monday, march 23, 2009
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Is Everybody Happy?
With the Obama / Geithner toxic assett fire sale?


Results Mixed. What we know so far is that the market is happy, to judge by a 500 point jump, and that Paul Krugman is not, for reasons unclear, but initially appearing strangely moralistic...let us soon see if I have jumped the gun and must eat crow. I will post the articles and them read them as posted. You'd think I would do it the other way around, but no. See how I am?
BBC NEWS Business US unveils $1tn toxic asset plan
Nobel Winners Spence, Krugman Clash on Geithner Plan Prospects - Bloomberg.com

Thanks to the BBC for retreiving this summary:
How the Plan Will Work
Bank seeks to sell pool of mortgages worth $100
Private auction decides that asset is now worth $84
Private investor and government put up $6 each
They then borrow remaining $72 from government
That loan is guaranteed against any losses
If asset is later sold at higher price, government makes profit and private investor pays back loan and pockets profit.
If asset is sold at lower price, government and private investors could lose initial investment.
Source: US Treasury
This plan appears to me an ingenious blend of public/private powers working in harmony. I would think that it would have great potential to unlock the credit markets without giving away the store, which appeared to be the direction we were headed initially. By that, I simply mean that the plan does the essential thing; it begins to move the money. Better, it moves it in such a way that the taxpayers have fairly good potential to limit further liability, retreive some lost revenue and begin to benefit from increased available credit. So not a bad outcome.

Interestingly, Paul Krugman, who has been like a crotchety uncle since November, now seems upset primarily because we didn't follow the Swedish model of some years ago, in which assets of defunct corporations were taken outright, leading to stabilization.

So apparently, while the right wing is foaming at the mouth because of Obama's 'Socialist agenda,' Krugman is mad because the president isn't buying it. Swedish-style Socialism, that is. The dread of the right for decades has been the fear that we will slide into SOCIALISM, and now with the sliding board of history ready for the plunge, that calm-acting, middle-way follwing, garden-weeding president of ours, goes and acts like a person of reason and high intelligence, and comes up with a workable non-socialistic solution. Dang his hide.


DHL