Bailout update September 29, 2008 The bill now before Congress authorizes the Treasury to receive up to $700 billion in installments: $250 billion to start with, another $100 billion available to be drawn and the final $350 billion available only after approval from Congress. Over the weekend I suggested that the bailout cannot help the banks, homeowners who cannot pay their mortgages and the taxpayers. One or more of the aforementioned groups have to take a hit. I suspect Paulson’s plan was to save the banks at the expense of taxpayers but the deal they agreed to over the weekend has provisions that would make it much harder to do that. If taxpayers show a loss after five years the financial institutions that sold assets to the Treasury will have to reimburse the Treasury for its losses. The Treasury is also clearly instructed to buy assets at the lowest possible price, which is in contrast to what Bernanke and Paulson initially wanted. That means the bailout may not achieve its objective of stemming bank equity losses, hence the markets are falling this morning and there is a renewed flight to the safety of government issued bonds. My own opinion is that the plan as it currently stands may help but it won’t solve the problems. I therefore anticipate more pain for banks and financial institutions while economic activity continues to decline. Paul van Eeden Disclaimer This letter/article is not intended to meet your specific individual investment needs and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be -- either implied or otherwise -- investment advice. This letter/article reflects the personal views and opinions of Paul van Eeden and that is all it purports to be. While the information herein is believed to be accurate and reliable it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Neither Paul van Eeden, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in this letter/article. The information contained herein is subject to change without notice, may become outdated and will not be updated. Paul van Eeden, entities that he controls, family, friends, employees, associates, and others may have positions in securities mentioned, or discussed, in this letter/article. While every attempt is made to avoid conflicts of interest, such conflicts do arise from time to time. Whenever a conflict of interest arises, every attempt is made to resolve such conflict in the best possible interest of all parties, but you should not assume that your interest would be placed ahead of anyone else’s interest in the event of a conflict of interest. No part of this letter/article may be reproduced, copied, emailed, faxed, or distributed (in any form) without the express written permission of Paul van Eeden. Everything contained herein is subject to international copyright protection. |
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