Monday, March 23, 2009

The Grand Partnership

Tim Geithner gave an interview on Sunday to the WSJ to unveil the next leg of the stimulus plan. What makes this one interesting is that this plan is being released under the guise of a public/private partnership with the government providing some cash and private investors providing more cash with government guarantees.

On the surface this seems like a great idea; the government working hand in hand with private investors to flush the toxic assets out of the system. The taxpayer lowers his risk, private investors get some upside and banks can more quickly flush out the toxic sludge. However, after a few minutes of reading things come into focus - this is turning out to be yet another TARP injection under a different banner.

Consider - the target amount set for this fund is $500B of purchasing power with the government fronting $100B cash up front and allowing 6 to 1 leverage. So right from the start, the government has already reached its goal in terms of purchasing power. How do they see this playing out? Institutionals throwing their fiduciary cap on the floor to put their red/white/blue cap on and buying into this thing?

In actuality, this is going to be a case where opportunistic distressed investors are going to swoop in to pick up the best deals, backed by government subsidies and guarantees. The whole differentiator of this program was supposed to be a joint collaboration between the government and private investors, but much like many of the other gov't programs Zero Hedge has highlighted the taxpayer is going to be left covering the downside. Sphere: Related Content
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Anonymous said...

It's all a bunch of bullshat. Come'on Cornelius, tell me something good!

When will the market get to the point of being so volitile that no one is making any money? Shorts get burned, longs get burned.

Is this wave 3, wave 4?

Did we just double top @800 on the S&P's?

What's in "Tylers" portfolio?

Anonymous said...

You want wave theory, go to the beach.

Anonymous said...

Did the crowd jump the gun on long commodities? Or can we justify getting in so early?

Give me something Cornelius!

Anonymous said...

Since the government is making the gains and losses asymmetric through non-recourse 5-6x leverage, the hf's should be able to make free money by buying puts at the market price and selling five times the number of out-of-the money calls that have the same total cost. Sorry, as per the administration's language, I should have written "are doing us a favor" instead of "should be able to make free money."

Anonymous said...

Bill Gross to Little Timmy: "I love you Man! I love you Man!!"