For NYT, Now Comes Hard Part of Bailout--deciding who get awarded all that MONEY in a private scheme

Leopolds Ghost

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Sat Oct-04-08 08:30 AM
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For NYT, Now Comes Hard Part of Bailout--deciding who get awarded all that MONEY in a private scheme

Anyone here read the WaPo article about Wachovia's collapse? Stating that this was
all prearranged and that the stated policy of the Bush Administration is to guarantee
bank consolidation into two or three mega-banks capable of managing the country's
finances directly from Washington?

All of the past month's supposed "economic collapse" was a planned series of events
designed to complete the repeal of New Deal financial programs, restore the trust
system of global finance, and consolidate the banking market in order to maintain
the profits of the remaining banks and shift ownership of Wall Street to one or
two large, centralized fascist-friendly firms located in Republican territory --
e.g. Charlotte, North Carolina.

For Treasury Dept., Now Comes Hard Part of Bailout (NYT)

Published: October 3, 2008

WASHINGTON � It will be one of the world�s largest asset management firms with an
impressive $700 billion war chest. Nothing short of the global economy depends on
its success. And the Treasury Department has barely a month to get it up and running.

{Oh, the pain! The sacrifice!}

The bailout bill that President Bush quickly signed into law on Friday must do what
financial experts have been unable to do for the last year � put a dollar value on
mortgage-related assets that no one wants, move them off the books of ailing banks
and unlock the frozen credit markets.

In signing the measure, Mr. Bush warned Americans not to expect instant results.
�This will be done as expeditiously as possible, but it cannot be accomplished
overnight. We�ll take the time necessary to design an effective program that
achieves its objectives � and does not waste taxpayer dollars.�

Even after working feverishly over the last two weeks, the Treasury will not buy
its first distressed asset from a bank for roughly six weeks, and almost certainly
not until after the Nov. 4 elections.

Treasury officials do not plan to manage the mortgage assets on their own. Instead,
they will outsource nearly all of the work to professionals, who will oversee huge
portfolios of bonds and other securities for a management fee.

The Treasury is expected to name a senior official to supervise the program.
For now, various working groups creating the program are reporting directly
to Henry M. Paulson Jr., the Treasury secretary.

Mr. Paulson has recruited several former colleagues from Goldman Sachs to advise him,
though administration officials took pains to say that they were not dominating the process,
pointing to other Treasury employees who were playing major roles.

�We will move rapidly to implement the new authorities, but we will also move methodically,�
Mr. Paulson said in a statement after the House passed the bill on Friday.

The government will hire only a bare-bones internal staff of about two dozen people
with expertise in asset management, accounting and legal issues, according to
administration officials, and will outsource the bulk of the program to
5 to 10 asset management firms.

Administration officials said they had not yet selected the list of firms to run
auctions or manage the assets. During the last few weeks, the Treasury has informally
consulted major firms � including BlackRock, the Pacific Investment Management Company
and Legg Mason � but none have been given a mandate, they said.

{Sounds like the bill doesn't require bidding, does it?
What does open bidding even mean in an oligopoly/oligarchy?}

The selected asset management firms will receive a chunk of the $250 billion
that Congress is allowing the Treasury to spend in the first phase of the bailout.
Those firms will receive fees that are likely to be lower than the industry standard
of 1 percent of assets, or $1 for every $100 under management.

Administration officials said they would try to drive down fees with a competitive
bidding process. But with $700 billion to disburse, the plan could still generate
tens of billions of dollars in fees if the firms negotiate anywhere close to their standard fees.

The main mechanism for buying these assets will be reverse auctions,
using the same principles that govern auctions of electricity or the wireless spectrum.

{I bet you didn't know that NYTimes thinks auctioning off our utilities and wireless spectrum
is a time-honored process of selling off public resources that adheres to principled traditions!}

In this case, the government will issue an offer to buy a class of assets � for example,
subprime mortgage-backed securities � with the final price being determined by how many
banks are willing to sell.

Using outside contractors on such an extensive scale raises a host of thorny questions,
outside experts said. Among the most pressing is: How will the Treasury avoid conflicts
of interest that fund managers will encounter as they work both for their own clients�
interests � which could pay higher fees � and the interests of taxpayers?

�With anyone short of the stature and honesty of a Paul Volcker running it,
you need to worry a lot about conflicts of interest,� said Alan S. Blinder,
a former vice chairman of the Federal Reserve, referring to its former head.
�Unfortunately, there just aren�t many people with the expertise you need
but without any possible conflicts.�

The Treasury officials said they were still writing a policy on conflicts of interest
as well as guidelines on compensation.

As if the mechanics were not daunting enough, Treasury officials need to make
wrenching decisions that will determine the bailout�s winners and losers.

With so much money on the line, lobbyists for interest groups are already
besieging the government to decide in their favor.

{I thought lobbying to secure money for ones client in return for bribery was illegal.}

The prospect of pitching in during a national crisis has drawn unsolicited offers
from prominent asset managers, like William H. Gross, the managing director of Pimco,
who offered his services free.

In setting up the program, Mr. Paulson has relied on a cadre of former Goldman Sachs executives:
Edward C. Forst, a former co-head of Goldman�s investment management business who is on leave
from his job as executive vice president at Harvard; Kendrick R. Wilson III, formerly chairman of
Goldman�s financial institutions groups; and Dan Jester, who was deputy chief financial officer at Goldman.

{Gee, do you suspect Goldman Sachs will be one of the few firms on Wall Street
who will be awarded this money and deemed "too big to fail"? Perhaps they will be
ordered to spend it wisely on buying up all the cash-starved competitors Goldman
always wanted to own now that it is government policy for the industry to
consolidate into a few major players with more power, access to money and earnings
capacity than any sovereign state -- entities who will in turn print money and
loan it to the Fed to spend on capitalization allowing them to buy their competitors.}

Of all the challenges that the Treasury faces, the trickiest might be determining
a price for the largely unwanted wreckage it will be buying.

Many of the junk loans and mortgage-backed securities have no market price at all
because they have no potential buyers.

{What was that voice I heard? A democratic, elected official lying to us that
these assets might prove to be a money maker for the Federal Government in order
to justify the program as being for Main Street not Wall Street?}

The firms hired by the government will have enormous power to push the �market� price
up or down as they choose.

If the government bargains to buy at the lowest possible price, it will protect taxpayers.
But forcing the banks to book big losses could be self-defeating if they cannot resume
lending until they raise fresh capital. If the government agrees to buy the assets
at the value at which banks are keeping them on their balance sheets,
taxpayers will almost certainly be overpaying.

{Duh, what fuckin idiots the NYT takes us for or likes us to believe they are,
do you think that is anything but intentional on the government's part?}

The �right� price will depend on whether the government is favoring buyers or sellers.
Many banks are hoping that the government will pay close to par � the value listed in their books.

But hedge fund managers and other potential buyers are demanding that the government
push for the much lower price, based on the current trading value of the assets.
These potential buyers are hoping they can piggyback onto the Treasury program,
perhaps even acquiring distressed assets alongside the Treasury in auctions.