To my read, they’ve done nothing to answer the age-old question of price. Here they claim:
Private Sector Price Discovery: Third, to reduce the likelihood that the government will overpay for these assets, private sector investors competing with one another will establish the price of the loans and securities purchased under the program.
But if there is to be open price discovery, then selling these assets will not “unimpair” the seller. I mean, this story has been told & retold again & again: if the banks sell at market, there is no relief and no benefit. If the banks sell at par, it’s a direct government subsidy to zombie banks.
It’s quaint, I guess, to seek to secure private capital to lever the public capital, and expand purchases. But it’s all about – and always been entirely about – the price of any transaction of the assets in question.
This plan presupposes that the public-private capital will suffice to pump-prime “normal” liquidity in the market for these assets – in effect, buyers have been scared away. But in the wake of this plan, they will return, and all that is toxic will be made untoxic by market activity.
I guess the proof will be in the pricing pudding: if assets pledged fetch dimes on the dollar from participating private equity, then all this plan will do is reveal unambiguously that the crap that the banks are carrying is – indeed – crapola of precious little value. And no sum of public leverage will make dimes-on-the-dollar crap whole again.
But I don’t think that is Treasury’s understanding of the assets, or the information it hopes the transactions it seeks to enable will communicate to the market.
But then, Treasury has had its head up its ass since Fall 2007, and I see no reason to believe that it exited from that position over the weekend.