- Jun 6, 2007
- 852
- 483
- 910
The U.S. government is scheduled to announce tomorrow the specifics of its programs to take toxic assets off the balance sheets of banks. This is important because it will give banks more capital to lend and it will make them more investment suitable to private investors so banks can readily raise capital and fulfill the American economy's needs to have credit readily available. The details of the government programs have not been publicly disclosed but enough is known to give a cause of concern to ordinary Americans. It really looks like Administration officials behind this program are not acting like good business people with this program. The thrust of these programs is to facilitate the private sector buying these toxic assets from banks which is a good strategy in and of itself. The problem is that if after the purchase of these toxic assets from banks the toxic assets drop in value the U.S. government is going to be absorbing an inordinate and a huge portion of the economic loss involved, the private investors will only receive a minimal economic hit and that is not right, or fair to the U.S. taxpayer. The American people can't afford to lose tens of billions of dollars on this program. The splits on economic losses in this program have to be equitable.
On this public-private partnership program where the U.S. government and the private investor each put up fifty percent of the capital to buy toxic assets and split the profits from the ultimate sale of the toxic assets fifty-fifty, if the toxic asset falls in value and ultimate is sold for a loss the private investor has to incur at least ten percent of the loss, otherwise it is not fair to the taxpayer, otherwise the program is just a money making scheme for private industry which is wrong. On this program where the government makes no recourse loans to private investors for 85% of the cost of a toxic asset purchased and the private investor puts up the other 15 %. If that toxic asset drops in value, the private investor has to at least incur two-thirds of the economic loss because if their asset increases in value the private investor gets one hundred percent of the profit therefore it is only fair the private investor should shoulder the brunt of the loss if their is a loss especially in light of the fact that the government has put up 85 % of the money so that if the toxic asset ultimately drops dramatically in value like forty or fifty percent when it is sold the U.S. government losses on this matter will dwarf the private investors losses.
It is also very important that these private investors be on the line to incur meaningful portions of an economic loss in the buying of these toxic assets from banks if there is a loss because the nation needs private investors here that know what their doing and are prudent the nation can't afford to have these private investors here over paying for these toxic assets and ultimately losing money in these activities. This feature making the private investors share very significantly in economic losses in these programs will give them the needed incentive to invest prudently in the buying and selling of these toxic assets.
If the TALF program is expanded for toxic assets so that the program's requirement to only loan money for triple A rated securities is scuttled when it comes to toxic asset securities on banks balance sheets the U.S. government better add one condition here and that is it will only loan 85 % of the purchase price of the toxic asset security to be purchased the hedge fund or other private entity will have to put up the other 15% of the purchase price. The U.S. government needs that protection here, these toxic asset securities especially residential real estate toxic asset securities are hugely speculative with the number of these loans which are underwater or are not really affordable to the burrowers, etc.. The government needs this 15% cushion to protect against losses.
If the administration is really serious about solving this extremely important trillion dollar toxic asset problem on the nation's banks books it will make the following bold statement about the anger that the American people feel about the AIG bonus fiasco and the war path it has put Congress on over Wall Street bonuses; the fallout from Washington's reaction to this bonus matter could affect the government's toxic asset programs it could scare away private investors fearing Washington can't be trusted they will change the rules of the program. President Barack Obama should come out and say I am vetoing this legislation the House passed taxing bonuses at 90% and the Senate version of the bill. These bills are too broad they are undermining the crucially important work the U.S. government is trying to do in fixing our nations credit markets and stabilizing our nation's financial industries. The Congress with these initiatives it is clear is harming the nation the backlash and the opposition from the financial industries over this matter is deafening.
The White House needs to stop acting like this is their last chance to fix the bank problem for the nation. They need to stop letting Congress and the media shape the whole national conversation in the manner that it is solely the White House's problem to get the toxic assets off the nation's banks books and insure they are well capitalized, it is Congress's job too. This perspective appears to be turning the White House away from being good stewards of the taxpayers money when it comes to fixing the banking system and is moving them to give the whole store so to speak to the private sector in hopes they will solve it for them. The White House needs to stop their desperation here, if they have to go back to Congress to get Congress to appropriate more money to re-capitalize banks so be it, they should fight that war before they declare that war lost.
On this public-private partnership program where the U.S. government and the private investor each put up fifty percent of the capital to buy toxic assets and split the profits from the ultimate sale of the toxic assets fifty-fifty, if the toxic asset falls in value and ultimate is sold for a loss the private investor has to incur at least ten percent of the loss, otherwise it is not fair to the taxpayer, otherwise the program is just a money making scheme for private industry which is wrong. On this program where the government makes no recourse loans to private investors for 85% of the cost of a toxic asset purchased and the private investor puts up the other 15 %. If that toxic asset drops in value, the private investor has to at least incur two-thirds of the economic loss because if their asset increases in value the private investor gets one hundred percent of the profit therefore it is only fair the private investor should shoulder the brunt of the loss if their is a loss especially in light of the fact that the government has put up 85 % of the money so that if the toxic asset ultimately drops dramatically in value like forty or fifty percent when it is sold the U.S. government losses on this matter will dwarf the private investors losses.
It is also very important that these private investors be on the line to incur meaningful portions of an economic loss in the buying of these toxic assets from banks if there is a loss because the nation needs private investors here that know what their doing and are prudent the nation can't afford to have these private investors here over paying for these toxic assets and ultimately losing money in these activities. This feature making the private investors share very significantly in economic losses in these programs will give them the needed incentive to invest prudently in the buying and selling of these toxic assets.
If the TALF program is expanded for toxic assets so that the program's requirement to only loan money for triple A rated securities is scuttled when it comes to toxic asset securities on banks balance sheets the U.S. government better add one condition here and that is it will only loan 85 % of the purchase price of the toxic asset security to be purchased the hedge fund or other private entity will have to put up the other 15% of the purchase price. The U.S. government needs that protection here, these toxic asset securities especially residential real estate toxic asset securities are hugely speculative with the number of these loans which are underwater or are not really affordable to the burrowers, etc.. The government needs this 15% cushion to protect against losses.
If the administration is really serious about solving this extremely important trillion dollar toxic asset problem on the nation's banks books it will make the following bold statement about the anger that the American people feel about the AIG bonus fiasco and the war path it has put Congress on over Wall Street bonuses; the fallout from Washington's reaction to this bonus matter could affect the government's toxic asset programs it could scare away private investors fearing Washington can't be trusted they will change the rules of the program. President Barack Obama should come out and say I am vetoing this legislation the House passed taxing bonuses at 90% and the Senate version of the bill. These bills are too broad they are undermining the crucially important work the U.S. government is trying to do in fixing our nations credit markets and stabilizing our nation's financial industries. The Congress with these initiatives it is clear is harming the nation the backlash and the opposition from the financial industries over this matter is deafening.
The White House needs to stop acting like this is their last chance to fix the bank problem for the nation. They need to stop letting Congress and the media shape the whole national conversation in the manner that it is solely the White House's problem to get the toxic assets off the nation's banks books and insure they are well capitalized, it is Congress's job too. This perspective appears to be turning the White House away from being good stewards of the taxpayers money when it comes to fixing the banking system and is moving them to give the whole store so to speak to the private sector in hopes they will solve it for them. The White House needs to stop their desperation here, if they have to go back to Congress to get Congress to appropriate more money to re-capitalize banks so be it, they should fight that war before they declare that war lost.
