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."

Martin Wolf has 3 suggestions:

  1. Force banks to write down assets to market value, stop paying dividends, and raise new equity. 
  2. Force banks to write down assets and then recapitalize them by converting debt to equity. 
  3. Force banks to write down assets and have the government take equity stakes via preferred stock.

 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."

Arnold Kling says: We don't need to bail out Wall Street to protect Main Street. All we have to do is make sure that sound borrowers, especially small businesses, have access to credit. Banks can do the job, although regulators may have to reduce capital requirements.

• 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?

Thursday, September 25, 2008 | 11:30 AM | Permalink | Comments (74) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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Progressive taxation.

Add liquidity to the system by reducing taxes at the low end (including the smaller businesses), while increasing revenue by increasing taxes steeply at the high end and outlawing offshore tax havens, thereby reversing the transfer of wealth that has occurred during the rule of the Bush Junta.

Now that's what you call socialism...

Posted by: leftback | Sep 25, 2008 12:06:16 PM

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