![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
Subsidized profits
Mar. 23rd, 2009 01:50 pmIt's an odd type of capitalism where the government offers to subsidize you in a profitable enterprise, but, when, well, when risk aversion is so great that 60% chances are no good and only 80% chances or more will do, that 20% nudge from the US taxpayer is bound to be welcomed.
The idea is that as part of a PPI, an initialism not yet viewed with the outright loathing that it raises amongs Londonostanis, somewhere between $500m and $1trn of "toxic" assets will be bought from banks. The US Treasury will "help" pension funds and hedge funds to buy these products.
Presumably these "safe" hedge funds will be borrowing at least some money from banks to buy their share of the toxic assets, which means that the banks will on the one hand be saying "sure, we'll lend you money to buy this stuff, you'll probably make a profit on it", while on the other it will be saying "jeez, thank god we've exchanged that shite for some decent loans". Go figure.
I see that Peston has spotted the flaw in the US line of thought that I mentioned a few weeks ago -- that we have a triple A rated institution (in this case, the US government) taking on precisely the role that was taken by monoliners such as MBIA (which at the time were also triple-A rated). The hope is that the confidence in the "safety" of this particular triple-A institution will be enough to get us through the mess. But what if the confidence fails? That means that the triple A fails. And what then? In a standard "that doesn't bear thinking about, so we aren't going to think about it" line, the governments of the world simply don't want to address an issue where there is no plan B.
However, a more likely scenario is that, as these toxic assets unwind, the hedge funds that invested them will indeed make money. In fact, I think that they will make lots of money, in some cases. In theory that means an "LTCM-unwind" will also make money for the taxpayer, although I have a hunch that the win for the taxpayer will be smaller than the win for the hedge funds.
It's always been plain that someone somewhere was going to make a lot of money out of the current mass aversion to risk, because this will inevitably make many "risky" investments underpriced. The baby is throuwn out with the bathwater.
++++++++
Eckhart Tolle's book still continues to act for me (on occasion) like a lifebuoy to a drowning man. I've now bought two copies, one of which I keep by my bed while the other I carry around in my briefcase. Weirdly, there was a moment on the Stephen Merchant radio show yesterday when Robin Gibb, not a man noted in my mind for profound philosophical insight, said that he got through stress and worry by turning every sentence that began with "what if" into one that began with "so what?" A fine attitude to life and one that I wish I could grasp more wholeheartedly.
__________________
The idea is that as part of a PPI, an initialism not yet viewed with the outright loathing that it raises amongs Londonostanis, somewhere between $500m and $1trn of "toxic" assets will be bought from banks. The US Treasury will "help" pension funds and hedge funds to buy these products.
Presumably these "safe" hedge funds will be borrowing at least some money from banks to buy their share of the toxic assets, which means that the banks will on the one hand be saying "sure, we'll lend you money to buy this stuff, you'll probably make a profit on it", while on the other it will be saying "jeez, thank god we've exchanged that shite for some decent loans". Go figure.
I see that Peston has spotted the flaw in the US line of thought that I mentioned a few weeks ago -- that we have a triple A rated institution (in this case, the US government) taking on precisely the role that was taken by monoliners such as MBIA (which at the time were also triple-A rated). The hope is that the confidence in the "safety" of this particular triple-A institution will be enough to get us through the mess. But what if the confidence fails? That means that the triple A fails. And what then? In a standard "that doesn't bear thinking about, so we aren't going to think about it" line, the governments of the world simply don't want to address an issue where there is no plan B.
However, a more likely scenario is that, as these toxic assets unwind, the hedge funds that invested them will indeed make money. In fact, I think that they will make lots of money, in some cases. In theory that means an "LTCM-unwind" will also make money for the taxpayer, although I have a hunch that the win for the taxpayer will be smaller than the win for the hedge funds.
It's always been plain that someone somewhere was going to make a lot of money out of the current mass aversion to risk, because this will inevitably make many "risky" investments underpriced. The baby is throuwn out with the bathwater.
++++++++
Eckhart Tolle's book still continues to act for me (on occasion) like a lifebuoy to a drowning man. I've now bought two copies, one of which I keep by my bed while the other I carry around in my briefcase. Weirdly, there was a moment on the Stephen Merchant radio show yesterday when Robin Gibb, not a man noted in my mind for profound philosophical insight, said that he got through stress and worry by turning every sentence that began with "what if" into one that began with "so what?" A fine attitude to life and one that I wish I could grasp more wholeheartedly.
__________________
