US pours trillions into failing markets – MoneyWeek

USspendingplan:keyquestionsunanswered

Meanwhile,theFSPforeseesafreshroundofcapitalinjectionsintobanks。

Theauthoritieswillexpandtheirloanprogrammetoinvestorsinthemarketforsecuritiseddebtinanattempttounfreezethemarketandthusstimulatebanklending。

Thisprogrammewillcostupto$1trn。

Apublic-privateinvestmentfundwillbesetuptobuythetoxicassetsthatarecloggingbalancesheets,causingwidespreaduncertaintyoversolvencyandhencereducinglending。

Thefundcouldbuyupto$1trnworth。

Amongthemanygapsintheannouncementwastheabsenceofdetailonhowthepublic-privateplanwillwork。

Allwehaveisaplanforaplan,saidKevinLoganatDresdnerKleinwort。

Thecentralquestionishowtovaluethetoxicassets。

Pricingthemtoolowcouldmakebanksinsolvent,butoverpayingamountstoasubsidyforbanks。

Thehopeisthatprivateinvestorswillestablishpricesbywadingintothefrozenmarket,buttheywillnotwanttopaypricesthatsubsidisefailedbanks,saidtheFT。

Sothegovernmentwillhavetosubsidisetheinvestors。

Meanwhile,abankthatwouldbeinsolventifitsassetswerepricedatmarketvalueishardlygoingtosellatapricethatisfairtotaxpayersorappealingtoprivateinvestors。

Whatnext?

Thefastestwayoutofthismess,saidtheFT,istoforcebankstowritedowntheirlossesnow。

Thatmeanssomewillprovetobeinsolventandtheywillhavetoberecapitalisedbythegovernment–theresnoprivatecapitalavailable–implyingtemporarystateownership。

Thiswilladdressthepervasiveuncertaintyoverwhossolventandwhoisnt,whichhasparalysedlendingbyandbetweenbanks。

Thegovernmentisjustthrowingmoneyattheproblem,saidYvesSmithonNakedcapitalism。

com,Thisamountstousingantibioticstotreatgangrene。

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