michange

Paulson's Plan: Stop the Rot

Slightly off-topic (or meta-topic), here is the question that's keeping me awake at night :


Given that US authorities will probably be responsible for both execution of all AIG CDS (through the takeover of AIG), and (de)valuation of most CDOs (through the TARP aka. "Paulson Plan"), what is the most interesting option in the following :

1° TARP at low CDO value
(entails : low TARP costs but high CDS default premium for the State, weaker banks)

2° TARP at high CDO value
(entails : high TARP costs but low CDS default premium for the State, stronger banks)

3° TARP at original CDO value
(entails : highest TARP costs but no CDS default premium for the State, healthiest banks)


In an otherwise sane banking world, I'd say solution 3 makes the most sense, but...


Also, what will happen with the 300bn in CDS bought by European banks(*)(**) from AIG as guarantee on the numerous CDOs they bought on WallStreet?

In particular, what happens to the smaller banks that definitely have CDOs and CDS but have not access to the Paulson Plan? One imagines (***)they immediately will go bankrupt and be takebn over by UBS, DB, Lloyd, Santander and the like.

This hypothesis leads to a new specific consequence of the TARP : a massive conslidation of deposit banks in Europe, trigerred by US authorities...

(*) référence Financial Times Alphaville :
ftalphaville.ft.com/bl...
(**) référence Fortune :
money.cnn.com/2008/09/.../
(***) référence Economist:
www.economist.com/fina...

see also :
www.lacrisepourlesnuls...
lacrisepourlesnuls.blo...

AIG to Honor ETC Debt

Here is the question that's keeping me awake at night :


Given that US authorities will probably be responsible for both execution of all AIG CDS (through the takeover of AIG), and (de)valuation of most CDOs (through the TARP aka. "Paulson Plan"), what is the most interesting option in the following :

1° TARP at low CDO value
(entails : low TARP costs but high CDS default premium for the State, weaker banks)

2° TARP at high CDO value
(entails : high TARP costs but low CDS default premium for the State, stronger banks)

3° TARP at original CDO value
(entails : highest TARP costs but no CDS default premium for the State, healthiest banks)


In an otherwise sane banking world, I'd say solution 3 makes the most sense, but...


Also, what will happen with the 300bn in CDS bought by European banks(*)(**) from AIG as guarantee on the numerous CDOs they bought on WallStreet?

In particular, what happens to the smaller banks that definitely have CDOs and CDS but have not access to the Paulson Plan? One imagines (***)they immediately will go bankrupt and be takebn over by UBS, DB, Lloyd, Santander and the like.

This hypothesis leads to a new specific consequence of the TARP : a massive conslidation of deposit banks in Europe, trigerred by US authorities...

(*) référence Financial Times Alphaville :
ftalphaville.ft.com/bl...
(**) référence Fortune :
money.cnn.com/2008/09/.../
(***) référence Economist:
www.economist.com/fina...

see also :
www.lacrisepourlesnuls...
lacrisepourlesnuls.blo...