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US Taxpayer: A Giant Dumpster For Illiquid Assets

Interest-Rates / Credit Crisis 2008 Sep 19, 2008 - 11:09 AM GMT

By: Mike_Shedlock

Interest-Rates Best Financial Markets Analysis ArticlePaulson, Bernanke, and Congress are conspiring to make the US taxpayer the fall guy for financial stupidity by banks and brokers. Congress is now willing to ram through legislation at the last moment, even though Senate Majority Leader Reid Says "No One Knows What to Do" .


Please consider Paulson, Bernanke Push New Proposal to Cleanse Balance Sheets (at taxpayer expense).

U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed moving troubled assets from the balance sheets of American financial companies into a new institution.

Congressional leaders who met with Paulson and Bernanke late yesterday in Washington said they aim to pass legislation soon. The initiative, which may also insure money-market funds, is aimed at removing the devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression.

The effort is a recognition that Paulson's and Bernanke's steps have so far failed to revive financial and housing markets. The government took over American International Group Inc., Fannie Mae and Freddie Mac in the past 12 days, a period when Lehman Brothers Holdings Inc. filed for bankruptcy and Americans pulled a record $89 billion from money-market funds.

Securities and Exchange Commission Chairman Christopher Cox, who attended the gathering with lawmakers, said the SEC planned to consider more rules to guarantee market liquidity. The commission is weighing a ban on short-sales of the shares of Wall Street brokerages after Morgan Stanley fell 39 percent this week, said a person familiar with the matter.

My Comment : Please see Peak Insanity: SEC Plans to Temporarily Ban Short-Selling

Options under consideration include establishing an $800 billion fund to purchase so-called failed assets and a separate $400 billion pool at the Federal Deposit Insurance Corp. to insure investors in money-market funds, said two people briefed by congressional staff who spoke on condition of anonymity because the plans may change.

My Comment : I too would want to be anonymous for forever and a day if I was sponsoring a $1.2 trillion bailout of US corporations at taxpayer expense.

Another possibility is using Fannie and Freddie, the federally chartered mortgage-finance companies seized by the government last week, to buy assets, one of the people said.

"We will try to put a bill together and do it fairly quickly," House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said after the meeting. "We are not in a position to give you any specifics right now" on the proposals, he said when asked about the potential cost.

My Comment : Now there's "good thinking" ! There is no time to act, so let's act quickly by passing a $1.2 trillion bailout quick enough so Congressional recess can happen on schedule.

Regardless of your party affiliation, and with the exception of Ron Paul, I urge everyone to vote against the incumbent in every race.

"It sounds like there's going to be a giant dumpster for illiquid assets," said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, which oversees $22 billion in assets. "It brings up the more troubling question of whether the U.S. government is big enough to take on this whole problem, relative" to the size of the American economy, he said.

My Comment : Mirko Mikelic wins my vote. Too bad he is not running for office.

Senator Richard Shelby of Alabama and some other Republicans have criticized the takeovers of AIG, Fannie and Freddie for imposing a potentially high cost on taxpayers.

"We cannot protect all risk in the market, and we shouldn't do it at the risk of the taxpayer,"Shelby, the ranking Republican on the Senate Banking Committee, said in an interview with Bloomberg Television this week.

My Comment : Show me the money. Let's see how you vote.

Unexpected Superb Analysis Of The Month Award

The blue ribbon for "Unexpected Superb Analysis Of The Month" goes to Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids who correctly surmises: "It sounds like there's going to be a giant dumpster for illiquid assets."

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2008 Mike Shedlock, All Rights Reserved

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