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What Does Geithner Have Up His Sleeve?
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The market is eager to hear the Treasury’s latest plan to soak up toxic assets and restore the banking system. What does Geithner have up his sleeve?
According to CNBC’s Steve Liesman, here’s what you can expect.
The Bank Plan
-Aggregator Bank for Toxic Assets
-Expanded TALF
-Foreclosure Mitigation
-Expanded Asset Insurance
Liesman tells the traders there will be some form of a bad bank in the plan to soak up toxic assets. That information comes in stark contrast to other published reports which suggest the plan no longer includes a "bad bank."
At the moment, the idea of involving private capital in the purchase of bad assets “is gaining speed,” according to Liesman. In other words, the government might somehow entice hedge funds or other firms to buy the assets.
Barry Ritholz, CEO of FusionIQ doesn't like that idea. He argues that if the value of these toxic assets goes up then hedge funds win, but if they decline taxpayers will be left holding the bag because there will likely be some kind of safety net to entince the hedge funds in the first place. However, supporters of the plan say it would reduce the likelihood of bank nationalization by demonstrating that the “company is strong enough to attract private capital."
In addition the government will continue capital injections into needy firms as well as the "ring fence" concept recently applied to Citigroup [C
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] and Bank of America [BAC
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], which provides guarantees and insurance to cover bad assets remaining on firms’ books.
And some $50 billion to $100 billion will likely go to stemming foreclosures.
Overall the traders are bullish on the plan. "I don’t think it matters what the plan is – just as long as there is one, muses Karen Finerman. And on Friday Guy Adami speculated the bank bailout could spark a 100 point rally in the S&P.
However, Geithner's plan is not without critics. Barry Ritholz, tells Fast Money he'd prefer to hear talk of nationalization -- even if it's just used as a threat. “I know they’re not ready to talk about it now, but (nationalizing) needs to be a credible threat to get the banks to step up.”
Read More
> Bad Bank is Dropped From Financial Rescue Package
> Financial Stability And Recovery Plan
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Trader disclosure: On Feb. 9th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (MT), (BAC), (EEM), (FCX), (VIP), (BIDU); Seymour's Firm Owns (VIP); Macke Owns (MOS), (TM), (SDS), (AAPL), (BAC), (DIS); Najarian Owns (FCX) & (FCX) Calls; Najarian Owns (MT) Calls, (GS) Calls; Najarian Owns (MSFT) & (MSFT) Short Calls; Najarian Owns (MS) & (MS) Short Calls; Najarian Owns (CAT) Call Spread, (ENER) Call Spread, (EEM) Call Spread, (GDX) Call Spread, (MOS) Call Spread; Najarian Owns (GE) Puts; Finerman's Firm Owns (MSFT), (PM), (RIG); Finerman's Firm Owns (DNA) & (DNA) Calls; Finerman's Firm Is Short (IYR), (IJR), (IWM), (MDY), (SPY), (USO)
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