Since ishldgetoutmore was wondering
The next big scam...
I got briefed today on how the "public private partnerships" will work.
the crucial incentive for investors - traditional fund managers, hedge funds, private equity funds, pension funds and possibly even banks - is that the government would lend as much as 85 percent of the purchase price for each portfolio of mortgages.
On top of that, the Treasury would invest one dollar of taxpayer money for every dollar of private equity capital to cover the remaining 15 percent of the portfolio’s purchase price.
So investors are putting in a little over 7 cents per dollar bid on the "bad" assets. The FDIC is offering non-recourse loans, so they (meaning taxpayers) get stuck with the bulk of the losses on bad loans in the portfolio.
Here's an illustration similar to the one we discussed:
Consider a portfolio of toxic assets with a face value of $1 trillion. Assume that these assets have a 20 percent chance of paying out their full face value ($1 trillion) and an 80 percent chance of paying out only $200 billion.
...
In this scenario, the private investors (who manage the investment fund) will actually be willing to bid $636 billion for the $360 billion of real market value of the toxic assets, in effect transferring excess $276 billion from the FDIC (taxpayers) to the bank shareholders!
People should be grabbing pitchforks over this one.
I got briefed today on how the "public private partnerships" will work.
the crucial incentive for investors - traditional fund managers, hedge funds, private equity funds, pension funds and possibly even banks - is that the government would lend as much as 85 percent of the purchase price for each portfolio of mortgages.
On top of that, the Treasury would invest one dollar of taxpayer money for every dollar of private equity capital to cover the remaining 15 percent of the portfolio’s purchase price.
So investors are putting in a little over 7 cents per dollar bid on the "bad" assets. The FDIC is offering non-recourse loans, so they (meaning taxpayers) get stuck with the bulk of the losses on bad loans in the portfolio.
Here's an illustration similar to the one we discussed:
Consider a portfolio of toxic assets with a face value of $1 trillion. Assume that these assets have a 20 percent chance of paying out their full face value ($1 trillion) and an 80 percent chance of paying out only $200 billion.
...
In this scenario, the private investors (who manage the investment fund) will actually be willing to bid $636 billion for the $360 billion of real market value of the toxic assets, in effect transferring excess $276 billion from the FDIC (taxpayers) to the bank shareholders!
People should be grabbing pitchforks over this one.