Geithner And The Bank Bailout

Treasury Secretary Tim Geithner was supposed to announce his Bank Bailout Plan Monday Morning at 9am, but that has been delayed so that there can be more emphasis on passing the Stimulus Package. This is not good news. Stock index futures have dropped about 7 points in response to this announcement. The administration believes putting to much out their for people to chew on was not feasible, so they are sticking to getting the Stimulus Package passed, which is not looking good currently, as Congressional Republicans, weary of 8 years of George Bush, have gone back to their traditional roots of tax cuts, limited government, and fiscal responsibility. Lots of Republicans are still feeling the effects of TARP gone wrong, so they will be very diligent in any new spending policies.

Geithner's original plan for the banks was centered on using private sector money along with TARP money to create a "Bad Bank" scenario to buy toxic troubled assets from financial institutions. It was believed that private sector money would be used to get more accurate pricing for these mortgage securities.

But again...the problem they are encountering is how to get accurate and honest pricing for these securities. If the Treasury paid to much for them, its a waste of tax payer money, if they get too little for them, the banks would have to take further right downs. Considering that Round 1 of TARP has screwed the U.S. Tax Payer, why not price the securities below the worst level of pricing out there? Let the Banks take further write downs, they are insolvent anyway with these securities on their books, without them, they are at least viable institutions, let them then go to the equity markets to raise the cash. They need to do this anyway currently, it would be much easier to raise money if your balance sheet is free and clear of these toxic illiquid securities.

But what is certain is that some sort of "Bad" or "Aggregator" Bank is going to be set as soon as possible. What is also on tap is more equity funneled to the banks, and some sort of additional help for the homeowner.



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