Thursday, September 25, 2008

Alternative Ideas for Rescue Plans


Thursday, September 25, 2008 | 11:30 AM

All financial crisis have one of three issues: Liquidity, Solvency & Capital. The current crisis has all 3. Any plan to help resolve the emergency should be tailored to address all three.

The main problem with most of the proffered solutions is they fail to address all three. Here are some of the better ideas floating around that do exactly that:

• WSJ Heard on the Street column, and NYT Economic Scene both ask: "Why don't we have a Buffett-like GS deal?"

• Floyd Norris writes: "It is unsettling to see Wall Street firms that only a week ago feared for their survival hoping to get rich off this program. It needs to be carefully monitored to keep it from becoming a scandal of its own."

• Barron's Mike Santoli points out that current banking regulations forbid Private Equity (and SWFs) from buying more than 20% of a bank w/o submitting the whole firm to regulation as a bank holding company. That should be waived to allow more private capital to flow into the system.

 Merrill Lynch's David Rosenberg suggests that "the Federal Reserve step in as the repo clearinghouse for all term repo trades. For a counterparty-risk based fee the Fed would guarantee that, only in the event of counterparty failure, the surviving counterparty would receive your cash, not the collateral that was posted for the funds, back from the Federal Reserve. The Federal Reserve would own the collateral."

 Joshua Rosner, managing director of Graham Fisher, says price the paper in terms of defaults"In structured securities, there is no coming back . . . once the underlying collateral defaults, you'll never have recovery."

• Our own humble 30/20/10 program for private equity funds to get involved in Home Mortgage workouts.

• Miller Tabak's Peter Boockvar points out that the $40 Billion per year in dividends the 20 largest banks pay should be suspended, and redirected towards recapitalization.

• More Floyd Norris: "The prices paid for assets should be transparent to the public, and some way should be found to allow others to bid for them, in at least some cases. That would help to assure that the price being paid was a fair one."

• Jeff Matthews asks: "How is it that Warren Buffett can cut a better deal with the best-run financial company in America than the U.S. Treasury can ask from the worst-run financial companies in America?

• The Public seems to be very very unhappy with all of this: "Around the country, Republican and Democratic voters are rising up in outright opposition to the White House plan or, at the very least, to express concern that it is being pushed through Congress in haste."


Any other good ideas out there?

1 comment:

Barry Ritholtz said...

You seem to have cut & paste an entire column of mine. I greatly prefer if you only post the headline, URL, and the first few paragraphs. (In fact, I insist on it!) Please change that post ASAP.

Not only does this avoid any legal copyright issues, but the duplication of any post works to lower both of our Google ranks (but it lowers yours a whole lot more than it does mine)

Regardless, this is your official notice that you are reproducing copyrighted material without permission.

Thank you for your immediate attention to this.