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Bullish on Ms. Bair!!

Posted by Larry Doyle on March 28, 2009 3:30 PM |

The Bull and the "Bair"

The Bull and the "Bair"

Is there anything worse than engaging a dishonest broker? Regrettably, our financial landscape (banking, investing, real estate, insurance, et al) is littered with shady brokers. How and why these people remain in business is another topic for another day. This piece is to highlight the integrity of an honest broker, Sheila Bair, and her involvement in the PPIP (Public-Private Investment Program) designed to handle toxic assets, both securities and loans.

For those unaware of the specifics of the PPIP, the toxic securitized assets will be sold via a facility known as the TALF (Term Asset Backed Lending Facility) and via partnerships with 5 large private money managers.

Toxic loans (unsecuritized) are the much more difficult part of the program. The bulk of these loans are likely still held on banks’ books at origination cost (not yet marked down) and pose a much greater disparity in perceived value and challenge in reaching agreeable prices.

If and when prices are negotiated and transactions occur, the losses booked will be beyond sizable. These losses may very well deem some institutions to be insolvent. As a result, will the institution be allowed to fail or will the government step in and continue to prop it up, like Citigroup? Wouldn’t you love to be a fly on the wall in the midst of these negotiations and discussions?

Well, the market rallied this past Monday when Secretary Geithner outlined the details of the PPIP. These details were deemed credible. Government representatives clearly want to be optimistic and I can appreciate that. Money managers will likely get some great deals at taxpayer expense on the toxic securities. These deals are the price of restarting markets.

How about the tougher side of the program? Sheila Bair, head of the FDIC and in charge of selling toxic loans, could very easily talk it up. We have plenty of political pundits and market analysts who will tell the investing public what they think they want to hear. Meanwhile, our honest broker and Economic All-Star, Sheila Bair, addresses the critical point in the PPIP. She spoke yesterday and said:

“If there’s an issue with the program, it’s going to be trying to get banks to sell assets,” Bair said today in a speech at the University of Massachusetts’ Isenberg School of Management in Amherst. “If I have concern, it’s the pricing may not be where seller and buyer are willing to meet,” she said

I respect an honest broker. Please read Bair Says Luring Banks to Asset Plan May be Challenge.

LD

  • lizzy

    LD,
    Do you think Bair will address the issue of size too? It seems that they have to take care of solvency, but it would be good if these super large institutions, both banks and investment houses, were made smaller. Great material.

  • Larry Doyle

    Not right away. The downsizing of these institutions will take a while. The BIG question that needs to be addressed on that front is if the Glass-Stegall Act is reinstated. That Act split commercial banking from investment banking.

    IMO, I think there is need for some new regulations (including lessened degrees of leevrage) but also the effective implementation of regulations that are already on the books.

  • Mountainaires

    While I respect FDIC Chair Sheila Bair, I instinctively question everything. I was surprised to read about this:

    http://www.businessinsider.com/sheila-bair-open-to-allowing-banks-to-launder-trash-assets-2009-3

  • Larry Doyle

    Mountainaires….great link. This link highlights the two major rubs with this PPIP program. The aasset sales need to occur at arm’s length to insure that the process is not being gamed. This ability for a bank selling assets to take an equity stake in a fund established to buy the assets clearly does not make for an arm’s length transaction.

    The flip side is if the buyers of these assets make a fortune while the taxpayer bore the brunt of the risk the public will understandably be up in arms about that.

    No win either way.

    Thanks for sharing that link. I was not aware of that development.






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