Got to make this quandary last...
Senate Republican Jon Kyl finds his nerve and a clue:
WASHINGTON – Senate Republicans are drawing out a flap that has made the Obama administration squirm, applying the brakes to Democratic attempts to quickly tax away most of the bonuses at troubled insurance giant AIG and other bailed-out companies.
Sen. Jon Kyl, the Republicans' vote counter, blocked Democratic efforts Thursday evening to bring up the Senate version of the tax bill to recoup most of the $165 million paid out by AIG last weekend and other bonuses in 2009. The House had swiftly approved its version of the bill earlier in the day.
By rushing, Kyl said, Democrats were letting populist outrage trump informed decision-making in the Senate, which is supposed to be insulated from the pressures of public passion.
"I don't believe that Congress should rush to pass yet another piece of hastily crafted legislation in this very toxic atmosphere, at least without understanding the facts and the potential unintended consequences," Kyl said on the Senate floor. "Frankly, I think that's how we got into the current mess."
You mean Congress isn't thrilled with TARP and the stimulus bill, and now wants to read the legislation before passing it? I don't suppose another week of trying to figure out why Treasury pushed to grandfather bonus contracts in place as of Feb 11, 2009 and now has reversed course will embarrass Republicans. An added benefit for the nation is that this gives Barack and his teleprompter some time to coordinate their position on this tax.
Meanwhile, Geithner is braced for another bad week when he announces his toxic disposal plan:
The officials, who spoke on condition of anonymity because they were not authorized to speak publicly about Geithner's plan, said it will have three major parts.
One program will use the bailout fund to create a public-private partnership to back purchases of bad assets by private investors.
A second portion of the plan will expand a recently launched program being run by the Federal Reserve called the Term Asset-Backed Securities Loan Facility, or TALF. That program is providing loans for investors to buy assets backed by consumer debt in an effort to make it easier for consumers to get auto, student and credit card loans. Under Geithner's proposal, this program would be expanded to support investors' purchases of banks' toxic assets.
The third part of the Geithner plan would utilize the resources of the FDIC, the agency that guarantees bank deposits, to purchase toxic assets.
They state the obvious:
Hedge funds and other big investors may be even more leery of accepting the government's enticements to purchase these assets for fear of the imposition of tighter government restraints in such areas as executive compensation in the wake of the uproar over AIG.
Leery? Really? Partner up with Pelosi and Reid now, and later find out whether you are a hero or villain and what your tax rate is - who would say no to that?
The Times coverage is delightfully imprecise:
The uproar over the American International Group’s bonuses has not stopped the Obama administration from plowing ahead. The plan is not expected to impose restrictions on the executive pay of private investors or fund managers who participate.
Clearly that should read "The plan is not expected to impose restrictions... at this time." Who can foretell what might pique Pelosi or enrage Reid as we move on down the road?
The Times has more details on the "Heads they win, tails we lose" leveraged financing structure:
To entice private investors like hedge funds and private equity firms to take part, the F.D.I.C. will provide nonrecourse loans — that is, loans that are secured only by the value of the mortgage assets being bought — worth up to 85 percent of the value of a portfolio of troubled assets.
The remaining 15 percent will come from the government and the private investors. The Treasury would put up as much as 80 percent of that, while private investors would put up as little as 20 percent of the money, according to industry officials. Private investors, then, would be contributing as little as 3 percent of the equity, and the government as much as 97 percent.
Wow. Aparently the investor's primary role is to be the impartial outsider setting the price. Of course, that price is adjusted for the put implicit in the the non-recourse financing - price declines of more than 15% impact the FDIC, not the investor. On the other hand, if you think that the Treasury, Fed and FDIC are big enough (or are willing to tolerate inflation), their buying power can force this to be a real estate market bottom and the put is much less meaningful.
I grasp this logic:
To break that impasse, the government’s crucial subsidy is meant to provide investors with the kind of low-cost financing that has been utterly unavailable in today’s credit markets.
Left undiscussed - weak banks may not be able to sell assets at a loss, so we may see participation only from already-strong banks. That might be OK, as long as the Fed is satisfied that there are strong banks operating in every region of the country; eventually the locals will figure out who is lending.
The Times closes plaintively:
Still, the Treasury Department’s biggest obstacle may be the current political environment in Washington, where Democratic lawmakers are furious about the pay packages and bonuses received by executives at companies being rescued by taxpayers.
Many investment executives said they were worried that participating in any bailout program would expose them to political wrath and potentially steep new restrictions on their own pay.
Interesting that the Times blames (credits?) the Democrats - half the House Republicans backed the crazy 90% solution, too.