×

Traders: Washington Has Awakened

Now everyone has a plan! We've gone from no ideas to plenty of ideas on how to deal with the current crisis.

No less than TWO plans appear to be in the works, and there may be more:

1) We are reporting that Treasury Secretary Paulson (see link below) is working to get some or all of the toxic waste off the balance sheets of the banks and brokerages and put in some type of Resolution Trust Corp structure.

I covered the RTC when I was the real estate reporter for CNBC from 1990 to 1995. The RTC got their assets from the failed savings and loans, then auctioned them off.

But this is different: the government would have to buy the failed assets first. Setting a price on these assets has been the heart of the issue, and will not be easy.

2) But there's a competing plan:

Senator Charles Schumer is proposing a slightly different entity, modeled along the lines of the Resolution Finance Corporation (RFC), which was created by Hoover in 1932 that gave billions in loans to state and local governments, banks, railroads, and other businesses and which was a precursor to many of the relief programs in the Depression.

Schumer says this RFC would:

--provide capital to banks in exchange for an equity stake;

--in exchange, the banks would agree to allow certain mortgage loans to be modified to allowing refinancings to occur.

Schumer's main objection to an RTC-style plan is that it would put too many risky assets on the government's books, but not help homeowners.

Regardless, traders now believe that Washington has awakened. That is a good thing.

_____________________________
New from CNBC.com:

- The Dow 30 at a Glance

_____________________________

_______________________________________
CNBC's Names in the News:

AIG

Morgan Stanley

_______________________________________


Questions? Comments? tradertalk@cnbc.com