The government apparently is planning to buy out bad bank assets in a 50 50 deal with "private investors." Why a 50 50 deal people ask? Well here is the answer we are getting:
Private investors will help the government get a fair price. i.e. no one knows what these bad assets are worth, but just by their name I bet not much.
Private investor money will help create leverage. Share the risk.No kidding.
Private investors are enticed by a 50% risk reduction with the government throwing in half.
Hmmmm...First of all, let's think who is at risk. There may be 1000's of private investors who use this bad asset investment as part of their portfolio of risk. Mr and Ms Private Investor are not each investing 50%, they are sharing this risk amongst huge other assets in their portfolio.
The governent is in it by itself. Enough said.
This sounds a lot like creative accounting I learned in school. Create an entity that holds the debt so the operating company looks like it has a lower debt/equity ratio. This on paper creates value...hmmmm.
The confidence some people talk about this is scary. I don't know what the right answer is, but I think we may need to get real about what we want or need. If I asked you what do you want 10 years from now vs what do you want tomorrow, you may give me different answers.
We all screwed up and as Einstein said "We cannot solve the problems we face at the same level of thinking we were at when we created them."
Let me make one last thing clear....hope is not a method....This morning on a cable news show I heard "I hope" over and over. Hope helps but it is not a method.
This reminds me a little like the credit card checks you get to move money from one account to the other. Temporary psychic relief which gets you to spend more. It also reminds me of those debt consolidation commercials which shows people walking along the beach....please.
Be careful. Be smart.
Courtesy of SeaOfMoney.com