Skip to comments.Paulson's Rally: Turning Point for the Market?
Posted on 09/21/2008 9:54:08 PM PDT by STARWISE
Special Report: Where to Put Your Money Now -- Experts are encouraged by the government's bailout plan, despite the cost.
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THE GOVERNMENT'S FAR-REACHING PLAN to stem America's financial crisis sent stocks soaring on Friday, perhaps signaling a bottom in this year's vicious bear market.
The Dow Jones Industrial Average shot up 368.75 points on Friday, or 3.4%, on top of a 3.9% jump Thursday, when the bailout surfaced. It was a welcome lift for an index that, earlier in the week, was down 20% for the year.
The plan, which calls for the U.S. Treasury to buy up vast amounts of bad assets from financial institutions, is short on key details, such as the mechanisms for setting prices. But assuming those are worked out sensibly, the move could well help banks and Wall Street firms regain their footing.
The plan is "a big positive," says David Winters, who runs the $1.7 billion Wintergreen Fund. "We're not going to have a depression, and the world was teetering that way."
Also boosting confidence: The Securities and Exchange Commission temporarily banned short-selling of 799 financial stocks, and Treasury proposed to safeguard money-market funds, which have started to suffer from holding debt of troubled financial institutions.
(Excerpt) Read more at online.barrons.com ...
Treasury, the source says, plans to buy the assets through "reverse auctions," with multiple sellers of a particular type of asset competing for the attention of a single buyer -- Treasury. But even that could leave open the danger of banks stuffing Treasury with assets that are shakier than they appear."
The Road Ahead
Goldman Sachs sees itself as one of the country’s best-run financial companies and its top brass probably shudders at the thought of having to answer to a U.S. regional bank or foreign bank that knows little of its business or culture. Due to the federal actions, Goldman probably will get to preserve its cherished independence. Its shares, which dipped as low as 85 on Thursday, rose 21.80 to 129.80 on Friday
Guess that opinion all changed today.
That's why the price will be low and the sellers won't have much choice. Treasury already owns the assets of Freddy, Fanny, most of AIG.
When Treasury finishes with its regulations it will be able to name its price.
BTW the $700B+/- will be about 25% or less of the prospective underlying value. Ie., they will be buying about $3T of assets.
Which is why calling it a “bailout” is silly. These banks and their shareholders have lost a fortune and the taxpayer is going to make a profit by selling those assets over the next few years for much more than the $700B they are putting out in the short term.
This is not the way I’d prefer to see the government use my tax dollars, but I have no doubt it will be a net positive revenue stream for Treasury in the long run.
Can anyone explain this naivete?
What's the #1 maxim of investing?
The big boys flat out told them that, without the plan, the world economy would collapse and . . . . one of them would be reelected.
>> When Treasury finishes with its regulations it will be able to name its price.
Yes, but the question is, WILL it?
Color me cynical, but when I factor in government incompetence, the cronyism of high finance, and outright greedy corruption, I’m wondering how this will all work out.
I hate to be that way, but unfortunately there’s plenty of evidence that that’s exactly the way our supposed leaders in government and finance take care of business.
Because they all have money in the market, too.
This is also a ‘bailout’ for Congress’ portfolio.
Paulson is going to destryoy us. An unelected official with way too much power in his hand, gained by scaring the ignorant politicians and public at large.
I think you guys are all smoking crack if you think the government intends to resale these “investment” anywhere near their value.
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