Are We Being Blackmailed by Financial Conglomerates?
Banks may be holding out for the taxpayer, via Treasury, to purchase the toxic assets for much more than what they would get in the private markets. Treasury Secretary Geithner’s plan calls for a private-public investment fund where private investors and Treasury Department and Federal Reserve will pool money to buy toxic assets from the banks. The problem with this approach is that there is a huge gap between what the buyers (private investor) think these toxic assets are worth and what the seller (banks) think (or want) they are worth.
Could it be that the banks may hold out for a better, sweetened deal from the taxpayers? If that is the case, they are not going to sell to private investors. They will just wait for us to buy at over inflated prices. Nothing will change and they will carry on with their business. But taxpayers will have to absorb trillions of dollars in losses. This is why Geithner’s plan won’t work.
Surprisingly, Congressman Brad Sherman gets it:
Vague U.S. Toxic Asset Plan Aggravates Credit Crunch
“As long as there’s the prospect the federal government will overpay for the toxic assets ... these banks would be insane to sell” in the private market, Sherman told Reuters.
“As long as they hold the toxic assets, they have regular value, plus a politically enhanced value that you may be able to sell it to Uncle Sam for more than it’s worth. Why dispose of an asset where it has politically enhanced value?”
Update:
This private/public investment fund will not work and this coming from Vikram Pandit, CEO of Citigroup:
Similarly, Pandit said: “When we look at some of the assets that we hold, we have a duty to our shareholders. The duty is that if it turns out they’re marked so far below what our lifetime expected credit losses are, we can’t sell them.”
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