smithtg
03-10-2009, 10:39 AM
I listened to this guy this morning on NPR and its some crazy crap. Basically he says (see highlighting below) that he can leverage on the crap assests with low interest government backing, bascially severely reducing his risk. In other words, buy crap assets at 10% on the dollar, have the government loan you 90% of that cost at something like 3% and if the bubble reinflates, you make out like a bandit because you used government money to turn the profit. If you lose, well its chump change to him as of course the upside is way better than the downside.
lets not forget that the government is probably playing middleman in this plan, paying too much (to a bank) for a crap asset and the in turn selling it to this guy for firesale prices. Maybe not, maybe its a direct buy, but either way its a waste of money, just like every other government plan
Of course there is mention of a 'profit sharing plan' yeah whatever.....
http://www.npr.org/templates/story/story.php?storyId=101627529
Morning Edition, March 10, 2009 · One of the ways the government hopes to fix the nation's banks is by bringing in private investors who have billions in assets and know-how. The administration calls it a "public-private investment fund."
Details are still sketchy, but basically, the government says it will back private investors who are willing to buy the mortgage-backed securities and other toxic assets now crippling the nation's banks.
Wilbur Ross, chairman of WL Ross & Co., has made billions investing in troubled companies, restructuring them and then selling them. And he may be among those who invest in some toxic assets.
The trick is figuring out what they're worth, because high-risk mortgages will be bundled together with safer loans. Ross says his objective is to invest in things where the perception of risk is more severe than the actual risk.
By that measure, Ross tells Steve Inskeep, the mortgage-backed securities market isn't there yet. Ross says it's a "land mine" with a tremendous amount of bad loans: "Something like 1 out of every 10 mortgages — even counting all the high-quality ones — are now in arrears."
Part of the reason private investors may invest in toxic assets, however, is the government's assurances. Ross says the government program will provide "a fairly high degree of leverage at a relatively low interest rate."
That means investors will only put up 10 to 15 percent in cash. If the investment is a winner, it will magnify the returns. If, however, investors make the wrong decision, Ross says, they'll have a "relatively smaller exposure" that won't bankrupt them.
Ross says the government program is intelligently designed. "It provides a higher probability of the government recovering some, if not all, of its investment, and yet it brings some capital into the process. And perhaps most importantly, it puts those toxic assets in the hands of people who are somewhat familiar with dealing with that kind of situation, as supposed to leaving it with government people who probably are not that familiar," he says.
The government program is a profit-sharing formula. One of the challenges, however, is trying to establish the "right aggregate price given both the risk and upside considerations," Ross says.
Ross says he may be willing to invest billions in these assets if there's a "very low price." The key to attracting investors, he says, is for the government to find a way to "provide [the] private sector with enough time and enough information that proper due diligence can be done. And then one can at least make a reasoned judgment as to what to pay for what. That to me is the most essential element in the whole thing
lets not forget that the government is probably playing middleman in this plan, paying too much (to a bank) for a crap asset and the in turn selling it to this guy for firesale prices. Maybe not, maybe its a direct buy, but either way its a waste of money, just like every other government plan
Of course there is mention of a 'profit sharing plan' yeah whatever.....
http://www.npr.org/templates/story/story.php?storyId=101627529
Morning Edition, March 10, 2009 · One of the ways the government hopes to fix the nation's banks is by bringing in private investors who have billions in assets and know-how. The administration calls it a "public-private investment fund."
Details are still sketchy, but basically, the government says it will back private investors who are willing to buy the mortgage-backed securities and other toxic assets now crippling the nation's banks.
Wilbur Ross, chairman of WL Ross & Co., has made billions investing in troubled companies, restructuring them and then selling them. And he may be among those who invest in some toxic assets.
The trick is figuring out what they're worth, because high-risk mortgages will be bundled together with safer loans. Ross says his objective is to invest in things where the perception of risk is more severe than the actual risk.
By that measure, Ross tells Steve Inskeep, the mortgage-backed securities market isn't there yet. Ross says it's a "land mine" with a tremendous amount of bad loans: "Something like 1 out of every 10 mortgages — even counting all the high-quality ones — are now in arrears."
Part of the reason private investors may invest in toxic assets, however, is the government's assurances. Ross says the government program will provide "a fairly high degree of leverage at a relatively low interest rate."
That means investors will only put up 10 to 15 percent in cash. If the investment is a winner, it will magnify the returns. If, however, investors make the wrong decision, Ross says, they'll have a "relatively smaller exposure" that won't bankrupt them.
Ross says the government program is intelligently designed. "It provides a higher probability of the government recovering some, if not all, of its investment, and yet it brings some capital into the process. And perhaps most importantly, it puts those toxic assets in the hands of people who are somewhat familiar with dealing with that kind of situation, as supposed to leaving it with government people who probably are not that familiar," he says.
The government program is a profit-sharing formula. One of the challenges, however, is trying to establish the "right aggregate price given both the risk and upside considerations," Ross says.
Ross says he may be willing to invest billions in these assets if there's a "very low price." The key to attracting investors, he says, is for the government to find a way to "provide [the] private sector with enough time and enough information that proper due diligence can be done. And then one can at least make a reasoned judgment as to what to pay for what. That to me is the most essential element in the whole thing