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March 23rd, 2009
04:26 PM ET

What the plan means

Program Note: Tune in tonight to hear more from Ali Velshi on AC360° at 10 p.m. ET.

Ali Velshi
CNN Chief Business Correspondent

Basically the Govt has set-up a structure to allow it to partner with large private investors to buy the "toxic assets" from the banks. If it works, it will free-up up to a TRILLION dollars, which banks can then use to lend to businesses and consumers.

Follow-up questions:

"What's in it for the Americans?"

These are investments in the so-called "toxic assets." These are assets (real estate, other investments based on the value of that real estate) that are expected to increase over time. These are not "bailouts" but rather, purchases of things that are "taking up space" at the banks, but could be of value to others (think about selling your old, out of style ties on ebay, to someone who'll dry clean them, put them in nice presentation boxes, and wait until the come back into style). When the joint government-private funds that bought these assets sell them, it SHOULD make money for the taxpayer.

"Is this enough?"

Estimates for how much the banks need are as high as $2 TRILLION. Critics say this money may not be enough, but others say what's more important here is that a structure has been set up that hasn't been set up before. If it works, it can be expanded.


Filed under: Ali Velshi • Economy • Finance
soundoff (24 Responses)
  1. Terry, TX

    Mr. Velshi...to quote you.....”purchases of things that are “taking up space” at the banks, but could be of value to others (think about selling your old, out of style ties on ebay, to someone who’ll dry clean them, put them in nice presentation boxes, and wait until the come back into style). When the joint government-private funds that bought these assets sell them, it should make money for the taxpayer.”

    Basically…we are buying the banks trash debts and trying to sell them to idiots….your gambling with taxpayers money…No…No….No Mas.
    Geithner needs to step down and if Obama cannot stop his compulsive spending…he can step down too.

    March 24, 2009 at 8:06 am |
  2. J.V.Hodgson

    Without new regulatory reform of banks insurance companies and hedge funds and leveraged borrowing level restrictions Mortgage market reformatory regulation it could simply all happen again.
    If the bailout is not combined with regulatory reform we are all screwed!! Neve r minfd the bloody bonuses!!
    Regards,
    Hodgson.

    March 24, 2009 at 5:02 am |
  3. Ron Illinois

    I'm really happy to hear that the "Banks" won't have to suffer any losses for all their bad decision making.

    These stinking mortgage bankers should all be facing hard time.

    These are very typical circumstances of large grossing bank robberies. They are an inside job.

    Sounds like Chris Dodd should maybe start looking for another career.

    Maybe something in Banking.

    March 24, 2009 at 12:30 am |
  4. wayne

    Has anybody given thought to the fact that if the government gave each u.s. family $200,000 people could pay their delinquent house loans,and those of us who are o.k. could stimulate our economy ourselves? It would be cheaper i think! There would be no need to bail out the banks, auto industry, or whatever else. Is it too wacky an idea to trust the American People?

    March 23, 2009 at 11:43 pm |
  5. james green

    It is time for the media, including you Anderson and CNN to realize you are part of the US and you need to start finding the positives about the country and its president's attempts to turn this around.
    Your constant creation and hyperbole of confrontation between the parties and the president's democratic against the president is becoming boring and counter productive. You need to help get this country turned around and you are doing the opposite.
    You are American's as well and need to check your news making at the door. As a famous man predicted, the media is becoming the message. As you continue the news, as seen by your advertising executive ,you are losing many us who realize what you are doing.
    CNN needs to grow up.

    March 23, 2009 at 11:22 pm |
  6. Chris in Thailand

    The US government will have to create trillions in treasury bills to cover this year's defecit, and ones to follow. China and other have expressed doubt that they will buy any more of these investments, since supply will soon be DOUBLE or more of current demand.

    Can't Geithner pay for 'toxic assets' with these T bills ? They should be 'investment grade', and if they drop in value, it will be justice for those who created this problem. Of course, 'mark to market' will not be possible in the short term, but banks will eventually recoup their original investment.

    March 23, 2009 at 11:20 pm |
  7. Sherry, N. Calif.

    So sad. We help the gamblers on Wall St., Banks, and AIG for it's self-destruction of our economic system with trillions of dollars but when it comes to the budget for our own people's healthcare, well being, and our children's future-Foget it. We can all watch the next few days of the debates from Congress (the people that have money) to say we on Main St. do not need it. The answer is NO. Why? They have spent to much on the BANKS. Oh yes, and the private firms. Since when does our Governent bailout private firms that caused their own demise? I agree with you Dave, throwing trillions at the cause will not solve the problem of a broken down system. This is the plan I have been waiting for since last year when this fiasco started. Looks like I will be waiting awhile longer.

    March 23, 2009 at 11:16 pm |
  8. Melvin

    Since the republicans think their way is the only way, give them something to do like either buy or sell these acid loans. For goodness sake, they haven't done anything else to help.

    March 23, 2009 at 10:12 pm |
  9. chris

    Simply amazing, like their phones are ringing off the hook with people looking for loans. Cash talks these days, and it appears the govt' and the banks wish to make it worthless..... Morons.

    March 23, 2009 at 9:43 pm |
  10. Mike in NYC

    I think the problem is not so much that banks won't lend, but that people aren't borrowing. Also, excess liquidity was a major contributor to this mess.

    It will be interesting to see what happens in this dawning era of "responsible lending." Not only will this mean greater disclosure on the part of lenders, but many who would have previously qualified (with almost no qualifications) for home and consumer loans will now find themselves shut out. Will politicians be able to resist the inevitable clamor from those who feel entitled to that for which they cannot pay?

    March 23, 2009 at 8:47 pm |
  11. Dave

    If Obama thinks that pouring trillions of dollors more by the end of his term then he must be think he is on a shopping spree. This will more then double our nations debt and im pretty sure we all know whos going to end up paying for this. I just worried this will turn into something where he will keep asking for more and more money.

    March 23, 2009 at 7:47 pm |
  12. Barbara Parker

    It bothers me that these are the same banks with the same policies and the same employees that got themselves into trouble in the first place. It also bothers me that there are no reassurances that funds will be freed up for individuals and businesses that are legitimate to find good rates.

    I recoginize that it needs to be done to move forward. And, I know that someday those loans will be worth something. But, I guess I want a little blood. I want to see people fired. I want to see criminal charges. I want to see licenses pulled.

    This is serious money that my kids and my grandkids are going to be paying back for a very long time.

    March 23, 2009 at 7:29 pm |
  13. Mike from Canastota

    Geithner’s plan makes sense.

    These assets aren't worthless, they are illiquid. Getting these assets off of banks books will allow them to lend more and will stimulate the economy.

    March 23, 2009 at 7:21 pm |
  14. Alton Cogert

    The Federales’ latest announcements – $1 trillion in financing from the Fed and the latest Treasury plans to use public-private entities to buy ‘toxic’ assets – have one thing in common: Leverage used to finance assets that are valued at a questionable amount.

    Subprime borrowers also used leverage to finance homes whose prices looked to ‘never’ go down.

    What is the major difference between the subprime borrowers and ‘we the people’ (UST and Fed)? Most subprime borrowers used financing that was recourse in nature, while much of this latest batch of federal financing is non-recourse. So, arguably, with these brave new initiatives, the Federales are in a worse financial position than the lenders that originally made those subprime loans.

    That’s all well and good, you might say, but will these new programs work? Most likely, yes…and there will probably be more to come.

    What other entity used similar public-private arrangements and bidding processes to clear ‘toxic assets’? In the 1980s and 1990s, Resolution Trust Corp (RTC) issued long term bonds to fund their activities…bonds that were repaid within 2-3 years of issuance in many instances. Today’s RTC is merely occuring without required additional Congressional approval, making it easier to execute, but perhaps, subject to lesser scrutiny.

    We may all be ’sub prime’ lenders now, but it seems like the currently announced programs have an excellent probability of working to begin a ‘great releveraging’ of the financial system. Whether that is the best course of action for both the short and long term time horizons remains to be seen.

    March 23, 2009 at 6:31 pm |
  15. Mike from Canastota

    Geithner’s plan makes sense.

    These assets are worthless, they are illiquid. Getting these assets off of banks books will allow them to lend more and will stimulate the economy.

    The deal he offers is a great one for hedge fund managers. What doesn’t get mentioned is that the assest will be sold at auction. This auction will allow the market to properly value not only the “toxic assets” but also the government sweeteners. In other words the hedge fund managers won’t be the biggest beneficiaries of the government guarantees, the banks will benefit the most by getting top dollar for the “toxic assets.”

    The U.S. tax payer is the biggest shareholder of the banks. Getting these bad assets off their books at a good price will cause a windfall on our bank stock holdings.

    If the assets are undervalued the hedge funds will make their money and everyone wins. If the assets lose a small amount the hedge fund managers lose. If the assets are worth far less than their discounted price the hedge funds eat their investment and the taxpayers pick up the rest of the tab. This tab will be hugely offset by the gains already banked from the sale of the assets.

    March 23, 2009 at 6:24 pm |
  16. Terry, TX

    Mr. Velshi.."purchases of things that are “taking up space” at the banks, but could be of value to others (think about selling your old, out of style ties on ebay, to someone who’ll dry clean them, put them in nice presentation boxes, and wait until the come back into style). When the joint government-private funds that bought these assets sell them, it SHOULD make money for the taxpayer."

    Basically...we are buying the banks trash debts and trying to sell them to idiots....your gambling with taxpayers money...No...No....No Mas.
    Geithner needs to step down and if Obama cannot stop his compulsive spending...he can step down too.

    March 23, 2009 at 6:02 pm |
  17. Jim M

    Will the plan include the problem assets of the credit unions?

    On Friday, March 20th, not only did three banks fail, but the National Credit Union Administration seized two corporate credit unions (US Central and Western Corp.) with assets of $57 billion.

    It appears that corporate credit unions arrange for funds for local credit unions by buying local loans (home, car). There were only 28 corporate credit unions before the seizure.

    Credt unions are not eligible for the original Treasury "bailout" funds.

    March 23, 2009 at 5:59 pm |
  18. JC- Los Angeles

    If snake oil salesman Timothy Geithner can get his friends who formerly worked at AIG, Bear Stearns and Lehman to buy "toxic assets" then he will go down as one of the best salesman of our time.

    When the toxic assets are comprised of nothing but mortgage fraud thanks to the likes of Angelo Mozilo and Ken Lewis, for anyone to go within five miles of those assets without a HAZMAT suit on would be cause for grave concern.

    Now all we have to do is wait for Geithner to list the Brooklyn Bridge and the fall of America will be complete.

    March 23, 2009 at 5:54 pm |
  19. TOM

    cheers to geitner and the obama administration! this may not be a perfect plan but it is a start to get this economy going again. we need to be patient and let the cleansing of the bank's toxic assets begin.

    March 23, 2009 at 5:38 pm |
  20. Annie Kate

    Freeing up a trillion dollars sounds good but you kept saying "if it works" – why would it not work and if it doesn't work how much worse are we then? I'm really not convinced at this point that anyone knows how to fix the economy.

    March 23, 2009 at 5:33 pm |
  21. Ashanti

    So my question is, when these investments do increase over time then what? Are the banks subject to rules and regulations from these private investors?

    March 23, 2009 at 5:24 pm |
  22. David (El Paso)

    If we are going to spend that much money anyway why not just cut a check to every American citizen of 250k with the provision that they pay all student loans, bank loans, mortgages, and tax owed. If some Americans owe more than that then they will qualify for a loan to pay the rest. It seems to me that since we are using tax dollars to pay for what Washington is spending why not give us a fresh start. Do me a favor Mr. Cooper you and your staff find out the average loan debt for student loans, bank loans, mortgages, and back taxes. I bet that most folks can be debt free with a check like this for a fresh start. Just a thought!

    March 23, 2009 at 4:55 pm |
  23. Mari

    Mr. Velshi, thank you for making a good effort to explain this in laymen's terms. Sadly, the average American does not do their own research. They just get their news spoon-fed to them.

    The crisis in the banking sector is much more complicated than we can ever imagine. We, as tax payers, must educate ourselves by reading, listening to and watching various media not just ..... one.

    Two Sundays ago, Fed. Chairman Ben Bernake was interviewed on "60 Minutes" he was asked what he would like to say to Americans watching. Mr. Bernake, said that there will be 3 signs that a Recovery is occurring, one is that the banks will have investors once again, which is good because that's how I see the the buying of toxic assets, basically...... America investing in its banks.

    Its a tough road, but I have HOPE that we will begin to see the benefits of all these programs and bail-outs soon enough.

    However, I want to hear from President Obama how the banks and Wall Street will be held accountable and regulated once more so that they do not repeat their very costly mistakes!

    March 23, 2009 at 4:49 pm |
  24. sushil

    Let's go and give them a good news!

    March 23, 2009 at 4:42 pm |