vaughn

The Geithner Plan FAQ

The private partner must use its own capital.The treasury's capital come from the 700 billion Tarp fund. The FDIC never put up 820 billion as claimed in this article. What will happen is that FDIC will sell guarantee and charge a fee for the guarantee (likely 100 bps) so that private investors, like pension funds, will buy up the 820 billion medium term note debt offering. In short, the funding cost of this debt offering will be absorbed by the public private partnership.

The private partners are in for the potential of multiple return s with the downside risk capped at their initial investment. Since the private partner makes the decision of what assets to buy, it is unlikely they will overpay the price.

Now that the private partner can enjoy a decent leverage with secured financing, they will tend to pay the true intrinsic value of assets. Without financing and leverage, private equities or hedge funds can only lowball the bid in the hope distressed sellers will sell so that they get the return similar to that with leverage. Unfortunately for them, sellers with distressed assets are not distressed at all due to the Fed near zero fiscal policy with unlimited liquidity supply. Hence, you got no sellers in the market to sell legacy assets which yield over 20% at the moment.


On Mar 22 01:49 PM user guest wrote:

> Q: Where does the trillion dollars come from?
>
> A: $150 billion comes from the TARP in the form of equity, $820 billion
> from the FDIC
>
>
>
> meanwhile on Friday the headline on Bloomberg was this:
>
> Bair Says FDIC Reserves May Hit Zero Without New Fees
>
> March 20 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman
> Sheila Bair talks about the depletion of the fund reserves and the
> need to increase fees and premiums.
>
> Bair, speaking before the Independent Community Bankers of America
> conference in Phoenix, Arizona, also discusses the importance of
> community banks and the need to create financial "disincentives"
> to curb the size of banks. (Source: Bloomberg)
>
> www.bloomberg.com/apps...;sid=aoXQRRSXeGMQ