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The issue was that there were willing buyers of asset backed securities but they couldn’t get the financing (no one wants to use 100% equity) until the Fed stepped up today and said they’d loan the money. In all likelihood, this will raise the prices of such securities a bit on the bank balance sheets.
I don’t know how many of you heard this at the party but it turns out that etson & I work on the same floor of this building, different companies altogether though. We were both quite surprised to see each other as we’ve passed in the coffee room and always said hello.
But the implication in the FDIC financing is that the investors actually get them at an implied discount to what they are currently held at the banks, no??
To add to DIBS’ comment – the main issue still to be worked out is the valuation of the assets themselves, i.e. at what price they will be purchased by the public / private joint venture from the banks.
The market already expects the value of the assets generally to be lower than the banks currently have them on the balance sheet for, the question is how much the writedowns will be, and whether the banks will have enough capital thereafter. The issue that the plan is seeking to accress is that the market does not have any certainty on how much the banks’ balance sheets overstate the value of these assets.
The plan will fall apart if the buyers (govt / investors)and sellers (banks) can’t agree on prices for the assets. On the other hand if a large amount of assets get bought close to where the banks have them marked on their balance sheets it will help return confidence to the system.
The FDIC is guaranteeing loans to the buyers – so in effect the government is investing directly in part and backstopping the private investors in part. In effect the private buyers would be betting that the default rate on the assets (i.e. loans) they buy will in fact turn out be less than the level implied by the prices at which they buy them.
Hope that doesn’t repeat too much stuff that people already knew.
Wow, took a long time for today’s market news to hit this site. A lot of news on team Bull’s side. Market very positive about today’s announcement. Not to mention China, and the 5% uptick in home resales. Even what is expressing merely the fear that Treasury’s plan might not work, rather than predicting its utter failure. Not that I’m prognosticating. I’m just surprised everyone is so quiet about it today.
Meanwhile, what, with respect to FDR, are you saying FDR’s first term new deal prolonged the depression, or are you referring to his second term when FDR took his foot off the gas and slammed the brakes? In your view, should FDR have done less or more to invest in the economy and stabilize the banks? And do you think Obama’s efforts to date are more like FDR term 1 or 2? What do you propose he do differently?
“east new york – i was b.s.ing about the history of mayo. just trying to defend it b/c i like it, and work for the biggest manufacturer of mayo (that part is true)”
No problem – I just like throwing around the term “Eurotrash” whenever impressive European royalty is mentioned. It makes Snappy laugh!
The issue was that there were willing buyers of asset backed securities but they couldn’t get the financing (no one wants to use 100% equity) until the Fed stepped up today and said they’d loan the money. In all likelihood, this will raise the prices of such securities a bit on the bank balance sheets.
I don’t know how many of you heard this at the party but it turns out that etson & I work on the same floor of this building, different companies altogether though. We were both quite surprised to see each other as we’ve passed in the coffee room and always said hello.
Thanks etson, I appreciate that – I listened to a discussion this morning, but it wasn’t really clear to me ‘how’ it would work. I think I get it now.
But the implication in the FDIC financing is that the investors actually get them at an implied discount to what they are currently held at the banks, no??
To add to DIBS’ comment – the main issue still to be worked out is the valuation of the assets themselves, i.e. at what price they will be purchased by the public / private joint venture from the banks.
The market already expects the value of the assets generally to be lower than the banks currently have them on the balance sheet for, the question is how much the writedowns will be, and whether the banks will have enough capital thereafter. The issue that the plan is seeking to accress is that the market does not have any certainty on how much the banks’ balance sheets overstate the value of these assets.
The plan will fall apart if the buyers (govt / investors)and sellers (banks) can’t agree on prices for the assets. On the other hand if a large amount of assets get bought close to where the banks have them marked on their balance sheets it will help return confidence to the system.
The FDIC is guaranteeing loans to the buyers – so in effect the government is investing directly in part and backstopping the private investors in part. In effect the private buyers would be betting that the default rate on the assets (i.e. loans) they buy will in fact turn out be less than the level implied by the prices at which they buy them.
Hope that doesn’t repeat too much stuff that people already knew.
Wow, took a long time for today’s market news to hit this site. A lot of news on team Bull’s side. Market very positive about today’s announcement. Not to mention China, and the 5% uptick in home resales. Even what is expressing merely the fear that Treasury’s plan might not work, rather than predicting its utter failure. Not that I’m prognosticating. I’m just surprised everyone is so quiet about it today.
Meanwhile, what, with respect to FDR, are you saying FDR’s first term new deal prolonged the depression, or are you referring to his second term when FDR took his foot off the gas and slammed the brakes? In your view, should FDR have done less or more to invest in the economy and stabilize the banks? And do you think Obama’s efforts to date are more like FDR term 1 or 2? What do you propose he do differently?
“east new york – i was b.s.ing about the history of mayo. just trying to defend it b/c i like it, and work for the biggest manufacturer of mayo (that part is true)”
No problem – I just like throwing around the term “Eurotrash” whenever impressive European royalty is mentioned. It makes Snappy laugh!
Que the Monday Blogwrap and the “Pantsless woman” story^^^^^^^
I know Mopar 🙁 it’s so much money for some candy but sometimes I just gotta do it. I love those.