Well, two outta three ain't bad--or is it?
President Obama confronted three huge problems upon moving into the White House 30 days ago: the housing meltdown, the Great Recession and the toxic-assets banking mess.
This week he went all in on two fronts. On Tuesday the President signed the $787 billion stim-pack to stoke the poky economy. Yesterday he unwrapped his $275 billion fix for housing foreclosures. J.P. Morgan Chase chief Jamie Dimon, in an interview on CNBC, branded it "very elegant and well-designed."(Let's ignore, for now, the downsides of the housing rescue: rewarding deadbeats and speculators, sparking a rise in new defaults as people game the system, and keeping home prices artificially higher than they should be -- my colleague Rick Santelli is overseeing a revolt in the pits about that.)
But we have heard only scant details on the third challenge: the Bam Plan for rescuing big banks imperiled by all those scary mortgage-backed securities. It’s the most important piece of the puzzle.
Yet Wall Street and the private sector already have begun dealing with this morass on their own, if only the President and Treasury Secretary Timothy Geithner would take heed.
Some risk-takers have started shopping for the distressed derivatives now glowing radioactively on banks' balance sheets. On Tuesday on Power Lunch we heard from three buyers (their basic take: the banks, in denial, haven't cut prices enough).
Now imagine if thousands of investors could get into the bidding through ETFs—Exchange Traded Funds. On Friday this column talked about the Rob Plan, proposed by a pal of mine.
A quasi-government entity would take the banks' worst MBS assets and hand them new ETFs, paying a 4% tax-free dividend on the new shares and wrapping the underlying assets in a government guarantee. Eventually the banks could sell the ETFs, dividend intact, into the open market.