Monday, October 15, 2007

The Deception Never Ends

"The high-stakes plan to rescue banks from losses on mortgage securities amounts to a big bet that a consortorium of financial giants--at the prodding of the U.S. goverment--can persuade investors to pour more money into the troubled credit markets. ... The lack of buying signaled that the markets weren't working properly. ... The government isn't putting money into the plan but its role could be crucial in luring investors to buy debt issued by the rescue fund as part of the plan. ... Some bankers objected to the plan, calling it an escape hatch for Citigroup. ... Mr. Paulson's desire to involve Treasury in a private-sector problem stems from his view banks could otherwise be forced to dump mortgage-backed securities and other assets onto the market. ... Treasury officials could be criticized for rescuing banks from their bad bets", WSJ, 15 October.

The WSJ's David Reilly discusses the plan, "Ironically, by working with the ... Treasury ... to develop the plan, big banks are admitting things are bad and that their options aren't pleasant".

The plan is some "former" Goldman Sachs (GS) bankers attempt to have the public bail Wall Street out of its bad investment decisions. What does "The lack of buying signaled that the markets weren't working properly" mean? For whom? Do markets only work properly when Wall Street can sell any junk to the public? The Treasury's role "could be crucial is luring investors to buy debt issued by the rescue fund". In other words, Treasury wants big banks to overvalue assets put into the fund and have individual investors bail the banks out. Wonderful. Why does Treasury care if banks "dump mortgage-backed securities and other assets onto the market"? Individuals subject to margin calls do it daily. Will "former" GS bankers try to save them from margin calls?

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