With the ink barely dry on the $700 billion bank bailout, some on Wall Street are buzzing that Treasury Secretary Hank Paulson will make a huge statement to the financial community by cobbling together a sizeable purchase of toxic assets as soon as this week.
The strike-fast purchase will be used to buy up AAA-rated assets of a company that is already teetering and could tumble into insolvency if no assistance is offered, according to one source on Wall Street.
Since it may be weeks before the bailout bill money is available, some on Wall Street think Paulson will use the $200 billion already earmarked to help out Fannie Mae and Freddie Mac.
Traders and investors believe it will take about four weeks to hire the professionals and set up the auction process and begin to purchase some of the toxic mortgages that are clogging up banks' balance sheets and prohibiting them from lending money.
Paulson said he would act quickly to hire the managers but hasn't laid out any specific timeframe.
Bill Gross, at Pimco, and Larry Fink, at BlackRock, industry insiders with vast knowledge of the mortgage-backed securities business, have been mentioned as possible candidates to run some of the auctions. In fact, Gross has said he would manage some of the sales for free if others would make a similar offer.
So far, traders and investors have not reacted well to the passage of the bailout bill. The Dow Jones industrial average fell about 470 points - from being up 312 points at the vote to closing down 157 - once the House passed the bill.
"[The bailout] will work temporarily but in the long run it does not deal with the cause of the problem, the increasing rate of foreclosures," said Thomas Peterffy, CEO and chairman of Interactive Brokers Group, a global brokerage and market-making firm.
Peterffy predicts only modest improvement in the credit markets because of the $700 billion in mortgages the government will buy.
Bill Fleckenstein, the president of Fleckenstein Capital, a short seller, thinks even with the massive infusion of cash it might take up to nine months to restart the commercial paper market.
Commercial paper is the term for short-term borrowing companies make to finance their day-to-day operations. Banks are fearful of buying the paper because the company backing it may default. Instead, banks and companies are turning to short-term government bonds.
Some believe the $700 billion will not be enough.
"Within a year the Treasury and Feds will come back for more money," said Joshua Rosner, managing director at Graham-Fisher & Co.
"This is how liberty dies, with thunderous applause," said Rosner, stealing a line from "Star Wars."
The independent financial consultant believes that the US "will continue to be mired in an economic downturn" and that banks, which have been whacked by major losses, won't be spurred to open their lending spigots.
"I think that the government needs to appoint an independent 9/11-type commission as opposed to relying on sham hearings presided over by many of the same representatives who created this disaster in the first place," he said.
No comments:
Post a Comment