trillions to amercains peoples!!!!! RSS
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User ID: 495507
9/25/2008 1:17 AM
Report abusive post bailout to cost 5 to 10 trillions to amercains peoples!!!!!
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Since 911 they have stole alot but now they wan it all!!!!
$5 Trillion Cash Pool Needed to Stop Rout, Ohmae Says (Update1)
By Bei Hu
Sept. 23 (Bloomberg) -- Treasury Secretary Henry Paulson's $700 billion plan to buy devalued assets from financial companies is ``a joke'' because it doesn't go far enough to calm markets, said Kenichi Ohmae, president of Business Breakthrough Inc.
Ohmae, nicknamed ``Mr. Strategy'' during his 23 years as a McKinsey & Co. partner, called for a $5 trillion ``international facility'' to be made available to financial institutions. The system could be modeled on one used by Sweden during its banking crisis in the early 1990s, he said.
``This is a liquidity crisis,'' Ohmae said at an investor forum hosted by CLSA Asia-Pacific Markets, the regional broking arm of Credit Agricole SA, in Hong Kong yesterday. ``The liquidity has to be so big that people won't get panicky.''
Paulson's proposal to remove hard-to-sell assets clogging the financial system marks the broadest intervention since at least the Great Depression. Asian stocks fell today, following U.S. shares lower as investors questioned whether the effort is enough to prevent a recession.
The plan came after the collapse of 158-year-old Lehman Brothers Holdings Inc. and the government takeover of insurer American International Group Inc. caused financial markets to seize up last week. The calamity was the culmination of a year during which the U.S. housing market slump left banks and securities firms with more than $520 billion of asset writedowns and credit losses.
Yesterday, Paulson and lawmakers narrowed their differences on the plan and agreed that the U.S. should get equity in participating companies.
Hard to Coordinate
Ohmae, 65, is the author of management books including ``The Mind of The Strategist,'' ``The Borderless World'' and ``The End of the Nation State.'' Business Breakthrough, founded in 1998, provides online management training.
One way of funding the $5 trillion facility would be through contributions from foreign exchange reserves in China, Japan, Taiwan, the Gulf states, the European Union and Russia, Ohmae said.
An international relief effort on that scale might be difficult to coordinate, said Robert Howe, founder of Hong Kong- based hedge fund manager Geomatrix (HK) Ltd., which oversees $32 million. ``I doubt the practicality of getting international cooperation on something like this,'' he said.
Ohmae compared the current financial crisis with Japan's 15- year economic decline that began in 1989. Both started with a property bubble, which wiped out companies' equity when it burst, and like in Japan, the current one could lead to escalating bankruptcies as banks worried about their own survival rein in lending, he said.
`Viagra' Economy
The financial-market upheaval may lead to slower growth in China and the reversal of the commodity boom as ship orders are canceled and steel supply dumped, said Ohmae. What Ohmae called Japan's ``Viagra'' economy and Australia's ``dig and deliver'' boom may also fizzle as China weakens, he said.
Against the backdrop of a potential global market panic, Paulson's plan is insufficient, said Ohmae. Paulson is a former chief executive of Goldman Sachs Group Inc., the world's biggest securities firm.
``He wants to fix problems one by one as if he were still the chief executive officer of Goldman Sachs,'' he said. ``He has to take his CEO hat completely off and come up with a systemic solution as opposed to a one-by-one solution.''
[link to
www.bloomberg.com]
The Paulson plan would focus on $6 trillion of residential mortgages not currently owned or guaranteed by Fannie Mae, Freddie Mac and the Federal Housing Administration, and $3.4 trillion in commercial and multifamily loans and mortgage-backed securities, according to the analysts at New York-based Merrill Lynch.
Officials have discussed holding a reverse auction, Paulson said, meaning that firms holding the distressed assets would submit bids on the prices at which they were willing to sell. The Treasury might then buy the assets that are offered at the lowest prices.
In testimony yesterday to the Senate Banking Committee, Paulson called his troubled-asset relief program the ``single most effective thing we can do to help homeowners'' and the overall economy.
In a Sept. 11 report, the Washington-based Mortgage Bankers Association estimated that 20 percent fewer residential mortgage loans would be made this year than in 2007. Home-loan borrowing was at a 26-year low in the second quarter, according to the Federal Reserve's Sept. 18 Flow of Funds report.
Subprime
The number of available mortgages will fall even further, said William Isaac, chairman of the Federal Deposit Insurance Corp. from 1981 to 1985.
``I doubt the banks that got burned in subprime mortgages will start lending anytime soon,'' Isaac said. ``I wouldn't expect a rapid comeback of the mortgage market anytime soon, especially the lower end.''
In a survey of real estate executives released this month by the Chicago-based law firm DLA Piper LLP, 46 percent said they didn't expect securitized commercial property lending to return to its previous market levels until at least 2011. Sixteen percent reported that securitized lending will never again reach those levels.
``The banks haven't been able to make loans because they can't get comfortable on the price of the assets,'' said Jay Epstien, a Washington-based partner in the law firm and chairman of its U.S. real estate practice group. ``The price is the key variable. How do you pin that down? I'm sure Congress will agree that the devil is in the details in implementing this plan.''
22 Cents
Accounting rules require some holders of certain mortgage debt to establish its market value on an ongoing basis and write it down, while others are only required to report losses if they are deemed not to be temporary.
Merrill said in July it sold $30.6 billion of collateralized debt obligations, which included mortgages, to an affiliate of the Dallas-based investment firm Lone Star Funds for $6.7 billion, resulting in a pretax writedown of $4.4 billion. The sale valued the CDOs at about 22 cents on the dollar.
``I think the key to the Paulson program is the belief in the decoupling of the intrinsic value of the securities from market valuations,'' said Jay Brinkmann, chief economist for the Mortgage Bankers Association. ``Treasury can bid somewhere between full value and market value and the lenders would not take a big hit on the sale.''
Fire Sale
As a large buyer, the Treasury Department would raise the price of distressed mortgage-related assets ``above the fire-sale level,'' Federal Reserve Chairman Ben S. Bernanke said at today's joint congressional economic committee hearing.
``What I'm saying is that it's possible for the government to buy these assets, to raise prices, to benefit the system, to reduce the complexity, to introduce liquidity and transparency into these markets and still acquire assets which are not being overpaid for in the sense that under more normal market conditions, and if the economy does well, most all of the value can be recouped by the taxpayer,'' Bernanke said.
In a conference call with analysts yesterday, Stuart Miller, chief executive officer of Miami-based Lennar Corp., the second- biggest U.S. homebuilder by revenue, said Paulson's plan wouldn't stop home-price declines.
``The current stop-gap measures to aid hard-hit financial companies will be repeatedly frustrated by falling home prices and the securities that back them,'' Miller said.
Ten percent, or $1.1 trillion, of the $11.25 trillion of U.S. mortgages are delinquent or in foreclosure, according to Guy Cecala of Bethesda, Maryland, trade newsletter Inside Mortgage Finance.
