Comments on: Let the People In

By: Let the People In « The Curmudgeon

Let the People In « The Curmudgeon — Fri, 27 Mar 2009 02:44:52 +0000

[...] Kwak has more support in the rest of the article. [...]

By: Bayard

Bayard — Tue, 24 Mar 2009 03:45:38 +0000

There is an awful lot of speculation here. We really won’t be able to draw any conclusions at all until we see how this sifts out. I suspect that the amount of investment from the private sector, if in fact they can find a reasonable price level, will not be money that they expect to lose (i.e. billions), and, even with the amount of available leverage, will expect to get a “net” on their money of at least 50%. This is what they expect, and unless the pricing is favorable enough (after a determination of the “actual” estimate of value), they just won’t do it. After all, the duration and management costs will probably be fairly high – at least 10% – that is entirely borne by them. I don’t see the issue as risky for the taxpayer, because the investors will be very smart not to get into a shaky deal, if that is their perception. After all, they are not even concerned about the government’s risk profile, only theirs.

I am somewhat skeptical that, after all is said and done, these partnership will actually buy very much. Geithner is hoping for a trillion of toxic assets. It think if they actually succeed in getting the banks to slough off half of that, it will be a success.

By: Patrick

Patrick — Tue, 24 Mar 2009 01:50:06 +0000

Even if they were to allow me to invest, as an individual investor without a huge amount of capital, going in for these loans is still a big risk.

If they want to make the proposition attractive to normal people, I think that the investment needs to be structured like an investment fund. That way I can just drop my money into a pool with a lot of other small fish, and we may have a large enough school to swim with the big fish.

By: Anonymous

Anonymous — Tue, 24 Mar 2009 01:27:58 +0000

The application for private asset managers for the legacy securities program says that “The Applicant must note whether, and if so how, it plans to structure the Fund to facilitate the participation of retail investors in the Fund.” Clearly this will be an important factor in evaluating applications.

The leverage for the securities program will come from the TALF (i.e. the Fed).

Why do people keep saying that the purchasers will grossly overpay for assets because of the leverage? The private investors and the Treasury will share (50/50) a first-loss position on the assets. If the assets are overpriced then the private investors and the Treasury will lose their entire investment before the lender (FDIC or Fed) loses anything. Certainly, the leverage will magnify potential returns, which might be worth a little extra risk (=slightly higher price) for investors, but the investors will not just put their entire investment at risk because the lender might also lose money.

The more you study this plan the better it looks for taxpayers (and the worse for existing bank shareholders when the banks sell the assets at a loss).

By: vimothy

vimothy — Tue, 24 Mar 2009 01:04:30 +0000

It doesn’t sound like a terrible idea to me. Maybe some people are now more interested in hurting the banks than increasing employment. If the programme can be considered like a CDO, then the private investors have the equity tranche. Their reward is greater than the taxpayers, because they will bare the first losses, and could lose all of their capital. They have an upside so that the process works. This way they will not mismanage or overpay for assets. The taxpayer has less upside, but the taxpayer is not trying to make money. The taxpayer is trying to raise employment.

By: 盖特纳公布剥离有毒资产方案细节 « Heard on wall street

盖特纳公布剥离有毒资产方案细节 « Heard on wall street — Tue, 24 Mar 2009 00:16:33 +0000

[...] Scenario: 将银行拆开（Simon Johnson），让散户也参与进来（James Kwak）。这一次我不说是补贴（James [...]

By: Andrew Goldberg

Andrew Goldberg — Tue, 24 Mar 2009 00:09:09 +0000

1) You can get a similar deal through the TALF. There is a $10 million minimum.
2) The difficulty in offering this deal in a fund for individual investors is that Federal securities law prohibits more than 33% leverage.

By: spinchange

spinchange — Mon, 23 Mar 2009 23:42:06 +0000

RE: F. Blair

The paper clearly says that only *5* funds will be allowed to participate directly. It lays out criteria to become one of the managers. (10 billion under management, ability to raise 500 Million or more, etc, etc)

My guess is that PIMCO will be one of the 5 involved. They will sell various classes of shares in this new venture that will be available to all the types of investors mentioned.

The small or individual investor does NOT and will not have direct access this financing like a PIMCO, BlackRock, or a Goldman Sachs, will.

They will sell pieces of it to us.

The US taxpayer is essentially financing and subsidizing the creation of an entire new secondary mortgage market.

By: Geithner 2.0 « Blogging Through the Wreckage

Geithner 2.0 « Blogging Through the Wreckage — Mon, 23 Mar 2009 21:39:24 +0000

[...] plan, which takes as its starting point the way the plan would subsidize the private institutions (not individuals) that would buy those toxic assets. Reportedly the subsidy would take the form of [...]

By: Home Improvement Help

Home Improvement Help — Mon, 23 Mar 2009 19:47:06 +0000

[...] Let the People In « The Baseline Scenario [...]

By: j-swift

j-swift — Mon, 23 Mar 2009 19:17:25 +0000

PPS
I’m assuming the auction mechanism is a
simple “highest bidder” setup,
but I don’t see any other mechanism
that would get around my scheme.

By: F. Blair

F. Blair — Mon, 23 Mar 2009 19:01:32 +0000

James, individuals are allowed to buy in. From the White Paper: “The program will particularly
encourage the participation of individuals, mutual funds, pension plans, insurance companies,
and other long-term investors.” I’m not sure how, but the plan is clearly meant to encourage participation from all sorts of investors.

By: Heads-Up « Taunter Media

Heads-Up « Taunter Media — Mon, 23 Mar 2009 18:38:10 +0000

[...] 23, 2009 by Taunter The Baseline guys have a modest proposal which is quite reasonable – why not let individual investors buy the equity for these toxic assets? [...]

By: polit2k

polit2k — Mon, 23 Mar 2009 18:28:13 +0000

Rumor: PK says TG loves him but TG doesn’t want to talk to JK or SJ until they say nice things about his plan.

By: j-swift

j-swift — Mon, 23 Mar 2009 18:21:15 +0000

If i have a bunch of toxic bonds,
why shouldn’t I just sell them to myself (possibly thru a front
organization) at a very high price, so that I
pocket everything but 6%,
courtesy of the US govt??

Or I can agree to buy, at a very high price,
from someone else who holds such bonds
if he will buy mine. In any case its going to be the
very same banks buying these up, that are holding the toxic stuff, so this is not just a farfetched possibility.

The subsequent evolution of the bond’s value is of no interest
to the auction buyers or sellers. they can comfortably write off the 6%.

PS
Individuals without alot of toxic assets
would only lose in this scenario.