Obama Administration Reveals Details of Bank Bailout Program – Toxic Assets Will Be Auctioned Off With Taxpayers Sharing Risk
(Best Syndication News) The Dow Jones spiked Monday after more details about Obama’s Wall Street Bailout plan were released. The U.S. Treasury plans on buying up to $1 trillion in toxic assets from the banks, but some economists wonder if this will solve the credit crisis. Jagadeesh Gokhale with the Cato Institute says the plan is poorly designed and its implementation appears panicky.
In a joint statement from the Federal Reserve and the U.S. Treasury, they say that their plan reflects the common views of the government and the central bank on the appropriate roles of the Federal Reserve and the Treasury during the current financial crisis. This is sparking concerns that this policy is setting a precedent for future government takeovers.
Gokhale says the “current interventions in market processes and institutions could become permanent, to the probable detriment of the nation's long-term economic prospects.” Whenever there is a perceived crisis, the role of government may be to squirt money at the problem.
Recent reports suggest that the money provided to AIG went directly to large hedge funds and international speculators who purchased the credit default swaps. So far there has not been a complete accounting of the swaps or who needs to get paid. The couple hundred million owed to upper middle class employees at AIG has become a Red Herring to divert attention from the trillions of dollars being funneled to the Swap speculators.
Wall Street investors are buying the good news with a Dow jumping 497 points to 7,775.86. There were nearly 516,000 Dow shares traded on Monday, where the average for the past 30 days was 452,000.
This program is better for investors than the TARP program. The banks are able to sort through their assets to determine which ones they want to unload. The plan, dubbed the Public-Private Investment Program, will require the FDIC to conduct an analysis to determine the amount of funding it is willing to guarantee.
The Toxic instruments will be pooled together and auctioned off. The highest bidder will “have access to the Public-Private Investment Program to fund 50 percent of the equity requirement of their purchase”.
If the seller agrees to the purchase price the buyer would receive financing by issuing debt guaranteed by the FDIC. The FDIC-guaranteed debt would be collateralized by the purchased assets and the FDIC would receive a fee in return for its guarantee.
Gold and silver fell slightly on the COMEX Monday, but oil and natural gas were higher. May Light Sweet Crude Oil futures closed at $53.80 a barrel.
By Dan Wilson