Saturday, March 21, 2009

Cut out the middleman

Tim Geithner and all the professionals think that they are indispensable, that what they do is too difficult for those of us who are not "masters of the universe."

[T]he Treasury will hire four or five investment management firms, matching the private money that each of the firms puts up on a dollar-for-dollar basis with government money.
I am so sick of taking haircuts for the people who did this, the ones who were once known as the smart money. Yeah, as if.

We're going to buy a load of fraudulent crap for the purpose of keeping the people who were not smart enough to avoid it in charge of profits from it.
Risk-taking institutional investors, like hedge funds and private equity funds, have refused to pay more than about 30 cents on the dollar for many bundles of mortgages, even if most of the borrowers are still current. But banks holding those mortgages, not wanting to book huge losses on their holdings, have often refused to sell for less than 60 cents on the dollar.

The result has been a paralyzing impasse. Banks, unwilling to sell their loans at fire-sale prices, have had less capital available to make new loans. Mortgage investors, unable to leverage their investments with borrowed money, have been unwilling to pay more than fire-sale prices.

To break that impasse, the government’s crucial subsidy is meant to provide investors with the kind of low-cost financing that has been utterly unavailable in today’s credit markets.
To break that impasse, nationalize the failed banks and lend directly. Let the failures fail without killing the credit markets. No moral hazard. Temporary socialism. Once the markets are healthy again, we can reap any profits for all this risk we're taking on as insurer of last resort.

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