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A Trillion Here, A Trillion There

Mar 25, 2009
The $780 billion in bank bailouts and the $180 billion in the A.I.G. bailout having failed to deliver one degree of thaw to the credit freeze, the government will now step in and supply up to $1 trillion to purchase bad mortgages and related paper—the famous “toxic assets”—from those same institutions which have been so busy incurring our impotent wrath by distributing big bonuses from our wallets.1

The $1 trillion will be made available as loans to hedge funds and other cowboy financial investment institutions, providing them with up to 97 percent of the money necessary to purchase, at auction, packages of these troubled assets. The buyers won’t be required to put up any collateral other than the toxic assets themselves, and the government refuses to say how much interest they will charge the investors or reveal other details of the plan. The potential payoff—interest on the loans and participation in the profits from resales—could be many years down the road.

To date, investors haven’t been willing to pay more than about 30 cents on the dollar for these assets, and the banks haven’t been willing to sell them for less than 60 cents. The banks’ participation in this plan will be voluntary, so it is difficult to see how a significant portion of the assets will change hands, even when the buyers are purchasing them with borrowed money (ours). It is also difficult to believe that even if the banks do get these assets off their books that they will suddenly be willing to start performing their primary function of granting loans as opposed to bucking up their reserves, adding to their empires through the purchase of smaller and even more troubled institutions, handing out more bonuses, etc., etc., which is all the bailout money has prompted them to do. (Note to Obama: Why not take the $1 trillion and start making low-interest loans direct to the individuals and businesses that need them rather than handing over all that cash to the same reckless gamblers who landed us in this economic hellhole?)

Meanwhile, Glass-Stegall, like Generalissimo Francisco Franco, is still dead. And no significant regulation legislation is pending before either house of Congress. The foxes (Summers, Geithner) are still in charge of the henhouse, transparency continues to elude an administration which has gone hoarse guaranteeing it, and if there is a light at the end of this tunnel, let us hope it is not the 3:10 from Yuma, bearing down on what little remains of our hopes, our dreams, and our 401k’s.
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1 Toxic Asset Plan Foresees Big Subsidies for Investors, by Edmund L. Andrews, Eric Dash, and Graham Bowley, from the New York Times, Mar 20, 2009, accessed Mar 22, 2009.
tags: Governance | Economics

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