On Mon, 23 Mar 2009, Doug Henwood wrote:
>> No comments on Geithner Plan Mark II?
>
> It's awful. Heads I win, tails you lose for the hedge fund/private
> equity guys. Squat for the public.
I've heard this a lot, but I don't follow it.
There are two programs in the Geithner Plan. One is the Legacy Loan program, to buy the underlying mortgages; the other is the Legacy Securities program, to buy the CDOs built on them.
So just to take the first one, IIUC from this summary and term sheet:
http://www.treas.gov/press/releases/reports/ppip_whitepaper_032309.pdf
http://www.treas.gov/press/releases/reports/legacy_loans_terms.pdf
The Treasury will match the equity the private hedge funds put in dollar for dollar. And all leveraging is applied will apply to both equity returns proportionately. So whatever upside they make, we'll make.
The private investors will have an incentive to bid as low as possible to make the most amount of money, and we'll make the same.
What am I missing?
I can understand how, if the auction prices come in to low, banks might refuse any further participation. But that doesn't lead to any loss of money. It just sets the table for something more intrusive.
The second program is a little more complicated. But there's still upside for the taxpayer. It's by no means a heads you win tails we lose proposition.
I'm failing to see what's so horrible about these programs.
Michael