Submitted by ASO member: Kimberly Wilcox
Treasury Secretary Timothy Geithner was busy writing his press release from the Treasury Department & editorial in the Wall Street Journal, while other members of the Obama administration chattered on the Sunday political talk shows. But, they all had one goal: going to extraordinary lengths to sell the Treasury Department's new program for "taking toxic assets off the books of the troubled banks." They make it sound like some sort of harmless construction project where the bulldozer will just come in as the private partner financed 95% by YOUR government money and moved these assets from the pile of dirt where they are now, and transform them on the journey into gemstones by the time they reach the books of the "private investor partners." The enormous failure of this entire plan is that no one has defined the PURCHASE PRICE to be agreed upon for the purchase of these assets. In addition, what have all these "private conversations" consisted of between potential investors in the forms of private equity firms, money managers, and hedge funds (the only firms left on Wall Street with capital to invest)? Why aren't the terms and promises being defined to the lenders in this situation...the American people who will be financing 95% of each of these transactions? Should we trust the Treasury Department to oversee the paperwork for these transactions just like they did with AIG? Citibank? Goldman Sachs? Morgan Stanley? All the others? NO is clearly the answer.
The investors are asking if they are going to be subjected to executive compensation limits, new taxes on bonuses, and other controls which they currently aren't governed by. After all, they want the financing & assets at a great price with no strings attached. Isn't it predictable that when something goes wrong with this program, it will be yet another bailout that the federal government will hand out even though it's once again a supposed risk transferred to the private sector? Where are the brilliant financial minds in America to find better solutions that this. I can foresee this debt being traded on a secondary market at pennies on the dollar which is all that some of it is worth.
The price setting of this purchase is THE QUINTESSENTIAL COMPONENT of this program and it is irresponsible NOT to focus on that first. How could any investor remotely express interest or not without a price? Everything on Wall Street is driven by price. There obviously are key parts of these private conversations between the Treasury Department and the potential investors that should be disclosed to the American public prior to the implementation of ANY program. Why isn't this purchase program open to all Americans? No one is rushing to put their shekels in the stock market or real estate and they may want to be part of the program. This program and its full terms should be ironed out and disclosed in a red herring for all to view and purchase & most importantly, the PRICE needs to be on the final copy distributed. After all, we will be lending $950,000,000,000 (that's nine-hundred fifty BILLION dollars for those of you who aren't accustomed to counting with so many zeros) out of the one trillion to purchase these diamonds in the rough that will be relocated from one balance sheet to another. I can only hope these purchasers aren't deemed too big to fail.
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I have to agree on the importance of price. Not being an expert on so many of the specifics, it is difficult for me to understand how pricing might take place, but perhaps that is the issue. Maybe the most critical information that the American people should have is how the assets will be priced.
From what I recall of the Google IPO, the open auction for shares was considered groundbreaking an is widely viewed as having saved the company millions. Google could only pull that off because banks had no choice, none of them wanted to miss out on the hottest IPO of the year. In this case, again banks have no choice.
Maybe our legislators and regulators need to look to that example and define rules that everyone can understand, explain them to the taxpayers, and get on with business.
What do you think? Would a well-structured auction work? Who might set the rules for that?
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