The market seems to be initially pleased with the government’s bank plan. The Dow is currently up 160 points. Here’s how the New York Times describes the plan:
“Initially, a new Public-Private Investment Program will provide financing for $500 billion in purchasing power to buy those troubled or toxic assets — which the government refers to more diplomatically as legacy assets — with the potential of expanding later to as much as $1 trillion, according to a fact sheet issued by the Treasury Department.
“At the core of the financing package will be $75 billion to $100 billion in capital from the existing financial bailout known as TARP, the Troubled Assets Relief Program, along with the share provided by private investors, which the government hopes will come to 5 percent or more. By leveraging this program through the Federal Deposit Insurance Corporation and the Federal Reserve, huge amounts of bad loans can be acquired.
“The private investors would be subsidized, but could stand to lose their investments, while the taxpayers could share in prospective profits as the assets are eventually sold, the Treasury said.”
After getting pummeled by members of Congress, let’s see if Wall Street wants to play along with Geithner’s plan. If they don’t, then he’s toast. But if lots of banks want to unload their toxic assets, then Geithner will be a hero.
The first bank that tries to sell its toxic assets, which the Treasury now calls “legacy assets,” will be very brave since pricing is still very fuzzy. My guess is a lot of banks will sit out at first.