I don’t think it will work, at least not as intended.
The housing market is still overpriced. Individuals are refusing to drop prices and waiting it out or renting out until the market picks up. Developers seem to be doing that too. A few years ago, many of the apartment complexes were converting to (overpriced) condos. Now, all the condos that were sitting empty have converted to apartments.
And banks? They’re bidding on their own property at foreclosure auctions. They refuse to sell for less than the mortgage price.
Is the problem that no one is willing to buy the toxic assets? Or is the problem that banks aren’t willing to sell them at a loss?
Here is what I do see happening:
CitiBank (or their shell investment company) puts up $50 million and gets $950 million in matching funds from the government. Then they buy $1 billion (based on 2007 bubble prices) of their own junk, which is of course, totally worthless. Oops.
Nothing is going to happen.
It is about the only thing the govt. could do to try and break the log jam at the banks and financial institutions.
Currently, these banks cannot raise any capital because the mark to market rule caused their values to plummet, in some cases down to zero.
Yes, they could cancel the mark to market rule, but they still would be billions and trillions in debt with little chance of selling the mortgage backed asssets at anywhere near what they paid.
doing nothing would just cause the market to sit stagnent for another two or three years, maybe longer.
Rep. Scott Garrett ping
[What happens when the really smart sharks go after this with a fine tooth comb? I am still shocked the market responded as it did. ]
Don’t be shocked, I’ve been expecting a dead cat bounce maybe to 8000 or more. A lot of traders are Democrats who haven’t realized that business is NOT as usual and we are screwed on so many levels that a big crash is inevitable. Sell now and buy closer to 5000
If banks sell this distressed assets at say .20 or .30 on the dollar, they will have to immediately realize the loss.
These banks don’t want to sell their “decent” assets at firesale prices. And their crap is just that...crap.
So the only way the banks are “helped” is if this investor/taxpayer partnership OVERPAYS for said crap.
Who does that help?
**** I think I figured out this Geithner plan?? I’ll summarize it as I see it.
Its the biggest wealth transfer to ever occur EVER !!! The govt (taxpayer) is going to buy (overpay) these toxic assets so that the banks can remove the liabilities from their books and become solvent again. So, the people (banks) that created these toxic assets get paid full price for them. Most of these toxic assets are work zilch and the govt (Fed Reserve) loses its investment(taxpayer money.) The amount of taxpayer money Obama and Geithner are about to spend (blow) will make AIG bonuses seem like chump change. Does anybody here even care what the heck is about to happen. Liberals and Obama lovers are bantering and name calling over the AIG bonuses while their fearless leader(The Messiah) is about to reward the criminals with our tax dollars.
"China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund."
"In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.