Word: plan
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...very important part of our transformation plan, and when we're through, we'll be competitive with the best companies in the world that operate here in the U.S. What we have done together is going to secure the future of many opportunities to be in the [American] auto industry...
When treasury secretary Tim Geithner rolled out his long-awaited plan for buying up toxic mortgage loans and securities on March 23, reaction was split. Financial markets cheered, with the Dow Jones industrial average rocketing 497 points, or 6.8%, on the day. The chattering classes mostly grumbled, with Princeton economist and New York Times columnist Paul Krugman gloomily leading the way: "It fills me with a sense of despair," he wrote of the plan before it was released but after many details had leaked...
...simple explanation for this divide is that the Geithner plan - which calls for Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation to finance the bulk of up to $1 trillion in toxic-asset purchases by private investors - is a great deal for the investors and a big risk for the taxpayers. The math calls for the government to take on most of the downside risk while evenly sharing the rewards with hedge funds, money managers and other buyers. In the loan-buying program, private investors would put up 7% of the capital for a shot at close...
...rich and well connected. Then again, it's supposed to be. Luring smart, informed investors, who've been on the sidelines, into currently dysfunctional markets for mortgages and mortgage securities is the whole point. Some amount of wheel-greasing subsidy is needed - and the question of whether the plan offers too much is pretty much unanswerable. It will be easy to tell if it offers too little: no one will participate...
That may lead to a standoff, given that many banks are like underwater homeowners - hoping to hold on until prices rebound. "The challenge is going to be to get the prices high enough for banks to sell," FDIC Chairman Sheila Bair told reporters the day the plan was unveiled. "The problem is going to be low pricing, not high pricing...