Some surprising things about Geithner's bailout plan, according to Seeking Alpha blog.

[EmilyAnne]

"The FDIC will charge for its guarantee."

"If the FDIC ends up losing money on this deal, it will make up those funds with an assessment on total bank liabilities. In other words, the banking system in general will be asked to cough up the losses, rather than the US government."

"Even if a public-private partnership and a bank come to agreement on a price for transferring the toxic assets, the FDIC can still veto the deal."

"The amount of leverage that the government allows with respect to any given asset is going to be a function of the perceived safety of that asset: maximum leverage won't be applied willy-nilly to everything."

"Regulators will push banks to mark their assets to the prices set by the auctions, even if they choose not to sell their assets at those auctions. That will accelerate failures of insolvent banks -- and if an insolvent bank is going to fail, it's better that it does so sooner rather than later."

I haven't heard any of these points before.
What do you guys think?

Has anyone read the actual text of the proposal?
I have been googling and haven't found references to some of the more detailed points, especially the one about the FDIC recouping losses from the banking system.

Here's the link:
http://seekingalpha.com/article/127860-the-complexity-of-the-bank-bailout-plan

[AndyA]

1. I haven't heard any of these points.

If true, it seems to be much more favorable to the American taxpayers than I had previously thought. Which may be why our M$M isn't reporting it...to do so would make the deal look better to the American public.

Accuracy is not a requirement when reporting the news today. That's why we need legislation to hold media companies responsbible for inaccurate or intentionally deceptive reporting.

[EmilyAnne]

2. Well, I am wondering if these came from an insider who has seen the actual text of the plan.

Have you seen the text anywhere?
I'm sure its massive and full of all kinds of hyper specialized jargon.
I'd still like to see the points in my OP backed up by some kind of official announcement.
Maybe they have been, but I've missed it in all the noise?

[elleng]

9. They'd have to READ it to report it.

.

[vaberella]

23. That's sarcasm right? Cause we know they don't spend time reading anything. n/t

[elleng]

25. Yes, didn't think 'SARCASM' sign was necessary.

.

[vaberella]

32. Sometimes it helps....

I'm deficient in picking up on it quick.

[EmilyAnne]

26. Then it sure as hell better not be boring. Nor too light hearted. Nor too professorial.

[ayeshahaqqiqa]

17. AMEN!

I'm sick of so-called "news" shows "reporting" misinformation as fact.

[KittyWampus]

27. Allowing AIG to continue to exist IS NOT FAVORABLE TO THE AMERICAN TAXPAYER

what is wrong with DU'ers that they are so freaking obtuse?

Geithner's plan is structured with its prime objective to save AIG and to make sure its shareholders don't go bust.

[EmilyAnne]

28. Email this to Krugman. Apparently, he hasn't had such a realization.

There is nothing wrong with this discussion.
We are just brainstorming.
No need to call any of us obtuse.
This is complicated stuff with all sorts of major implications.

[AndyA]

31. Did somebody wizz in your Wheaties this morning?

I said it was MORE favorable to the American taxpayer.

Big difference. HUGE DIFFERENCE.

[Beetwasher]

37. No It's Not, It's Structured So That AIG Can Be Given A CHANCE

To unload some of it's weaker assets and stave off collapse. In the meantime the admin. has asked for expanded powers to nationalize institutions like AIG, which they currently DON'T have. So if they're still insolvent after the auction, the can be nationalized.

[Kalyke]

39. Legislation to hold media companies responsible?

:rofl:

We don't need legislation for that. People can already sue for libel and/or slander.

What we need is legislation forbidding the hording of media outlets by just a few companies. The way to hold media accountable for inaccuracies is to provide stiff competition - the public will purchase the more accurate newspaper or listen to/watch the accurate newscasts IF they're given the opportunity.

For example, we have nothing but right-wing media in Tennessee. I had to end up getting satellite to have a choice and it really shouldn't be like that. I shouldn't have to pay to hear accurate reporting.

[AndyA]

40. Yeah, people sue for libel and/or slander all the time, right?

And it gets stuck in the legal process for years, costs a fortune, and as a result those media companies are very careful about what they say, right. :eyes:

I kind of envisioned legislation that would cover it all: ownership limits, fairness in reporting, truth in reporting, identifying commentary when its not news that's being reported, etc. It would all need to be addressed in order to be effective.

But what we have now isn't working.

[westerebus]

3. Charge who?

Let's see, we own AIG, BoA, Citi, and have billions invested in all the other majors. So who are we going to charge?

[acmavm]

5. Who usually gets stuck with the bill for big business?

You and me in the end.

[EmilyAnne]

7. I believe the investors will be charged in this situation.

[acmavm]

8. The investors? Really? I can't wait to see that happen.

Oh wait, who's the biggest investor here?

The American taxpayer. We've invested everything we've got, everything our kids will have, and their kids are SOL too.

[EmilyAnne]

11. No. I am talking about the private investors. I am in the same boat as you are, believe me.

This whole thing really gets under my skin and stays there.
I'm just trying to figure this out. The actual details that don't seem to have been covered much in MSM.

[acmavm]

14. It's intentional. They never give you the 'details' until its too late.

[EmilyAnne]

6. The investors?

[westerebus]

12. We get to pay twice or is it thrice?

The banks are selling junk and making money on junk and we are underwriting the loan and making the payout when the junk turns out to be JUNK.

The investors of the junk get paid by the tax payers.

[EmilyAnne]

18. Then the disagreement is over "junk." Are some assets junk? All of them?

Is the govt. going to just buy up all the junk, some of the junk, none of the junk?

It seems that people are making criticisms based on a particular scenario.
That all risky assets are junk and that the government has somehow agreed to buy all of it with the help of private investors who suddenly don't care about making profits so they won't really push for low enough prices.

[alcibiades_mystery]

4. Like you, I haven't seen some of these

I think the basic disagreement falls out along a very specific axis:

Those who dislike the plan don't think the FDIC will be able or willing to exercise due diligence and oversight, while those who (grudgingly) accept the plan do. So I like this:

"Even if a public-private partnership and a bank come to agreement on a price for transferring the toxic assets, the FDIC can still veto the deal."

"The amount of leverage that the government allows with respect to any given asset is going to be a function of the perceived safety of that asset: maximum leverage won't be applied willy-nilly to everything."

Yes, of course that is how it MUST work. Any non-recourse loan must be based on a careful assessment of the applicable collateral. Those who oppose the plan say "No, the FDIC can't do that, or won't do that." I'm not sure the matter can be settled outside of seeing the mechanics of due diligence actually working in practice. Just for some reference, I worked on asset backed security deals in the late 1990's and early 00's, even some rather tortured ones. We always, always, always (as counsel for the underwriters) conducted significant due diligence on the assets backing the bonds, to the extent of going lien by lien and loan by loan through some of those assets (for example, on a bond backed by loans on Mack-type trucks). I remember staying up late into the night examining each loan and lien in detail. Needless to say, no closing documents were prepared until we were clear on that collateral. I know that the MBS assets are perhaps not as clearly delineated (carved up in percentages and whatnot), but due diligence on the underlying assets is always theoretically possible, and I fail to see why it should be practically impossible.

[westerebus]

19. Theoretically possible?

Like life on Mars? I'll bet life on Mars for a $ trillion. OTC derivatives? Pass.

[alcibiades_mystery]

20. The second part of the sentence is where you should have been aiming

"...and I fail to see how it would be practically impossible."

You can always do due diligence on assets. Why you can't do it in this case is unclear to me. Clear it up.

[westerebus]

22. Got it.

:-)

[Beetwasher]

35. FINALLY Some People Are Starting To Get It

I know YOU'VE gotten all along, but I feel like I've been banging my head against the wall here for the last several days.

It IS a workable plan, with caveats of course.

[jeanpalmer]

10. The Treasury has put a fact sheet on its website

It doesn't mention any of the above details, except that the FDIC will charge a fee for its guaranty. "The FDIC-guaranteed debt would be collateralized by the purchased assets and the FDIC would receive a fee in return for its guarantee." http://www.treas.gov/press/releases/tg65.htm

[EmilyAnne]

13. I looked at that earlier when I was trying to find back up for these points and, like you, I only

found reference to the fee. Nothing about veto power and nothing about losses being covered by the banks.
I was hoping someone here would be able to back them up because the editorial is pretty optimistic.

[alcibiades_mystery]

15. Veto power is implicit in the notion of a non-recourse loan

If a loan is non-recourse, then the lender has the implicit power (and duty) to examine the strength and relevance of the collateral.

[ayeshahaqqiqa]

16. These are good points

and I agree, better to have the insolvent banks die now than later. Like the idea of the FDIC charging the banks, because it was the banks that got us into this mess.

[uponit7771]

30. Yeap, especially when some of these guys are saying their profitable without mortgage loses

[vaberella]

21. You won't get much here besides Krugman saying it's crap so then it must be crap.

Nobel Laureate and all that...

[jeanpalmer]

24. The former co-president of Morgan Stanley

was on CNBC this morning. He doesn't like Geithner's plan of giving money to banks. He said banks will simply hoard it. He said the big problem right now is the deleveraging of debt by businesses and individuals, and it doesn't make sense to funnel money to banks with the idea of getting people more leveraged. He'd like to see the money go out directly to the people as stimulus. It would have more of an immediate impact and we would see a multiplier effect, something we won't see under Geithner's plan. That made sense to me.

[vaberella]

33. Geithner's plan hasn't come out yet though.

People are picking up on a few things he's said but haven't read the plan.

[Beetwasher]

36. Huh? How Can They Hoard A Loan That's Specific To Buying Assets?

That makes no sense.

[amandabeech]

41. The selling institutions may hoard the cash that they get from the sale.

However, financial institutions receiving bailout money have not been using the money to back lending.

Some have hoarded, but others have either squandered or done acquisitions.

This plan does not require the sellers to use the proceeds for specific uses, which is a fault that many saw with the TARP.

[Beetwasher]

42. That Wasn't Clear In Your Post

Well, the main goal of the plan is meant to clear these assets off their books. If the sellers can do that and regain solvency, then there's no reason why they wouldn't get back to lending, that's what they essentiallly exist for. But I guess that's a risk, and there's risk in any plan.

[amandabeech]

43. You'd think that banks were in business to lend money, but they're in business to make money

for their stockholders.

Since most are bank holding companies, there are lots of ways to make money besides vanilla lending.

If you've seen a cite to a real uptick in lending, I'd surely be interested in reading it, since Geithner is putting this plan out there to induce banks to lend just like earlier plans.

Until this morning, Geithner's plans with the banks has been to encourage them to make loans. I would say that he sees liquidy as the most important problem right now.

[Beetwasher]

44. That's The End Goal And We'll See-It IS In Their Best Interest To Do So

as that IS how they make money.

[amandabeech]

45. In ordinary times for banks, not necessarily bank holding companies.

I guess that we disagree here.

[Beetwasher]

46. ?

:shrug:

If they want to make money, they gotta lend. Otherwise they will remain insolvent and be nationalized. It's the unstated threat behind all of this.

[amandabeech]

47. We don't see this issue the same way,

and I don't see anything for either of us to gain by continuing this discussion.

[Beetwasher]

48. LOL! Ok, Whatever

Banks lend money. That's what they're supposed to do. If they don't, they fail.

[EmilyAnne]

50. If banks hoard money, they will be nationalized. So, I think you are correct about this, Beet!

[Beetwasher]

51. It's The Unsaid Underlying Threat And Motivation

Play ball or we nationalize your ass. And we may anyway if necessary.

[leftofthedial]

29. if these quotes are true about the FDIC,

then why are they involved in the plan at all?

[Cronopio]

34. "The FDIC will charge for its guarantee."

Yes, it is well known that the FDIC is largely funded by the premiums it charges to covered banks. Adding an undefined "fee" to this unnecessary and suspicious - the FDIC can already increase the premiums the cover shortfalls in its reserve.

Remember that the FDIC is being explicitly told to not perform it's charter of placing ALL banks that are near insolvency into receivership. Only some, and in such a way as to reduce the alternatives to the larger banks.

So just because the FDIC can collect a fee and do collect premiums from the banks doesn't mean that that is what will happen. The fee may be negligible. As usual, Geithner's long-drawn-out striptease in providing the details is the main reason it is best to be agnostic about any expectations.

The only guarantee the plan currently offers is that risky assets will be taken off of the Big Four's hands and given to the government.

[Beetwasher]

38. "I haven't heard any of these points before."

Then you haven't been reading any of MY posts! ;)

I have been making a lot of these points lately (not all of them but many of them)

[SpartanDem]

49. The more I read

about the plan I tend to think that it's not as bad as some people are making it out to be.

[underpants]

52. They are establishing the market for mark-to-market accounting

I like this very much

[genna]

53. EmilyAnne thank you for the substance.

I think most people think spin, not substance. I heard Nora O'Donnell tearing up Dr. Dean and someone from inside the WH, trying to start a ridiculous meme about the Senate's version of Obama's budget plan being a two babies with different daddies (sigh). It didn't matter that she couldn't erect her bullet points delineating which parts of the plan were horrible.


I honestly think if we don't get to the point where we can argue the substance, the argument itself becomes a loser. If we have to deal with Wall Street to the hindrance of health care, climate regulation, and education reform, then we need to know how much money the Obama administration stands to gain on the deal which will insure those 3 things do go forward.