus of a new government entity - The Public Investment Corp. (PIC) - will attempt to entice private investors, including big hedge funds, to participate by offering billions of dollars in low-interest loans to buy theses toxic assets. However, we would point out that some potential investors have expressed reluctance to participate in the new program, citing that Congress could look to place onerous restrictions on executive compensation following recent events at AIG (AIG).

Under the plan, private investors are to put up less than 10% percent of the cost to purchase bad loans, with the FDIC covering 84%, with the remainder coming funds from the $700 billion bailout program. Presently, the program has the capacity to purchase $500 billion-$1.0 trillion in troubled loans, which go back to the collapse of the housing boom and the subsequent tidal wave of foreclosures.

However, if successful,  the plan could expand to $2.0 trillion in troubled assets. Some private analyst calculated $400 billion will need to be injected in order to make a sufficient dent in the bad asset problem, as the $700 billion in bailout funds could be nearly tapped out from what has been allocated to banks, as well as the lifelines provided to the Auto Industry and AIG.

Financial institutions that would look to sell their toxic assets could include, but are not limited to Citigroup (C), Bank of America (BAC), US Bancorp (USB) and Wells Fargo (WFC).

Currently, Washington seems to be stuck on the “T”s acronyms during this current economic downcycle. First it was Troubled Asset Relief Program (TARP). Then it was Term Asset-Backed Securities Loan Facility (TALF). The next big acronym could be Toxic-Assets Bought By Investors. (TABBI).

In pre-market trading, it appears that Mr. Geithner was successful in relaying the administrations plans to correct some of our economic ills. This was not the case back on February 10, 2009 when the Dow declined 380 point decline as investor expressed disappointment following the administration’s initial outline for overhauling the bank rescue program.

The full text of Mr. Geithner’s statement is available on the Treasury Department’s web site.

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Comment by Carl Lewis

2009-03-24 13:00:46

Write your congressman! The Detroit Big 3 (Who are fronts for the oil companies), the banks (Who conduit the oil company money) and AIG (who keeps the oil companies protected) were handed “money in a sack” within a few days with no questions asked, no application and no review process but the alternative energy people, ie: wind, solar and electric cars must pay massive fees, file thousands of pages of paper and wait years to see if they MIGHT get some money. It seems as if there is an intentional program going on to delay alternative energy. Already, multiple solar companies that were waiting for that money have been forced to go out of business by the delay and most of the electric car companies are going to die soon too.

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Comment by Auto Forex

2009-03-24 19:32:19

thanks for the great info. i will use this tips on my next trading session.

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