Wednesday, September 24, 2008

Bailout Evaluations

Rebecca Christie and Jody Shenn reporting on new developments in the mortgage backed securities bailout at Bloomberg.

Essentially, Bernanke and Paulson plan on paying greater than "market" rates (currently at "firesale" prices because there is no private market) for the securities.

From the article:

The government can help restore liquidity to the banking system by buying depreciated assets at "a price close to the hold-to-maturity price,'' rather than the price they would fetch in the market today, Bernanke said. He also warned the economy will contract "if the credit markets are not functioning.''

Seidman [Note-William Seidman worked extensively on the S&L bailout], who also served as Federal Deposit Insurance Corp. chairman, said a 1990s attempt by Japan to halt that nation's banking crisis failed because the government offered prices that would have drained companies' capital.

The Upshot: Valuation will be for above market rates.

No comments: