Wednesday, February 11, 2009

Yo, Barry, when you send your man Tim out with the plan, send him with the whole plan.

Investors hate uncertainty, it makes them flee and it cost your humble blogger more money than she wants to think about. Yes I was speculating and I’m now poorer for it. Oh well win some and lose some.

If the plan were mostly complete the market probably would have gone sideways, some would have hated it others loving it, but uncertainty… There some things to like. After weeks of hearing that the alternatives were nationalization or a “bad bank”, the idea of getting vulture investors involved is a nice alternative. The problem with the bad bank idea is how to price the assets, when government is involved those negotiations would have inevitably been politicized, while negotiations between bankers and vultures is a business deal. It also preserves the nationalization option.

Nationalizing businesses is a well worn path with lots of examples of how to do it successfully. But nationalization is anathema to the US and the political firestorm that would result will be distracting. At least if this idea is not wholly successful and nationalization is necessary the administration can say they tried a market solution. Besides, Bush partly nationalized Wall St. and did nationalize AIG in everything but name, since the US government owns 80% of the stock.

The thought of acquiring bad debt at 22 cents to the dollar (what a group of Texas investors paid for some Merrill investments) appeals to my greedy side.

Kim

2 Comments:

Anonymous VJ said...

Sorry about that Kim, They punted seemingly. Creeping nationalization in a month or so. Double or nothing?! But really now, speculating? You need more excitement & entertainment, right? Cheers & Good Luck, 'VJ'.
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11:12 AM  
Anonymous Anonymous said...

My reading is:

Some of the big banks / financial institutions aren't going to survive and the government believes that but they can't nationalize them now or put them out of their misery now or pump endless billions more in now.

If private investors step up and the guarantee cost to the government isn't out of whack then great but that's also a test for which will live and which will die. Lack of investor interest, coupled with a poor showing in the review stage means curtains.

So I see this as a way for the government to say no more rathole, if the market works for you fine but if not your days are numbered. Savvy move, not one you could be upfront about.

M

4:33 AM  

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