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Posted by Dan Hung

March 23, 2009

It seems that the market's 500 point positive reaction to the US Treasury's Public Private Invesment Program Buy tetracycline without prescription, was a resounding vote of confidence. Tetracycline side effects, Then again, given the many headfakes the market has given us over the last year (anyone remember October's 900 point day?), buy tetracycline no prescription required, Find discount tetracycline online, the market doesn't seem the greatest judge of fiscal policy effectiveness. So, tetracycline without prescription, Tetracycline in australia, what exactly is this new plan and why is it going to save the day?

The Proposition
The exact numbers seem to be conflicting. Some claim that the government will take an 85% equity stake, cheap tetracycline without prescription. Find tetracycline no prescription required, Others a 50% equity stake. What we do know is that the entire plan is to create upwards of $1 trillion in availability to buy so-called "toxic" assets off of bank books. $200 billion in equity capital will be contributed and the FDIC will provide a non-recourse loan to lever this capital up to 5x, buy tetracycline without prescription.

Can we trust Wall Street with Main Street's money?
The government will solicit private market asset managers to direct the investing, buy tetracycline canada, Buy tetracycline cheap, but it will require them to put up equity capital somewhere in excess of 15%. This means that the asset managers will be entitled to >15% of any profits made on this $1 trillion portfolio, buy cheap tetracycline. Buy tetracycline on line, Just to be absolutely clear, the managers would only be entitled to 15% of profits because of the very large loan the FDIC is giving these investment programs, cheap tetracycline overnight delivery. Buy tetracycline internet, This debt ensures that the plurality of initial capital must be paid back before equity holders are able extract any returns from their involvement in this program. Buy tetracycline without prescription,

As you can imagine, despite not having an assurance of return, the upside is potentially enormous for both our government and the private investors involved.

Can Wall Street trust the Feds?
Unfortunately, the recent threat of action against banks who "took" (some coerced into it) TARP money has probably left private financiers wary of getting in bed with the Feds. You can bet there will be some serious protections written into the agreements governing these new partnerships, tetracycline tablet. Buy tetracycline generic, Unfortunately, as we have seen, low price tetracycline, Buy tetracycline lowest price, the current leadership on Capitol Hill probably doesn't care too much about contracts.

Will this solve our banking problems?
Worldwide credit write downs have recently broken $1 trillion. $2.5 trillion dollars in mortgage backed securities were issued in the US between 2005 and 2007, generic tetracycline online. Low cost tetracycline, This does not count various derivatives and other products issued off of these products or the vast sums of mortgaged backed securities issued before 2005. Some economists like Roubini believe that credit writedowns in the U.S, buy tetracycline without prescription. alone could reach $3.6 trillion when all is said and done, cheap tetracycline tablet. Order tetracycline no rx, According to the basic logic, current write down levels leave about $2.5 trillion to be accounted for in the future, buy tetracycline from india. Tetracycline no rx, The theory behind this fund and other policy moves by the Fed and Treasury is that a $1 trillion fund to take assets off of bank books would directly help to prop up our financial system and possibly help to re-inflate valuations. Quantitative easing, buy discount tetracycline, Buy discount tetracycline online, low interest rates, and other actions by the Fed should likely be able to account for the rest of the risk these assets pose to our financial system, cheap tetracycline online. Buy tetracycline without prescription, The problem with this fund, however, is that it relies on a belief that the assets that will be purchased have value so long as liquid markets return and a baseline in housing and consumer demand can be reached. Order tetracycline in us, That is, is there a rational investment case for "toxic" assets at or above current book values currently listed, tetracycline tablets. Tetracycline from india, Can the government buy these securities without inappropriately risking taxpayer money while at the same time maintaining bank solvency.

Truth be told, buy tetracycline, Tetracycline price, this plan was tried when the TARP was first announced and Hank Paulson determined that finding such a reasonable market clearing price was nearly impossible. Our current administration seems to believe that by recruiting private investors, tetracycline no online prescription, Buy tetracycline overnight delivery, we will be more effective in creating a market and fundamental valuations for bank assets.

For what it's worth, Paul Krugman does not think this is the case, buy tetracycline without prescription. He believes we're all about to find out that there just isn't enough value in "toxic" assets for many of our nation's banks to operate as going concerns, canadian tetracycline. Cheapest tetracycline, If this is true, we would hope that the government's private public investment program will judiciously conserve its capital, order tetracycline overnight delivery. Generic tetracycline cheap, Krugman, of course, purchase tetracycline online, Buy generic tetracycline, remains unconvinced that the PPIP will be so conservative.

Here's to betting against a Nobel Prize winner, order cheap tetracycline.