dcxavier

Robin Hood in Reverse: In Defense of the U.S. Taxpayer

"Valuation of troubled assets is clearly the thorniest issue"

That's where the 1990's RTC concept looks good. Make failure a prerequisite for government takeover, don't buy assets from solvent firms. Don't reward the managers that got us into this mess. Then auction the assets to the highest bidder. It will establish a true market price for the assets and encourage new capital.

Robin Hood in Reverse: In Defense of the U.S. Taxpayer

To recapitalize the failing banks, we taxpayers are going to end up buying the crappiest securities at inflated prices. Some securites, like residuals from subprime and HELOC securitizations, are legitimiately carried on books at zero, so many properties have been foreclosed and sold off that they can never have value. Yet watch us pay real tax money to buy them, it will be like finding a winning lottery ticket on the ground for some banks. Here's another game to watch for. Suppose you have a securitiy worth 80 cents on the dollar. Watch it get restructured into two securities, one worth the full dollar and the other worth nothing, then the nothing part gets sold to you know who. That's essentially what the securitization process is all about anyway, it will be done in a special way to exploit this bailout.

And what's really bad about the process is that the same managements that got us into the trouble will remain in place, and they'll probably get big bonuses for bringing home the taxpayer bacon. The comment about TPG is dead nuts on.