In Geithner We Trust...Yikes!

Treasury Secretary Geithner has released his plan to mop-up the toxic assets held by banks that threaten their solvency and the global financial system. Accordingly, the plan purposes that private equity firms partner with the Fed to purchase bank assets at some discount set by the private firms at auction. Then the Fed will leverage the purchase six-fold to buy more bank assets and assume all the risk of leverage. In other words, private firms will set the price and then put up half the initial purchase price. The Fed will then put up non-recourse loans to purchase six times more debt at the same price to be owned by the joint venture partners. If the deal works private equity splits the booty equally. If the deal fails, the government loses upwards to six times taxpayer's money and private equity loses only its original equity match equal to 1/6 the total loss.

Flabergasted? Don't be. Very often you can cut a deal where you get to set the price and your partner puts in six times your money and you split the profit. If these deal terms don't underscore why the government should not handle your money and why the government should stay out of business, what does?

Other deal terms are that the Fed will designate the private equity players, at least initially. Could it be that the Fed is creating another pass-through mechanism to simultaneously bail out or reward its friends? If so, look for Goldman Sachs (GS), Merrill, Blackstone (BX), Carlye Group, Texas Pacific Group, and perhaps Bear Stearns to be players. Look also for the typical MOS of some Structured Investment Vehicle, not much different from the Maiden Lane III SIV, to backstop or divert money where it needs to be--by gratuitous selection that is. Oh, and never mind that Private Equity may be joined by the Libyan Investment Authority (LIA and Private Equity article by Financial Times) as Private Equity at present is having a bit of a liquidity crunch with their own deflated, illiquid assets.

In short, the Geithner Toxic Asset Plan is just another bank bailout and footnote to this era of 'Dark Capitalism" where profits are reaped and losses socialized in an ever transparent way.

Disclosure: Author holds long position in FAS, PGF, PSP

Comments

[WMBANZAI7:]

GEITHNER'S PUBLIC PRIVATE TOXIC ASSET TANK
(Fidelity Fiduciary Bank, Mary Poppins)
WilliamBanzai7

Sing along link: www.youtube.com/watch?...

Father, these are private equity investors....

If you invest your tuppence
Wisely in Geithner's public/private toxic asset tank
Safe and sound?
Soon that tuppence,
Safely invested in the toxic asset tank,
Might compound!

And you'll achieve that sense of conquest
As the Fed's non-recourse loans expand
In the hands of the private asset managers
Who invest as propriety demands

You see, you'll be part of
McMansions in the Nevada desert
Vacant subdivisons from Detroit to Fresno
Fleets of repossessed trailer parks
Majestic negative-amortizing Miami coops
Plantations of ripening securitised sub-prime....

All from tuppence, prudently
Fruitfully, frugally invested
In the, to be specific,
Geithner's Federal
Financial Stability
Public Private
Toxic Asset Tank!

Now,
When you co-invest your tuppence in the Feds toxic asset tank
Soon you'll see
That it blooms into equity returns of a generous amount
Semiannually
And you'll achieve that sense of stature
As your NAV expands
To the high financial strata
That established private equity now commands

You can indirectly purchase first and second home equity loans
Think of the foreclosures!
Mortgages! CLOs! CDOs, synthetic CDOs!
Bankruptcies! Debtor sales!

Opportunities!
All manner of public/private enterprise!
Auctioned ALT A! Subprime!
Collateralized liar loans! Securitized no doc SPVs!
Distressed offshore SIVs! Amalgamations! Bad banks!

You see,
Tuppence, patiently, cautiously trustingly invested
In the, to be specific,
Tim Geithner's
Federal Financial Stability
Public Private
Toxic Asset Tank!

Welcome to our joyful family of private investors!!!!!!

Mar 24 05:19 AM

[Speedspirit:]

We can try self preservation with our investments making the big even bigger or we can look into the eyes of our children and do what they cannot. Stand against what is so incompetant, selfish and in some cases outright evil. We need to draw a line right here right now and withdraw all investments with Goldman. It will not take down the entire country but will set an example of the power of the people to those who are planning to steal our childrens future. Before they claim they just made mistakes but now this is taking advantage and its wrong.

Mar 24 09:32 AM