No doubt Ben and Timmy have it all planned out, how they will use the trickle down machine to reinflate the financial system, and thereby float out loans again, at interest, to the hoi polloi.

From the Irish gnome in Zurich:

The cheapest call option on the planet is being provided by the world's largest HF//Prime broker: the US govt. Its also the best camouflage for a continuing rescue of Citi, GS et al that the Congress and the public cannot penetrate.

TALF Bait and Switch - Zero Hedge

And if it all goes wrong, Geithner is now looking for power to bail out the hedge funds, not to mention Pimco et al.

This sounds like a pretty cheap option to me.

But what has also gone unrecognized is the fact they will all make up this money on their CDS and S&P calls anyway.

If they pay banks their fictional book value, they will be able to pretend that the financial problems were overstated, just a 'liquidity' issue after all.

The banks can claim they HAVE been doing things right and we'll have a huge rally again. Anyone who participates will no doubt reckon on a reduced Prime Brokerage fee and extra leverage from the grateful seller - -which means asset inflation has another leg up.

Remember, ALL banking 'capital' is notional, so it is easy to conjure up the illusion of wealth creation once more.

Fed to start buying Treasurys on Wednesday
By Deborah Levine
2:58 p.m. EDT March 24, 2009

NEW YORK (MarketWatch) -- The Federal Reserve Bank of New York will begin making purchases Of U.S. Treasury securities on Wednesday, starting with debt maturing between 2016 and 2019.

It will continue purchases on Friday and next week, with some days dedicated to purchases of maturities as short as 2-year notes with others for debt maturing in 17 to 30 years, it said in a schedule posted on its website Tuesday.

It did not indicate how much it would buy. The Fed announced last Wednesday it would purchase up to $3000 billion in Treasurys over the next six months. Treasurys rallied, with yields on 10-year notes (UST10Y UST10Y) paring an earlier increase to traded up 1 basis point to 2.66%.

Do you ever get the feeling that all this rescuing has very little to do with interest outside of those of the Banksters here and there?

Well I don't know. Jesus said that rain falls on the just and unjust.

I think that huge numbers of people are facing a $****storm right now.

Win-Win-Win' vs. 'Robbery:' Wall St. Loves Geithner's Bad Debt Plan But Taxpayers Should Hate It
Mar 24, 2009 03:53pm EDT by Aaron Task in Investing, Newsmakers, Banking Related: WFC, GS, XLF, FAS, JPM, BAC, C
Play VideoNow Playing
A day after Tim Geithner's plan for toxic assets spurred a huge rally, the stock market was down modestly Tuesday afternoon as investors and pundits continued to mull the details of the scheme.

The plan is extremely complex (intentionally so says Clusterstock's John Carney) and its success or failure, hinges upon multiple variables. Most critically: What price are investors willing to pay for toxic assets and what price banks are willing to sell them for - most likely at a loss?

Before we get into the nitty-gritty, consider the following quotes, from two highly respected sources:

• "This is perhaps the first win-win-win policy to be put on the table and it should be welcomed enthusiastically," Pimco founder and co-chief investment officer Bill Gross told Reuters. "We are intrigued by the potential double-digit returns as well as the opportunity to share them with not only clients but the American taxpayer."
• "Quite frankly, this amounts to robbery of the American people," Columbia University's Nobel Prize-winning economist Joseph Stiglitz told Reuters.

In a nutshell, Gross' view represents that of the institutional money management community and Wall Street generally. The plan is very good for them...



Click "more" to view the rest of the post and embed the video.

» More

One Small Problem with Geithner's Plan: It Will Bankrupt the Banks
Mar 25, 2009 09:54am EDT by Henry Blodget in Investing, Recession, Banking Related: aig, c, bac, wfc, xlf, ^gspc, ^djiFrom The Business Insider, March 25, 2009:

The big problem with Tim Geithner's plan to fix the banks is the same as it ever was: The gap between what banks say their assets are worth and what the market says they are worth.

When a bank says an asset is worth 60 cents and the market says it's worth 30 cents, someone has to cover that spread. The genius of Geithner's plan is that it pawns most of the cost (and most of the risk) off on the taxpayer without the taxpayer noticing.

But unless the taxpayer gets stuck with the entire spread, which is probably what Geithner is hoping, banks that sell assets will have to take massive writedowns. This will start the whole cycle of violence again.

This risk to the banks is particularly acute when dealing with whole loans that the banks currently say they have no plans to sell. These loans are often carried at 100 cents on the dollar, because loans classified as held to maturity don't have to be marked to market. Even subsidized buyers won't likely be willing to pay anywhere near 100 cents on the dollar for these loans. So, here, the writedowns could potentially be huge.

And then there's another problem:

If the banks go through the exercise of putting assets up for sale only to have the bids come in at, say, 40 cents instead of the 60 cents on the books, the banks' accountants and/or federal regulators might notice. So even if the banks recoil in horror and refuse to sell at 40 cents, someone somewhere might insist that assets now carried at 60 cents be written down to 40 cents (after all, they won't have the "temporary illiquidity discount" excuse anymore, will they?). This will blow another huge hole in the banks' balance sheets.

Given this, banks would probably be wise not to participate in Geithner's plan. Which is why the government is already talking about forcing them to:

Click "more" to view the full post.

For more coverage, see The Business Insider:

Top 25 Hedge Fund Managers Only Made $12 Billion Last Year
Magna Cum Lousy: Where Today's Bad CEOs Went to School

» More

BETHANY McLEAN
Hedge-Fund Time Bomb

The Geithner Problem By Eugene Robinson — The treasury secretary may indeed be the hardest-working man in Washington. But in order to survive, let alone succeed, he’s going to have to make a more convincing case that he’s part of the solution and not part of the problem.

Blackrock, Carlyle Support Geithner's Toxic Debt Plan \ Bloomberg - ‎Mar 23, 2009‎ The initial enthusiasm was tempered by concern that the plan detailed today by Treasury Secretary Timothy Geithner still doesn't address whether banks will ...

Big Wall Street players see Geithner plan as a good deal Los Angeles Times

Private Investor Backs Geithner's Plan NPR

Pimco gets behind Geithner plan The Daily Deal (subscription)

Geithner 'open' to China proposal
By BEN SMITH | 3/25/09 12:54 PM He doesn't rule out 'evolutionary' new global currency.

• Geithner comment causes dollar drop
• Geithner: We all need to take risks

I get the feeling that the Banksters interests bring us down, and bring us up. Without their interests being the same as ours, they can afford to wait it out, but we can't.

If they are afraid of us, they will act in their best interests and ours. If they are not afraid then they won't!

Patriots With Pitchforks will rule the day, if they just get close to their houses.

http://www.thenation.com/special/grittv.mhtml?rel=hp_picks



The Nation Presents: GRIT TV with Laura Flanders
"The AIG bailout, in effect," writes Matt Taibbi, “was Goldman bailing out Goldman...rich bankers bailing out rich bankers, using the taxpayers' credit card.”

The bailout is as much about power as it is about money. Taibbi, Jane Hamsher and Robert Johnson discuss what can be done to take that power back from the financial institutions that have wrecked the economy and our democracy.

For more on the program and archives visit grittv.org.

The Geithner Disaster: How The Treasury Secretary Is Undermining Obama's Entire Economic Agenda
by John B. Judis

THINK TANK
Geithner's 2.0
by Steve Coll Return of the zombie banks.http://www.newyorker.com/online/blogs/stevecoll/2009/03/geithners-20.html

Powerful Banks and Government Handouts to the Rich: It's Time for Protest

Zephyr Teachout, AlterNet

Corporate Accountability and WorkPlace: A new grassroots group has organized protests for April 11 in 11 cities so far, and the ranks of signups are swelling fast.

The Real AIG Scandal: How the Game Is Rigged at Wall Street's Casino

Lucy Komisar, AlterNet

Corporate Accountability and WorkPlace: Congress has deftly avoided the real story of AIG's collapse, which will make a few million in bonuses seem like peanuts.

Time to stop the rip-off
The US government is indulging in the biggest rip-off in the history of man - even as the wealth divide in the US has never been greater. And there is no end in sight. President Barack Obama has to learn the toughest decision there is in business - when to stop throwing good money after bad money.- Hossein Askari and Noureddine Krichene

http://www.atimes.com/atimes/Global_Economy/KC27Dj03.html

MARGARET CARLSON
Geithner Deals Wall Street a Can’t-Lose Hand I feel like Rush Limbaugh now, because I really want certain people to fail: George W. Bush’s former economic adviser, Lawrence Lindsey, Nobel Prize-winning economists Paul Krugman and Columbia University Professor Joseph Stiglitz. All of them say the U.S. Treasury’s plan to buy troubled bank assets will lead to wrack and ruin. And when the trillion dollars to pay for it is gone, we won’t be able to afford the printing press to make more.

AMITY SHLAES
Gary Becker Dishes Antidote to Federal Activism Action is what politicians are all about, especially in a crisis. So you can be sure that Treasury Secretary Timothy Geithner’s Public-Private Investment Program to restructure troubled banks will hardly be the last rescue plan -- as they inevitably, heroically, are labeled -- to emerge.

The article seems to center around AIG.

So what do you propose ? Letting AIG crash ?

The potential result could do far worse than costing billions of dollars.

Overlooking the implications of failure and concentrating only on the known costs seems to be one shortsighted view and lack of understanding common to the majority of people.

"Too Big To Fail" Must Go

So... we can crash now... or we can crash later.

I'd gamble on trying to fix it rather than taking a known flight straight into the ground.

• Bernie Sanders:
  Enough is Enough: Let's Stop Wall Street Loan-Sharking

Another essay that ignores the inconvenient truth.

Amazes me how many people simply don't get the real picture.

So take down AIG and the top half dozen or so banks.

And then... expect the public to have any confidence in banking at all... and expect the economy to recover. Yeah... sounds like a real good idea to me.

http://www.counterpunch.org/madden03262009.html<h1
Three Bad Assumptions
Why the Geithner Plan Will Fail
By PATRICK MADDEN

This week the Obama administration released the details of its plan to stimulate the flow of credit and reduce the cost of borrowing by subsidizing the purchase of mortgage and other debt-backed securities, the market for which has completely dried up since the onset of the crisis. The plan is designed to encourage so-called public-private-partnerships (PPPs) between private investors and the US government, in an arrangement in which the US Treasury will put up billions in low-interest, nearly risk free loans to private investors willing to purchase the toxic assets- now politely dubbed 'legacy assets' by the administration- that have been straining the balance sheets of the banks that hold them. The idea is that if investors can be enticed into buying these debt instruments, then the banks will be able to move them off of their balance sheets and thus be able to begin issuing new loans to consumers, in turn helping to stimulate the debt-fueled demand that has fallen off sharply since the bursting of the housing bubble and the collapse of the 'originate-and-distribute' model of debt creation.

After Treasury Secretary Tim Geithner divulged the details of the plan on the morning of 23 March, the markets responded by surging upwards, with banks leading the way: the S&P Financial index gained an impressive 19%, driving overall gains of 7% in the broader S&P 500. Optimists began suggesting that the 'bottom' is in sight, perhaps marking a turning point in a global recession in which 50 trillion in global wealth has faded into oblivion , stock markets have plumbed lows not seen in a decade, and global unemployment has skyrocketed.

Yet the terms of the arrangements are suggestive of the enormity of the problem. In order to entice private investors to buy these securities, the government is taking on almost all of the risk of the venture and loaning up to 97% of the purchase price of the securities to investors. In order to provide such an incentive the US Treasury will put up nearly $100 billion of its own funds from the Troubled Asset Relief Program (TARP) and use its leverage from the Fed and the FDIC to borrow up to $900 billion which it will loan out to potential investors. The New York Times described the arrangement:

[The] crucial incentive for investors — traditional fund managers, hedge funds, private equity funds, pension funds and possibly even banks — is that the government would lend as much as 85 percent of the purchase price for each portfolio of mortgages….On top of that, the Treasury would invest one dollar of taxpayer money for every dollar of private equity capital to cover the remaining 15 percent of the portfolio's purchase price….The biggest inducement in all the programs is the government's willingness to provide "nonrecourse" loans to institutions that buy up the unwanted assets. A nonrecourse loan is secured only by the underlying home or building….If the borrower defaults, the government would only be able to seize the real estate. If the mortgages or the securities generate bigger losses than expected, the government and not the private investors would have to absorb the brunt of those losses.

The money generated from the TARP-backed plan could result in up to $1 trillion being handed over to investors- yet this is not all. The Troubled Asset-backed Loan Facility (TALF), will also create close to $1 trillion in loans for roughly the same purpose as the TARP fund.

How are we to explain the administration's willingness to have the US taxpayer shoulder the risk of the TALF and TARP plans while at the same time exposing the dollar to immense inflationary pressures and potential devaluation? Amidst the recent AIG bonus scandal public outrage has been directed at the crony-capitalism of the Fed-Treasury-Wall Street nexus exemplified by figures like Geithner, whose conflicts of interest and ties to big Wall Street firms compromise their ability to make good policy decisions. Indeed, as David Harvey recently wrote on this site, the class-warfare dimension of the current crisis should not go un-noticed. The current plan will no doubt continue the trend in the redistribution of wealth toward the wealthy. We should supplement this analysis of the class-warfare dimension of the crisis with one that explains why the plan will fail, even on its own terms.

Geithner's wager is based on three erroneous assumptions. First, that hidden in that titanic morass of debt backed securities is value. Second, that the fundamentals of the US economy are essentially sound. And third, that the foreign governments that buy up our debt will continue to do so regardless of the fiscal and monetary profligacy of the Obama administration and the huge global imbalances that have been growing for half a generation. There are significant problems with each of these assumptions, and I will deal with them in turn.
The Geithner plan assumes that the debt-securities and credit-derivatives bogging down the banks' balance sheets are not being purchased because their values are unknown; thus, for obvious reasons, investors are loth to take on the risk these assets conceal. Nobody knows if the low prices of these securities simply reflect an unduly large risk premium, or, alternatively, if the low prices are an indication of the underlying toxicity of the asset. A recent Financial Times article describes the problem:

The scheme should clarify the degree to which current depressed prices of traded securities reflect a liquidity risk premium - absence of financing - as opposed to expected credit losses, and may lead to a new, higher price level being established…."We are trying to tease out the liquidity premium," said Sheila Bair, chairman of the FDIC. The plan could reveal that the liquidity risk premium was large - as Ms Bair expects. Or it could show that the premium was not that big and expected losses are very large.

Currently, the banks are caught between a rock and a hard place, as selling off their debt-securities at current prices would entail even more losses, while not selling them off will inevitably lead to future write-downs and the prolonging of the credit crisis. Geithner's hope is that the huge incentives and cheap financing provided by the government will restart the market for these troubled assets, raising their prices and lowering their risk premiums.

Yet it is far from clear that the Geithner plan will be able to square this circle, as the market forces driving down prices and pushing up risk premiums may be too strong to overcome. Again, the New York Times:

Risk-taking institutional investors, like hedge funds and private equity funds, have refused to pay more than about 30 cents on the dollar for many bundles of mortgages, even if most of the borrowers are still current. But banks holding those mortgages, not wanting to book huge losses on their holdings, have often refused to sell for less than 60 cents on the dollar.…The result has been a paralyzing impasse. Banks, unwilling to sell their loans at fire-sale prices, have had less capital available to make new loans. Mortgage investors, unable to leverage their investments with borrowed money, have been unwilling to pay more than fire-sale prices.

Even if the Geithner plan is able to attract investors, a further very serious problem remains: the size and scope of the plan. According to the Financial Times, even a $1 trillion plan will remove only a portion of the debt-backed securities from the banks' books. The IMF has estimated that US bank losses on bad assets will reach $2.2 trillion, while Nouriel Rubini has revised his estimate upward to $3.6 trillion.

The upshot is that the current plan may be able to cover only a fraction of the assets that the banks stand to lose. The hope is that once the government plan jump-starts the market for these securities the engine of debt-creation and speculation on debt-derivatives will start turning over, in turn stimulating credit-driven demand thus pulling the US and the rest of the globe out of the recession. This will probably prove to be wishful thinking, as the problem facing the global economy runs deeper than the 'financial sector.'

In order for the Geithner plan to work it would have to be the case that the current crisis is confined to the banking and financial sector and that the rest of the economy is fundamentally sound. Assuming this, the only problem is to revive the credit markets so that banks can start lending, investors start buying banks' debt-securities, and American consumers get back to the old routine of buying cheap foreign goods with the credit that they need to supplement their stagnating incomes. But this assumption makes the error of completely overlooking the very deep-rooted problems that lie at the heart of the global capitalist system. In a recent interview with the Asia Pacific Journal, economic historian Robert Brenner spelled out the problem, stressing that the system wide overcapacity in the global manufacturing sector has led to a declining rate of profit, slow growth in investment in plant and equipment, stagnating wage growth, and finally the expansion of huge bubbles in equities and housing. As Brenner puts it:

It's understandable that analysts of the crisis have made the meltdown in banking and the securities markets their point of departure….From Treasury Secretary Paulson and Fed Chair Bernanke on down, they argue that the crisis can be explained simply in terms of problems in the financial sector….[They] assert that the underlying real economy is strong, the so-called fundamentals in good shape. This could not be more misleading. The basic source of today's crisis is the declining vitality of the advanced economies since 1973, and, especially, since 2000. Economic performance in the U.S., Western Europe, and Japan has steadily deteriorated, business cycle by business cycle, in terms of every standard macroeconomic indicator -- GDP, investment, real wages, and so forth. Most telling, the business cycle that just ended, from 2001 through 2007, was -- by far -- the weakest of the postwar period, and this despite the greatest government-sponsored economic stimulus in U.S. peacetime history.

Under the Clinton administration the US turned to a policy of low interest rates and easy money policies that allowed consumers to take on unprecedented debts, driving up asset prices and increasing the 'paper-wealth' of holders of securities and owners of homes. The bubbles of the last ten years must be seen as a direct result of the overproduction that has plagued the manufacturing sector since the beginning of the 'long downturn' in 1973. By 1995, with the Reverse Plaza Accord agreements, the US effectively ceded the field in manufacturing to Japan, Germany, smaller Asian countries, and eventually China.

The US agreed to maintain a high-dollar policy and an ever-growing current account balance, which it financed by issuing credit instruments to its creditor countries: this is why China now holds close to $2 trillion in dollar denominated reserves.

As long as the US's creditor nations continued to accept credit instruments (government and corporate bonds, etc.), and hold these in dollar denominated reserves, it is conceivable that the colossal imbalances of the global capitalist system could be maintained. This, however, is looking increasingly less likely. Recently, China has begun questioning the stability of the dollar. Here is Chinese premier Wen Jaibo, from a recent Financial Times article. '"We have lent a huge amount of money to the United States"…."Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the US to maintain its good credit, to honour its promises and to guarantee the safety of China's assets."' And in a recent essay Zhou Xiaochuan, governor of the People's Bank of China, expressed his concern over 'the potential inflationary risk of the US Federal Reserve printing money,' going so far as to call for a new reserve currency. Clearly the Chinese state is not interested in financing the US current account gap indefinitely.

Geithner's plan to pump trillions into the markets will only exacerbate the problem of international faith in the stability of the dollar. In order to finance the purchase of the debt-backed securities, the Fed has to finance these purchases. How does it do this? A recent article by Stanford economist John Taylor explains:

The Fed can borrow the funds, or it can ask the Treasury to borrow the funds, or it can do it the old-fashioned way: create money. The Fed creates money in part by printing it but mostly by crediting banks with deposits at the Fed. Those deposits are called reserve balances and are the key component - along with currency - of base money or central bank money which ultimately brings about changes in broader money supply measures….These deposits or reserves have been exploding as the Fed has made loans and purchased securities. Six months ago reserves were $8bn, in a range appropriate for its interest rate target at the time. As of last week, reserves were nearly 100 times larger at $778bn, the result of creating money to finance loans to banks, investment banks, AIG, central banks and purchases of private securities….With last week's dramatic announcement, the Fed will have to increase reserves…to $3,365bn by the end of the year if the securities purchases are financed by money creation.

The coming year will witness three interrelated pressures put on the dollar. The first will be the current account gap, the second the enormous expansion of the money supply that will result from the bailout plan, and the third are the gargantuan budget deficits projected by the Obama administration- already estimated at $1.75 trillion for 2009.

The Geithner plan assumes that the toxic assets that the banks hold can be detoxified to re-start lending; it assumes that there is no problem with the fundamentals of the global economy; and it assumes that China and the rest of the world will have the patience and the political will to allow the US to print money at astonishing rates in order to keep the system afloat. Maybe this is not impossible, but it is extremely unlikely.

Patrick Madden is a PhD student at the University of California at Santa Cruz. He can be reached at: patrickjmadden@hotmail.com

Notes.


Robert Schmidt and Rebecca Christie, 'Geithner Races to Show Progress on Plan for Assets,' Bloomberg.com, 24 March, 2009. Ralph Minder and Alan Beattie, 'ADB says asset falls have cost $50,000 bn globally,' Financial Times, 9 March, 2009.

Edmund Andrews, Eric Dash, et. al., 'US Expands Plan to Buy Banks' Troubled Assets,' New York Times, March 24, 2009.

Guha, 'Geithner Tackles "Legacy Assets".'

Edmund Andrews, Eric Dash, and Graham Bowley, 'Toxic Asset Plan Forsees Big Subsidies for Investors,' New York Times, March 21, 2009.

Nouriel Roubini, 'Time to nationalize insolvent banks,' The Korea Herald, March 3, 2009.

Robert J. Brenner speaks with Jeong Seong-jin, "Overproduction not Financial Collapse is the Heart of the Crisis: the US, East Asia, and the World," The Asia Pacific Journal, 6-5-09.

Geoff Dyer and Alan Beattie, 'China calls on US to "honour promises",' Financial Times, March 14, 2009.

Jamil Anderlinin, 'China wants to oust dollar as international reserve currency,' Financial Times, March 24, 2009.

Taylor, 'The threat posed by ballooning Federal Reserves.'

Au contraire - Keep on this course, experience bank holidays in the future - and people will not have any confidence in either the banks
or the government.

Good Money After Bad
Billions More for Failed Banks
By DEAN BAKER

Treasury Secretary Timothy Geithner's latest bank bailout plan is another Rube Goldberg contraption intended to funnel taxpayer dollars to bankrupt banks, without being overly visible about the process. The main mechanism is a government guarantee that would allow investors to buy junk with a 12 to 1 leverage ratio, where they only risk the downside on their own investment, not the borrowed money.

Ostensibly, this is supposed to reveal the "true" price for junk assets, as investors compete at auctions to buy assets under the new rules. However, this story doesn't pass the laugh test. We will learn what price investors are willing to pay for these junk assets when they are given a large subsidy from the government to buy them. In reality, this plan is a way to use taxpayer dollars to get investors to pay far more than these assets are worth in order to give more money to bankrupt banks.

The results will be mixed. Some of the assets undoubtedly have some value. There are no doubt shrewd investors who have identified certain assets that they would have been willing to buy from the banks, but they put off the purchase waiting for a deal like this. Now these investors will have the opportunity to buy these assets with large subsidies from the government, allowing them to make substantial profits. It's not clear if President Obama will want to invite this new group of hedge fund billionaires, who got rich off this government program, for photo ops in the White House Rose Garden.

A second outcome is that many investors will see the subsidy and decide to dive in, recognizing that most of any potential loss will be born by the government. This route might prove especially attractive for one of the zombie banks, who would effectively have nothing to lose anyhow, since they are already bankrupt. In these cases, the government can expect to see substantial losses, since the investors would bid more than the assets are worth, and the government would be stuck with the eventual loss.

A third result of this path is that the subsidized class of assets would rise in value relative to assets that do not benefit from the government subsidy. This could cause banks that are relatively healthy, and therefore not taking part in this program, to suffer. With investors opting to buy assets that come with government subsidies, the demand for mortgages or mortgage-backed securities that don't have these subsidies might suffer.

A fourth likely outcome is that even with the subsidies, much of the toxic waste would stay on the banks' books. There is a large gap between the price that investors have been willing to pay for these junk assets, which has been around 30 cents on the dollar, and the price that banks list on their books, which has been 60 cents on the dollar. If the government subsidies raise the price that investors are willing to pay by 50 percent (a very large increase), then the banks would still have to write down these assets by another 15 cents on the dollar in order to make the sale.

It is likely that the gap between the asking price and the offer will not be closed for a large portion of these assets, even with the government subsidy. As a result, the banks are likely to still have several hundred billion of bad assets on their books even after this plan has been put in place. The Obama administration will then be forced to go to Congress with yet another bailout proposal.

It is also worth noting that this is a situation that invites all manner of fraud since there are very large government subsidies that could be appropriated through clever schemes. The Obama administration assured the public that the Federal Deposit Insurance Corporation (FDIC) will be closely monitoring the program, but the FDIC does not have the staff or the expertise to effectively track a program of this size. The situation is complicated further by the fact that many of the big actors are likely to be hedge funds and private equity funds, who are almost completely unregulated in the current environment.

It is hard to understand this plan as anything other than a last ditch effort to save the Wall Street banks. Unfortunately, Mr. Obama seems prepared to risk his presidency on their behalf.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy.

This article originally appeared in The Guardian.


http://www.counterpunch.org/baker03252009.html

So... you want to crash now without trying to fix anything.

Either way we turn our country into a third world economy.

Me... I'd rather take the chance that we can fix it than listening to the naysayers who offer no real solution.

We Need to Regulate the Financial Instruments That Took AIG Down George Soros, The Financial Times We Need to Regulate the Financial Instruments That Took AIG Down

George Soros, The Financial Times

http://www.alternet.org/workplace/133272/w..._took_aig_down/

And this should have been done some time ago before billions of dollars went flying out the door.

Plus...

either way WE are going to pay for it. Ultimately the losses have to be absorbed.

Did anyone tell Bush or Congress ?

Did anyone think before they pushed for deregulation of the financial markets ?

We are going to wind up there anyway. The Global Europe Anticipation Bulletin presents the following scenario:

Towards a decade long uncontrolled crisis:

The below dates are only indicative; we do not pretend to anticipate the date of many years in advance. But the sequence and pace of th eprocess described hereafter are worth taking into account:

April-July 2009 - The G20 is unable to initiate an alternative to the current international monetary system/conflicts between new bailout plans and new regulations/ adoption of half-measures and compromise increasing loss of confidence by the global public/ bankruptcies among large US companies (including General Motors and Chrysler)/ nationalization of US banks wth domino effects in Europe and Asia/ incapacity of UK government to finance its debt other than through the Bank of England/ Collapse of the pound sterling and intervention of the IMF and the EU to prevent the country's default.

August-October 20009 - Direct USA/EU/Asia competition to attract global savings no longer sufficient to finance increasing public deficits/ incapacity and falling interest on the part of China, Japan and oil-producing monarchies to buy ever increasing quantities of US T-Bonds issued to finance exponential US debt/ purchase of US T-Bonds by the Fed/ Dollar collapse/ Default of the entire US financial system, including government/ increasing unemployment worldwide (15% in the US at the end of summer)

November 2009-March 2010 - In the absence of a common agenda, it is impossible to call a further G20 meeting/ unemployment exceeds 20% in the US/ daily riots of immigrant workers in China/ a socialist government is elected in Japan/ Creation of a European Solidarity Fund to aid regions most affected by unemployment/ daily demonstrations and strieks in big European cities/ collapse of tax revenues in the US, several states, for examplet Texas and California, refusing to sent their tax revenues to the federal government/ mulitiplication of anti-federal attacks in the US, perpetrated by extreme-right militias/ initiation of US trooops' withdrawal from more than half of their bases abroad because of budget cuts/ disruption of the global economic fabric (production lines halted by bankruptcies among essential suppliers

and it goes on from there

I think we need to keep our pitch forks aimed at our representatives in Congress and the White
House. A civil war will just cost more in blood and resources...

These are what economists in Europe are saying about what is going on here

April 2010/April 2014
Increased shortages of food, medicine, spare parts, energy etc. in various regions of the world/ 30 percent drop in US GDP and 50 percent drop in living standards compared to 2008/ increasing mass shootings in the US, in a context of unemployment, deprivation and dilapidation of the public infrastructure (health, police, education ...)/ erosion of the Southern frontier under the double strain of drug cartels and Mexican claims/ growing secessionist risk on the part of individual states, and the temptation to take military action against them on Washington's part/ The last US troops leave Europe/ NATO becomes the Euro-American Alliance, incorporating Russia/ General civil war in Columbia/ Creation of the South American Union under the initiative of Brazil, Venezuela, Peru and Argentina/ State of emergency in Russia to preserve territorial integrity, namely on the Southern and Eastern borders/ Division of the Ukraine/ Massive exodus of economi imimgrants from Africa to Europe/ 20 percent reduction of average living standards in the EU compred to 2008/ Muslim fundamentalist coups extending from Pakistan to Morocco, including the oil-producing monarchies/ Israel suffers major economic crisis and decides to attack Iran's nuclear facilities/ Due to lack of investment and regional crises, global oil-production capactiy slumps/ extreme right majorities in the 2014 European election with this kind of slogan: "Europe for the Europeans"/ China, Japan, South Korea and the Asean announce the creation of the Asian Union/ Taiwan agrees to be subsumed by the People's Republic of China etc.

In short - world begins to look like Europe in 1914.

So you don't want to buy any time with the thought that we may dig ourselves out of the hole in the meantime. A lot can change and can be changed... in time.

Crash it now and... voila... instant crash that puts us into a deeper and even longer lasting depression. Not to mention that the whole financial foundation would be destroyed and would not soon be repaired / replaced.

Everyone may as well take their money and burn it in that case... and write off ANY retirement accounts, investment accounts, pensions, insurances, annuities... and every other financial instrument.


The fact that WE are trying to protect our own ass...ets by doing what we are seems to be disregarded.

Sure it may not work... but the other path is certain failure.

Geithner Update: Grab Yer Ankles and Say “Uncle Sam”
by Mike Whitney / March 25th, 2009 (5)

Timothy Geithner refuses to take underwater banks into receivership and resolve them, but has no problem turning the FDIC into a hedge fund. That’s right; under Geithner’s “Public Private Investment Partnership” (PPIP) FDIC chief Sheila Bair will assume the mantle of Bernie Madoff and oversee the establishment of Hedge Fund USA, a behemoth government-owned operation that will enlist the talents of five or six Wall Street managers to conduct auctions for toxic home loans and other repellent securities. The new program, which will provide lavish subsidies to investors, marks the first time that a standing government has transformed itself into …

(Full article …)

Judgment Day for Geithner

by Mike Whitney / March 25th, 2009

Whether he deserves it or not, Timothy Geithner has become the poster boy for everything that’s wrong with the government’s scatterbrain financial rescue plan. Geithner was in the wheelhouse at the New York Fed when Bear Stearns and Lehman Bros defaulted, and he played a central role in the $165 million AIG bonus scandal that ignited a populist firestorm across the country. Now everything even remotely connected to the bank bailout has become a source of fist-clenching rage. The mood of the country has darkened from the steady downpour of bad economic news, the sharp decline in housing prices and the steep rise in unemployment. People are angry at the government, the banks and Wall Street. Their nerves are frayed and their patience is stretched to the limit.

It is in this atmosphere of simmering public fury that Geithner will announce the details of his long-awaited plan for removing up to $1 trillion of toxic assets from the balance sheets of some of the country’s biggest banks. Information about Geithner’s “Public-Private Partnership” and the so called Term Asset-Backed Securities Loan Facility (TALF) has been spotty so far, but enough is known about the plan to predict that it will likely be the noose into which Geithner thrusts his scrawny neck, bringing his dismal career at Treasury to a end. The country will not endure another pretentious-sounding banker-friendly flim flam, which is precisely what Geithner has in mind.

According to the Associated Press:

Officials said Geithner’s plan will have three major parts. One part will be an effort Geithner spoke about last month — the creation of a public-private partnership to back purchases of bad assets by private investors . . . Treasury will hire four or five investment management firms, matching the private money that each of the firms puts up with government funds.

A second part of the plan will expand a recently launched program being run by the Federal Reserve called the Term Asset-Backed Securities Loan Facility, or TALF.

That program is providing loans for investors to buy assets backed by consumer debt in an effort to make it easier for consumers to get auto, student and credit card loans. Under Geithner’s proposal, this program would be expanded to support investors’ purchases of banks’ toxic assets.

The third part of the Geithner plan would utilize the resources of the FDIC, the agency that guarantees bank deposits, to purchase toxic assets. Officials said that the FDIC will create special purpose investment partnerships and then lend those partnerships money so that they can buy up troubled assets.

Why in heaven’s name would Sheila Bair attach her good name to Treasury’s latest bunko-scam? As Bair undoubtedly knows, the main objective of the Public-Private Partnership and TALF is to provide inflated prices for garbage assets that investors refuse to buy. It’s just a way of transferring losses from the banks to the taxpayer by using a middleman who looks like a partner but only has a five percent stake in the game. This is “tax cheat” Timmy’s circuitous way of socking it to the public one more time. Here’s how Yves Smith at Naked Capitalism explains it:

“First, the banks, as in normal auctions, will presumably set a reserve price equal to the value of the assets on their books. If the price does not meet the reserve (and the level of the reserve is not disclosed to the bidders), there is no sale; in this case, the bank would keep the toxic instruments.

Having the banks realize a price at least equal to the value they hold it at on their books is a boundary condition. If the banks sell the assets as a lower level, it will result in a loss, which is a direct hit to equity. The whole point of this exercise is to get rid of the bad paper without further impairing the banks.”

Okay, so the auctions are rigged and the banks get overpaid for toxic waste. Surprised? Geithner’s task from Day 1 has been to keep the money flowing from the vault at Treasury to the big banks. This is just more of the same. The TALF and the PPP are just clever acronyms meaning “corporate welfare” which is ladled out to bank tycoons who have their agents working the levers from the inside. The public, of course, takes it in the shorts once again.

Yves Smith writes:

“Dear God, the Administration really thinks the public is full of idiots. But there are so many components to the program, and a lot of moving parts in each, they no doubt expect everyone’s eyes to glaze over.” (“Public Private Partnership Emerging,” Yves Smith, Naked Capitalism)

Geithner has been trying for weeks to lure hedge funds and private equity firms into participating in his program offering up to 95 percent leverage for the purchase of the banks bad assets. By providing loan guarantees rather than capital, Geithner can (in the words of the Wall Street Journal’s David Wessel) “rely on the Federal Reserve’s amazing ability to come up with unlimited sums without congressional consent.” This means that Geithner has moved on to Plan B, which makes good use of Bernanke’s deep pockets and well-oiled printing press.

Geithner’s strategy is nothing more than a trillion dollar stealth bailout of the country’s biggest banks. The funding from the TALF and PPP are just the first part of a one-two knockout punch. Treasury will try to show that it paid less for the assets than their current book value (which, of course, is grossly inflated) and then follow up with generous capital injections from the TARP program to make up the difference. That way, the banks will be “made whole” again while the public gets the double whammy. Geithner is hoping that the public relations hype surrounding the program will allow him to carry out his strategy before anyone figures out what’s really going on. Fortunately, the blogosphere is following every little detail, which means that the plan will be picked apart just minutes after it is released. If the punditocracy gives it the “thumbs down,” there’s a good chance that Geithner will have to pack it in and resign. His credibility was wobbly to begin with. A failure here would surely be the last straw. Senator Richard Shelby voiced the concerns of many elected representatives when he said on FOX News Sunday that Geithner was on “shaky ground,” and that “if he keeps going down this road, he won’t last long.” By late Monday, we should know whether Geithner will continue to serve at Treasury or hobble back to his dingy rookery at Kissinger and Associates.

According to the New York Times:

“The Federal Deposit Insurance Corporation will set up special-purpose investment partnerships and lend about 85 percent of the money that those partnerships will need to buy up troubled assets that banks want to sell.

. . . Private investors, then, would be contributing as little as 3 percent of the equity, and the government as much as 97 percent.”

The idea that 97 percent “low interest” funding constitutes a “partnership” boggles the mind. Where can a businessman or a homeowner get gravy a deal like that? The Treasury is providing a subsidy to Wall Street crooksters to manage taxpayer money so they can fatten their own bottom line. It’s that simple. Geithner’s not only willing to empty the public purse for his buddies but, also, write another trillion dollar check on an account that is already overdrawn by $11 trillion. This is one gigantic looting operation concocted by bank lobbyists masquerading as public officials.

The whole purpose of the Geithner shakedown is to mislead the public. Why should the perilously underfunded FDIC provide non-recourse loans to hedge fund sharpies and PE scalawags when its primary responsibility is to protect bank depositors? And why are they setting up more of the same Enron-type “off-balance sheets” special purpose vehicles that blew up the financial markets to begin with? This has disaster written all over it. The non-recourse loans create a “no lose” situation for investors who can dump any type of crappy mortgage-backed sludge into the program and not worry about any legal backlash. Here’s how Paul Krugman sums it up on Saturday’s blog:

The Geithner plan has now been leaked in detail. It’s exactly the plan that was widely analyzed — and found wanting — a couple of weeks ago. The zombie ideas have won.

The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.

To this end the plan proposes to create funds in which private investors put in a small amount of their own money, and in return get large, non-recourse loans from the taxpayer, with which to buy bad — I mean misunderstood — assets. This is supposed to lead to fair prices because the funds will engage in competitive bidding….

This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan that might actually work. (Paul Krugman’s blog)

Geithner’s plan is a catastrophe. It’s just a sloppy remake of Paulson’s failed Super SIV that was supposed to save Citi from massive losses but closed without a single sale. Not one investor stepped forward to buy assets even though Paulson slapped the Treasury’s seal of approval on entire operation. It was a complete bust. Now Geithner is following in the ex-Treasury Secretary’s footsteps.

The banks are not going to fix themselves. Only government can do that, which means that someone will have to fill the leadership void and do the heavy lifting. But time is running out and the problems are getting worse. Public support is on the wane. Obama should take advantage of what little confidence in the system is left and take radical corrective action. Insolvent financial institutions have to be taken into receivership and liquidated. Shareholders and bondholders will have to take a haircut. And Geithner, Summers and the rest of the White House banking fraternity will have to resign or be fired. Obama should mull over Albert Einstein’s sage advice when he said, “The problems we face today cannot be solved by the minds that created them.”
http://www.dissidentvoice.org/2009/03/judg...y-for-geithner/

WE are already the hedge fund. WE are the government and WE will lose if we don't fix it.


In any case Snuff... keep posting these naysayers' articles. When you find one that offers a REAL solution please start a new thread.

Roubini Says Stocks Will Drop as Banks Go 'Belly Up'

By Michael Patterson and Maithreyi Seetharaman


March 26 (Bloomberg) -- U.S. stocks will fall and the government will nationalize more banks as the economy contracts through the end of 2009, said Nouriel Roubini, the New York University professor who predicted last year's economic crisis.

"The stock market is a bit ahead of the real macroeconomic and financial news," Roubini, a professor at NYU's Stern School of Business and the chairman of consulting firm Roubini Global Economics, said in an interview with Bloomberg Television in London today. "We'll have some major banks going belly up that will need to be taken over."

The global equity rebound in March that sent the Standard & Poor's 500 Index to its best monthly advance in 17 years is a "bear-market rally" and U.S. Treasury yields will "remain relatively low" as investors flock to the safest assets, Roubini said. Treasury Secretary Timothy Geithner's new plan to remove toxic debt from financial companies won't be enough for insolvent banks, he said.

Roubini's outlook contrasts with predictions this week from Templeton Asset Management Ltd.'s Mark Mobius and Traxis Partners LLC's Barton Biggs, who said that equities are poised to rally as government efforts to revive the economy and banking system begin to work. Investors are "way too optimistic" about the prospects for a recovery in the economy and earnings, Roubini said.

Stress Tests

The S&P 500 surged 7.1 percent on March 23 after Geithner unveiled a plan to finance as much as $1 trillion in purchases of illiquid real-estate assets, using $75 billion to $100 billion of the Treasury's remaining bank-rescue funds. The government is conducting stress tests of banks to determine how much more capital each will need.

Roubini, who predicts loan and securities losses in the U.S. will reach $3.6 trillion, said the stress tests will reveal that some banks need to be taken over and have their good and bad assets separated before being sold to the private sector. He didn't name which companies he thought would need to be rescued.

Futures on the S&P 500 expiring in June advanced 1.2 percent to 818 as of 8:30 a.m. in New York.

Critics of Geithner's plan including Nobel laureate Paul Krugman, a professor at Princeton University, say the government should take over banks loaded with devalued assets, remove their top management, and dispose of the toxic securities. Sweden adopted the temporary nationalization approach in the 1990s.

'Deflationary Forces'

"Some banks are going to have to be nationalized," said Roubini. "It's going to be bumpy ahead of us."

Geithner and Federal Reserve Chairman Ben S. Bernanke this week called for new powers to take over and wind down failing financial companies. They said the U.S. also needs stronger regulation to constrain the risks taken by firms that could endanger the financial system.

With "deflationary forces" lingering for as long as three years, Roubini said U.S. government bond yields will remain low and American house prices will fall as much as 20 percent in the next 18 months. While the dollar will initially benefit as investors seek a safe haven in the U.S., the currency will ultimately drop as the nation's trade deficit shrinks, he said.

Roubini dismissed China's call for the creation of a new international reserve currency as a "pie in the sky idea" that's unlikely to gain traction any time soon.

Mobius, Biggs

China's central bank Governor Zhou Xiaochuan this week urged the International Monetary Fund to expand the use of so- called Special Drawing Rights and move toward a "super- sovereign reserve currency." Geithner sent the dollar tumbling yesterday by saying he would consider China's idea, only to drive it back up by affirming that the greenback should remain the world's reserve currency.

"This was a political call and in a nut shell - it ain't going to happen any time soon," Roubini said.

Mobius, who helps oversee about $20 billion of emerging- market assets as executive chairman at San Mateo, California- based Templeton, said March 23 the next "bull-market" rally has begun. Biggs, the former chief global strategist for Morgan Stanley who now runs New York-based hedge fund Traxis Partners, predicted the same day the S&P 500 may jump between 30 percent and 50 percent.

The benchmark index for U.S. equities has surged 11 percent in March, poised for its biggest monthly gain since 1991. The MSCI Emerging Markets Index of equities in 23 developing nations is headed for the steepest monthly advance on record after rising 20 percent in March.

<h3 class="storytitle" id="post-13497"> Gregg: U.S. couldn't even join E.U. due to debt levels </h3> @ 8:51 am by Michael O'Brien The United States wouldn't even be eligible to enter the European Union if it wanted to because of its debt levels, Sen. Judd Gregg (R-N.H.) claimed Thursday.

"We won't even be able to get into the EU if we wanted to," Gregg said this morning on MSNBC, "because our government is so large and so huge."

The European Union's Stability and Growth Pact (SGP) adopted in 1997 requires a budget deficit to be less than three percent, and requires a national debt beneath 60 percent of Gross Domestic Product (GDP).

"We've been lectured by France on the fact that we're not fiscally responsible right now," Gregg, the would-be commerce secretary, noted with incredulity.

According to the Congressional Budget Office, the yearly budget deficit would fall well beyond that threshold in coming years.

Still, Gredd expressed resignation with the likelihood that the Obama administration's proposed budget would emerge successfully from Congress.

"He's in charge, and they've got the votes here in Congress," he said.

Well... DUH.

So... do we have a few banks crash and keep a functioning system... or take 'em all down and kill the banking system altogether ?

GEITHNER LAYS OUT
"NEW RULES OF THE GAME" WATCH LIVE: Geithner Outlines Plan Before Congress


FINANCIAL NEWS: New Jobless Claims Rise To 652,000... GDP Worst In Quarter Century... GM, Chrysler Set To Get Bailed Out Again... Asian Stocks Rise As Index Enters Bull Market... US Stocks Higher After Economic, Corporate Data... Oil Rises On Positive US Data, Stock Gains... Best Buy 4Q Profit Dips... GM: 7,500 Hourly Workers Accept Buyout </h1>

• Quick Read

Arianna Huffington: Larry Summers: Brilliant Mind, Toxic Ideas


Larry Summers is one of the top economic minds of his generation, but his core beliefs and assumptions helped lay the groundwork for the current crisis. As Treasury Secretary under Clinton, he played an important role in allowing commercial banks to get into the mortgage-backed securities game. He also backed the Commodity Futures Modernization Act, which allowed financial derivatives to be traded without any oversight or regulation. So it was on his watch that the credit-default swaps warhead that has blown up our economy was launched. In 2000, Summers declared: "The traditional industrial economy was a Newtonian system of opposing forces, checks and balances... While, in contrast, the right metaphors for the new economy are more Darwinian, with the fittest surviving." He forgot to add the part about the fittest surviving by being bailed out by the rest of us.

Read Post

BIGGEST HEDGE FUND LOSERS • • • • • • Alpha magazine has published its list of the worst performing hedge fund managers of 2008. The eight mega managers lost a total of $6.2 billion in personal wealth last year, after earning more than $3 billion in 2007. <h1> </h1>

• Quick Read

WE can pay now... or

WE can pay later...

either way WE are going to pay.

Either cough up trillions now... or later.

The choices aren't equivalent. The NOW option includes everyone losing nearly every financial asset they have, destroying the entire financial system, and bankrupting the nation. The later OPTION means we pay more in the form of higher taxes later.... over a period of time. The LATER option means we have a functioning financial system, keep our assets (although lose some value), keep our jobs and businesses, and function with a little pain and burden for awhile.

Wall Street backlash could spread with U.S. bank plan



By Jennifer Ablan - Analysis

NEW YORK (Reuters) - The potential for private investors to reap billions of dollars in profits from the U.S. government's bank bailout plan could trigger another wave of public outrage, like that seen after the payments of bonuses to AIG staff, and it might slow any economic recovery.

The Obama administration is scrambling to woo top bankers, financiers and money managers like BlackRock and PIMCO to back its latest bank bailout plan.

But private investors making it rich are unlikely to avoid criticism against a backdrop of mounting job losses and a deteriorating economy.

"Just looking at the current political climate and populist climate," Alex Ehrlich, head of global prime services at UBS (UBSN.VX) (UBS.N), said at the Reuters Private Equity and Hedge Funds Summit in New York this week.

"You would have to ask what does the public say about the first hedge fund that is reported to make $1 billion or $2 billion in profit off the back of a public-private investment partnership?" he said.

U.S. Treasury Secretary Timothy Geithner plans to create public-private partnership to take up to $1 trillion of troubled assets off banks' books and unfreeze credit markets.

The plan represents the centerpiece of the Obama administration's attempts to tackle the worst banking crisis since the Depression and the resulting global economic slump.

A repeat of the outrage seen last week over the planned $165 million bonuses for executives at AIG, the insurer which was bailed out three times using taxpayers money, could set back Washington's attempts to gain momentum in its effort to pull the U.S. economy out of recession.

"That was such a waste of time with AIG and distracts from getting us out of this mess and onto a recovery," said Tom Sowanick, chief investment officer at Clearbrook Financial, with $22 billion under management.

Money managers drawn by the public-private investment plan acknowledge the potential for more furor.

Bill Gross, the founder and co-chief investment officer at Pacific Investment Management Co., or PIMCO, told Reuters there could be another backlash against Wall Street but it will be "mitigated, to some extent, by profit-sharing."

"Still the Obama approach is to use the private system as opposed to the Krugman/Roubini philosophy of nationalization and confiscation. I prefer the former -- along with the rotten tomatoes," Gross said.

Paul Krugman, a Nobel prize-winning economist, in a New York Times column on Monday slammed the Geithner plan, saying it was a "one-way bet" for private capital. "It's just an indirect, disguised way to subsidize asset purchases." he said.

He isn't alone in his view. Nouriel Roubini, one of the few economists who foretold much of the current financial turmoil, has said nationalization or receivership of a bank should seriously be considered.

'TEACHERS, FIREMEN, POLICEMEN' TO PROFIT Continued...




Under Geithner's toxic-asset plan, the Treasury will initially hire five investment managers to raise capital with a dollar-for-dollar public match. The government and private investors would share equally in gains and losses from the program.

BlackRock's Curtis Arledge, whose firm intends to take part in the Treasury's public-private investment plan, said the plan is a win-win for public and private capital.

"When we raise $1 billion of money for private investors, it's not our money that we are investing," Arledge, co-head of U.S. fixed-income, said in an interview. BlackRock might invest some of its own money in the public-private investment fund, but "it is not the bulk of the fund," he added.

"Our private investors, in many cases, are teachers, firemen, policemen through pension funds," Arledge said.

Applicants for these investment management positions must be U.S.-based firms able to demonstrate they can raise at least $500 million in private capital and have at least $10 billion in eligible assets under management.

"Pension funds and endowments are some of the private investors we raise money from, so I think the image of private investor needs to be reformulated to actually who those people are," Arledge said.

SNOWBALL EFFECT

An unprecedented outburst of anger against Wall Street came last week over $165 million in bonus payments made to executives at failed insurance group AIG, raising the risks for private capital firms thinking about partnering with the Treasury. Many have expressed reservations regarding retroactive curbs on compensation and profits.

But those concerns have cooled.

Monday, the New York State attorney general, Andrew Cuomo, said he had already won commitments from AIG employees to pay back $50 million out of the $165 million awarded in February.

Additionally, Congressional legislation to clamp down on companies receiving financial bailout money by severely taxing bonus payments now appears certain not to come up in the Senate until after a two-week recess that begins April 3.

"What's different this time around is that Joe Six Pack can invest in these funds," said Sowanick of Clearbrook Financial. "I think another eruption of public anger could come, but as I said, everyone should think about this carefully as everyone will share in the profits."

(Additional reporting by Christian Plumb)

http://www.reuters.com/article/reutersEdge...lBrandChannel=0