The US Government is counting on private investors to bail out the banks?
U.S. Bank Bailout to Rely in Part on Private Money
Wall Street helped produce the global financial and economic crisis. Now, as the Obama administration prepares to unveil a revised bailout plan for the banking system, policy makers hope Wall Street can be part of the solution.
Administration officials said the plan, to be announced Tuesday, was likely to depend in part on the willingness of private investors other than banks - like hedge funds, private equity funds and perhaps even insurance companies - to buy the contaminating assets that wiped out the capital of many banks.
The officials say they are counting on the profit motive to create a market for those assets. The government would guarantee a floor value, officials say, as a way to overcome investors’ reluctance to buy them.
Details of the new plan, which were still being worked out during the weekend, are sketchy. And they are likely to remain so even after Treasury Secretary Timothy F. Geithner announces the plan on Tuesday. But the aim is to reduce the need for immediate federal financing and relieve fears that taxpayers will pay excessive prices if the government takes over risky securities. The banks created those securities when credit and home prices were booming a few years ago.
Besides devising a way to bring private investors into the bank bailout, the Treasury plan is expected to inject more capital into some banks and to give many homeowners relief from immediate foreclosures.
It also is expected to increase financing for a Bush administration program intended to encourage investors to finance such things as student loans and credit card debt.
The Treasury Department had intended to unveil the plan on Monday. But on Sunday Mr. Obama’s economic advisers said they would wait another day, to keep the focus on winning Senate approval of an economic stimulus program. Mr. Obama plans to promote the stimulus package in a televised news conference Monday night.
The stakes for the Obama administration’s bank bailout proposal are high, economists say. Regardless of the specifics of the differing economic plans pending in Congress, no spending stimulus is likely to have much long-term effect unless the bank bailout works.
By trying to bring in private sector buyers to set prices for the distressed assets, and to take some but not all of the risk that the asset value will continue to decline, Obama officials evidently hope to restore confidence in the banking system. They will also try to avoid the politically perilous course of having the government directly buy the assets at prices that could turn out to be far higher, or lower, than their eventual value.
http://www.nytimes.com/2009/02/09/business/09bailout.html
I am confused. If bailing out the banks directly did not loosen up the credit stream, why is the T Dept now relying on the kindness of strangers yet again to buy troubled securities?
Hoping that the profit motive will save the US economy from ruin is the Treasury departments big plan.......um..am I missing something here. Please tell me I am.
Wall Street helped produce the global financial and economic crisis. Now, as the Obama administration prepares to unveil a revised bailout plan for the banking system, policy makers hope Wall Street can be part of the solution.
Administration officials said the plan, to be announced Tuesday, was likely to depend in part on the willingness of private investors other than banks - like hedge funds, private equity funds and perhaps even insurance companies - to buy the contaminating assets that wiped out the capital of many banks.
The officials say they are counting on the profit motive to create a market for those assets. The government would guarantee a floor value, officials say, as a way to overcome investors’ reluctance to buy them.
Details of the new plan, which were still being worked out during the weekend, are sketchy. And they are likely to remain so even after Treasury Secretary Timothy F. Geithner announces the plan on Tuesday. But the aim is to reduce the need for immediate federal financing and relieve fears that taxpayers will pay excessive prices if the government takes over risky securities. The banks created those securities when credit and home prices were booming a few years ago.
Besides devising a way to bring private investors into the bank bailout, the Treasury plan is expected to inject more capital into some banks and to give many homeowners relief from immediate foreclosures.
It also is expected to increase financing for a Bush administration program intended to encourage investors to finance such things as student loans and credit card debt.
The Treasury Department had intended to unveil the plan on Monday. But on Sunday Mr. Obama’s economic advisers said they would wait another day, to keep the focus on winning Senate approval of an economic stimulus program. Mr. Obama plans to promote the stimulus package in a televised news conference Monday night.
The stakes for the Obama administration’s bank bailout proposal are high, economists say. Regardless of the specifics of the differing economic plans pending in Congress, no spending stimulus is likely to have much long-term effect unless the bank bailout works.
By trying to bring in private sector buyers to set prices for the distressed assets, and to take some but not all of the risk that the asset value will continue to decline, Obama officials evidently hope to restore confidence in the banking system. They will also try to avoid the politically perilous course of having the government directly buy the assets at prices that could turn out to be far higher, or lower, than their eventual value.
http://www.nytimes.com/2009/02/09/business/09bailout.html
I am confused. If bailing out the banks directly did not loosen up the credit stream, why is the T Dept now relying on the kindness of strangers yet again to buy troubled securities?
Hoping that the profit motive will save the US economy from ruin is the Treasury departments big plan.......um..am I missing something here. Please tell me I am.