Under the Treasury Department's toxic asset proposal, the government puts in 85% of the investment in these assets through a loan given by the FDIC. T
Barak Obama needs to show spine - for the moment he appears to be swayed by Bushites - troop surge in Nowinistan, rescuing Goldman Sachs and big banks - he needs the same resolve he showed for GM. ~~t
Under the Treasury Department's toxic asset proposal, the government puts in 85% of the investment in these assets through a loan given by the FDIC. The Treasury puts in another 7.5% of the money and the private investor contributes the final 7.5%This is a guaranteed way of transferring money from the American taxpayer to the private investors. Let me show you how.
Let's take two assets that the government and investors buy together, both at the purchase price of $100 million. Now, assume that one investment does great and goes up by 50% (to $150 million) and the other one does poorly and goes down by 50% (to $50 million).
Well, the combined assets would still be worth $200 million, so the investors and the government should be exactly where they started, right? Nope. Look at the financial magic in this plan that makes the money disappear from the taxpayer and appear in the private investor's pocket.
In the investment that went down, since the private investor is part of the original 15% deposit, he actually gets wiped out when the loan cannot be paid back. That's really bad for the investor and he has lost his whole $7.5 million. This is the risk that Geithner is talking about to the private investor.
The government on the other hand does not lose all of their money. They had put in $92.5 million, but now that's down to $50 million, so they lose $42.5 million. Unlike the private investor, they got something back. But they lost a lot more money.
Under the Treasury Department's toxic asset proposal, the government puts in 85% of the investment in these assets through a loan given by the FDIC. The Treasury puts in another 7.5% of the money and the private investor contributes the final 7.5%This is a guaranteed way of transferring money from the American taxpayer to the private investors. Let me show you how.
Let's take two assets that the government and investors buy together, both at the purchase price of $100 million. Now, assume that one investment does great and goes up by 50% (to $150 million) and the other one does poorly and goes down by 50% (to $50 million).
Well, the combined assets would still be worth $200 million, so the investors and the government should be exactly where they started, right? Nope. Look at the financial magic in this plan that makes the money disappear from the taxpayer and appear in the private investor's pocket.
In the investment that went down, since the private investor is part of the original 15% deposit, he actually gets wiped out when the loan cannot be paid back. That's really bad for the investor and he has lost his whole $7.5 million. This is the risk that Geithner is talking about to the private investor.
The government on the other hand does not lose all of their money. They had put in $92.5 million, but now that's down to $50 million, so they lose $42.5 million. Unlike the private investor, they got something back. But they lost a lot more money.
posted by temporal at 4/12/2009
0 Comments:
Post a Comment
<< Home