Toxic Asset Purchase Plan May Involve Purchases from Hedge, Mutual and Pension Funds

March 26, 2009 by · Leave a Comment
Filed under: Policy News 

 Now this is pretty big news that does not seem to be getting the same news cycles.  Up to this point it has been said that we are issuing all of this debt to “recapitalize” the banks to get credit (debt) flowing in the economy.  But now we have a new chapter in the bailout that does not involve banks at all.  It looks like the normal conservative buyers of fixed income assets have now gotten in trouble by investing in highly risky assets.  Are we now suppose to bailout these bad bets?

This is way beyond sub-prime assets being that those were only $500 billion-$1 trillion dollars total.  Basically we keep being lied to about what the real problem is and the extent this goes, I believe what has happen is all these companies were buying OTC derivatives, collected the premiums and now these bets are going bad and they are looking to the U.S. taxpayer to make them whole again.  This is not a form of capitalism I am familiar with.   I am not sure how we can have a system when the good times are good, everyone is happy and no questions are asked but when they go bad then we give bailouts.   It really kills the incentive to work really hard when you have to pay higher taxes for others mistakes and greed.

News (Bloomberg):

Treasury Secretary Timothy Geithner’s plan aimed at ridding banks of toxic real-estate assets may involve U.S.-backed purchases from hedge, pension and mutual funds at higher-than-current prices.

All financial market participants will be eligible to participate in the Treasury’s new program for older mortgage- securities, an administration official said. Investment funds will be able to buy and sell into the securities program, which was announced yesterday. The Treasury also unveiled a companion program to finance purchases of whole real-estate loans that will only allow banks as sellers.

The distinction may be one of several between the plan to offer Treasury and Federal Reserve financing to securities buyers, to boost market liquidity, and the effort to strengthen banks to lend more by allowing them to sell loans at higher prices to public-private funds with Federal Deposit Insurance Corp.-backed financing.

Treasury investments in funds that will buy securities will be restricted to vehicles overseen by only as many as five managers initially, the government said. Those firms each must have at least $10 billion of assets under management; the number and size of managers of the loan-buying funds wasn’t limited.
 
Granting control of the bond-buying to firms with “already oligopolistic-like power” and not limiting sellers to banks raises the risk of abuse, especially in combination, said Graham Fisher & Co.’s Joshua Rosner in an e-mail today.

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