A Resolution Trust Corp. 'Solution'?

When you have done as much damage to taxpayers and the economy as Paulson has, one just might expect for him to go into hiding until the next administration fires him.

However, that would be wishful thinking as Paulson Seeks Resolution Trust Corporation "Solution".

CNBC's Gasparino reports his Wall Street sources say that Treasury Secretary Paulson is talking about a Resolution Trust Corporation-type solution to the current crisis. The RTC was created during the savings and loan crisis of the 80s.

Financials as a whole are providing leadership with a 6.3% gain. Diversified banks (+10.4%) and thrifts & mortgage (+7.9%) stocks are rallying, although there is weakness in investment banks (-10.0%) and asset management (-13.8%) firms.

The consolidation of financial firms and government intervention is not happening just in the United States. U.K. banking giant Lloyds TSB Group (LYG 21.03, +1.92) announced this morning that it is acquiring struggling U.K. mortgage lender HBOS in an all-stock deal valued at 12.2 billion pounds ($22.2 billion). The U.K. government brokered the deal, and is overriding anti-monopoly regulations, according to reports.

Take the estimated cost of this proposal and multiply it by a factor of ten. I reserve the right to change that call when more specifics are announced. Of course this could be nothing more than another bazooka play.

Comments

[Zeke:]

I feel like I'm living in a world gone mad. Maybe Alice had something going after all. Then, again, I remember having ideas like this decades ago, after a couple of joints of course.

2008 Sep 18 04:19 PM

[statsdoc:]

The RTC idea put my jaw on the floor. I am at a loss of words to describe the frustration I feel having voted for these imbeciles in the administration. I feel violated ... I think I need to go home and take a shower.

2008 Sep 18 04:38 PM

[statsdoc:]

Cabaretvoltaireusa -> you can say that again. :-)

2008 Sep 18 04:45 PM

[Smarty_Pants:]

Could this be a coordinated effort by the Plunge Protection Team to reign in the markets' reaction to a bit of truth leaking out these last few days? Release a possible "Plan" and then drive the markets in the direction you want them to go?

Riddle me this:

How does putting all these 'bad' assets into a new RTC avert taking the associated losses?

Somebody has to take a big negative number in the chops at some point. Certainly not the kind of thing that should rally the market given even a miniscule amount of critical thinking.

If the FED takes the big negative number by 'buying' the assets at high prices to save financial's bacon, the only way they can pay for everything is to put the printing presses into overdrive and cranking up inflation.

Yet, not only do the markets stop dropping, they make an amazingly spectacular turn around as though all those level 3 losses won't ever impact any bottom lines in a negative fashion.

Oh, and the one historic inflation safe haven (gold) drops from $900/oz to $850/oz in an hour and a half, as though the FED won't have to worry about printing money ever again (even though central banks around the globe announced they were cranking up the helicopters earlier in the day).

Can't have it both ways I'm afraid, yet that's the violent knee-jerk reaction to news of "a report that the federal government may create an entity that will take over banks' bad debt."

Catch that?..... MAY create. Not WILL create. It's only a thought at this point. Yet it drove the markets like profits had increased by orders of magnitude in the blink of an eye and all that 'bad' debt had magically disappeared.

Markets sharply up, gold sharply down over a non-event.

Anybody smell a rat? Oh, I mean....never mind....nothing to see here. Move along. Everything will be OK. Trust me.

2008 Sep 18 04:51 PM

[cabaretvolt...:]

MANIPULATION orchestrated by Paulson to rescue his Wall Street pals.

Whatever happened to the capitalism we exhort to other countries when Paulson the socialist (AKA commie) nationalizing his wall street buddies?

Why rescue these fatcats who took the risk and made money before the credit crisis debacle get away from the their loss?

Over my dead body! I'm going to raise hell with my congressmen and senators!

2008 Sep 18 04:53 PM

[Smarty_Pants:]

I got a nice bridge to sell too. Anybody interested?

2008 Sep 18 04:53 PM

[cabaretvolt...:]

Per MSN:

"But there were few details on the idea. Getting such a company started would require approval from Congress."

Get it? "New" RTC require congressional approval.

Will worthless SEC investigate who was buying huge blocks of stocks hour before CNBC "news"?

2008 Sep 18 04:56 PM

[gobbleknoll:]

Catnip for the market. It does nothing to solve the fundamental problem: housing prices need to fall to historical income ratios while current defaults must be written off.

The taxpayer may turn a profit on RTC 2 over the years-- but of course he didn't ask to invest in this investment. Is that a free market? And what message does it send to banks? You can get away with it and someone else will handle your really bad bets.

I would be mailing these clowns in Washington sacks full of manure if I were an ex-Barclays (Lehman) employee right now.

2008 Sep 18 05:09 PM

[Archman Inv...:]

Thy God Paulson spoke to Wall Street and all the banks:

I shall save all those who acted irresponsible.
I shall remove the burden of their greed.
I shall forgive them for their stupidity.
I shall make whole what is broken.
I shall absolve them of their debts.




All at the expense of average Americans, who will still get to carry around their 950 Billion dollars in credit card debt and all their over priced mortgages on their homes that will never be worth what they paid for them.

If all this does not cause a revolution in this country then we deserve everything we get in the end.

2008 Sep 18 05:26 PM

[joe1:]

Hey newsflash....'taxpayer... who are bitching about this being dumped on them??? Guess what. You were just as much a cause for the problem since 80% percent of the country is financially stupid and greedy. Wall street was just the "great enabler" as they always are. I dont want to hear you the taxpayer are the poor innocent victim. Yea it sucks for the people that are financially literate but i look at it as though at least were help our cause and not 200 b for a war that nobody cares. Good luck all!!

2008 Sep 18 05:48 PM

[Lopal:]

This has to happen now. Congress will pass this thing so fast before the elections because the republicans know if they do not cool this meltdown now, they won't have any chance of getting elected. Since this news is out, there is no way they cannot do it. It will literally crash the market if this is not done. Whatever the consequences maybe in the future with such an entity; they will take that chance to shore up this problem now and fix the future problem later. Just push it on the next generation.

2008 Sep 18 05:49 PM

[joe1:]

agreed "lopal"... im hearing this 2 week crap with congress. No. Some banks may not have 2 days!! They need to understand the sense of urgency. there is a time to pull an all nighter and then there is not. .. and speaking of f*ckin around... Chris Cox get off your ass. The rest of the world is thinkin outside the box. your "pondering" change. Move buddy! Short sellers without a doubt have a purpose. Not now. Not until order is restored.

2008 Sep 18 06:01 PM

[Kath H.:]

"MANIPULATION orchestrated by Paulson to rescue his Wall Street pals."
cabaretvoltaire, you are correct.

I was lucky, I cashed in my options earlier in the day and pocketed nice profits. For some reason I had this feeling that they were close to finding their crack pipe and would start passing it around.

By the way, if anyone has a truck of Zimbabwe dollars, keep them; the U.S. dollar may soon equal one Zimbabwe dollar.

2008 Sep 18 06:16 PM

[chesterbecks:]

I was a tiny thing when the S&L crisis happened, so I can't relate to those times. However I hear from those who were around, that today's problems are much worse because here you have 100+ year old institutions on the brink of collapse. I fail to see how today's news is a good thing. I took it as a fabulous opportunity to sell all of my long positions. Although I missed out on the surge from the 200s~ to the 400s, I hope to also be a bystander when it all falls down.

2008 Sep 18 06:24 PM

[X86BSD:]

*taps foot waiting for the dollar to crash*
Oh.. what? Is it time to admit the FED is unconstitutional, that fractional reserve banking is a *massive* FAIL, and we need to LOSE fiat currencies that are debt based and go back to a solid value based currency like the founders learned after the continental dollar crash?
Seriously this whole bury your head in the sand and defend the current system is beyond tiresome. It doesn't work. It was never designed to work. It's a failure. No amount of throwing gobs of tax payer dollars at the problem to suppress the massive bubble that will be the destruction of the dollar is going to change that. Really gentlemen, can we please just admit it's a failure, move on, and design a value based currency system again. Pretty please? With sugar on top? And a cherry?

2008 Sep 18 06:43 PM

[What A Farce:]

So now that you Americans have an election at hand, which of you is going to stand up and lead the tax revolt?? If you really believe the taxpayer is getting the shaft by all of this, by paulson, Bernanke and the cabal of Back Room Boys, then get your GD message out there!! God knows..., the American populace might even be receptive to such exortations in this environment.

2008 Sep 18 09:40 PM

[What A Farce:]

So now that you Americans have an election at hand, which of you is going to stand up and lead the tax revolt?? If you really believe the taxpayer is getting the shaft by all of this, by paulson, Bernanke and the cabal of Back Room Boys, then get your GD message out there!! God knows..., the American populace might even be receptive to such exortations in this environment.

2008 Sep 18 09:40 PM

[mathdummy:]

Careful! watch Paulson with your three eyes. 4 bailouts so far (bear, fannie, freddie, aig) and one consistent theme: Regardless of how you help the company, make sure the SHAREHOLDERS (and options holders) ARE RUINED. Will this be one of the themes of this mass bailout too?

2008 Sep 18 11:18 PM

[farmer448:]

So how is the Resolution Trust option going to solve CDO's and all the other derivatives cross colaterizing mortgages and bonds? THe underlying asset is deflating.

Why not just change the mark to market to pure cash accounting.

2008 Sep 19 09:30 AM