Toxic Assets: Breaking It Down
Posted by Michelle Moquin on April 1st, 2009
Good morning Readers: I decided to repost Robert’s comment from yesterday because I felt that what he had to say was really important and he explained it so well. Now why couldn’t Geithner explain it this way? Did you read? If not, please read below:
Some companies are “too big to fail” because the repugs killed the regulations that were set up to prevent a company from getting that way. Having said that doesn’t mean that Obama still doesn’t have to deal with the fact that the particular company is “too big to fail.”
A company is usually judged to be “to big to fail” if its failure would take down a substantial number of related and peripheral businesses with it. Most of those businesses played by the rules and do not deserve to lose their livihood because of the offending company. Millions of jobs could be lost when those innocent businesses fail.
Yes, the average american would be “worse off” if congress did nothing. Credit is the life blood of a capitalist system. Businesses need it to meet payrolls. It’s called a credit line. The average person needs it; to make ends meet till payday, to innovate, to send their kids to college, to buy a home, car or any large purchase.
If credit drys up no one will be able to operate as usual. You like most are incapable of understanding how the capital markets work. The repugs count on this to anger and confuse you.
I am not putting you down. I am just saying that if you knew the consequences of letting these huge financial institutions fail thereby taking the credit suppliers with them, you would cringe. How would you function if you did not have access to credit to purchase the big things or to tide you over until you had the funds to meet your needs?
How do you expect some businesses to meet payrolls with the anticipation of their customers paying for services they have already rendered without credit? The clothing, building, Automobile, service, etc,etc industries all operate on the availability of credit to meet their immediate financial needs until their receivables catch up with their liabilities. The difference minus any additional expenses is their profit.
Whether “Citi once again becomes the world largest most trusted bank” is not the issue. The issue is what will happen to our access to credit if banks won’t lend because of the “toxic assets” on their books?
“Toxic Assets” are loans they are holding on things secured by inflated real estate values. They are required by law to hold in reserve a percent of that inflated value. If they are to be able to loan money again they have to reduce that reserve by getting rid of some or all of those “toxic assets.”(TA)
Obama’s plan involves bringing in private investors to partner with the government to help the banks rid themselves of those TAs. The only other two options is to do nothing as you suggested which would be disastrous. Or to buy all the TAs themselves. That would put the government in the position of using tax payer money to purchase those TAs without knowing what to pay for them. That would be way more expensive than the method Obama chose of using private investors as partners.
Using private investors to bid on the TAs with the government as a partner means that the government would get closer to paying what those TAs are worth with the opportunity to make the tax payer’s investment back and a possible profit.
The plan works this way:
The bank has a $100 million of TAs on its books. An investor puts up $5 million the government matches it and puts up $5 million. They are now partners and will share 50% in any profits that result from the venture. The investor can use his business expertise to bid on the banks $100 million TAs at the rate of 6 times the total investment of the partnership, plus the investment {[6x(P+G)]+P}.
The Private investor’s risk (P) is $5million. The Govrnmen’st matching fund (G) is $5million. The government guaranteed leverage (L) is 6X(P+G) = 6x($5 million + $5 million) = 6x($10 Million) = $60 million. The total amount an investor can leverage with his initial investment TI is TI = P+g+L. Or TI = $5 million(P) plus $5 million(G) plus $60 million(L) which equals $70 million.
Hence the maximum leverage an investor can get on his investment is 6 times what he is willing to put up. Simply 2(I)+6[2xI)]. Either formula will result in the investor receiving $70 million to invest on a risk of $5 million.
An even simpler formula for those of you who understand the process and you just want to arrive at the money involved is to say that the government(G) gives the investor 13 times his investment to become a partner but the investor must agree that the government doesn’t have to pay a dime until the investor losses all his investment. That formula would have the taxpayer(G) put up on a $5 million investment by the Investor(I) to share equally on any profits he may make
G= 13I
G= 13($5 million)
G= $65 million
Yes, the govern is guaranteeing $65 million on the investor’s risk of $5 million. But the investor has to lose his entire $5 million before the taxpayer has to pay a dime. Logic should tell you that no one is going to risk his entire investment just to cause the other partner to lose his share.
The Investor can now bid up to $70 million for the $100 million TAs the bank has to offer. The tax payer stands to split up to $30 million if the assets eventually return the $100 million.
The plan allows the government to get the benefit of the financial acumen of those Investors willing to put their money where their mouth is. Unlike the politicians who are decrying the method without risking a dime.
The Investor is not likely to bid more for the TAs than he stands to make as a profit. He does not want to lose his initial investment. The banks will have to eventually sell for the best bid because unless they do those TAs will stay on their books and keep them from making loans which is the business banks are in.
Once those TAs are off the books credit will flow again. The economy is already seeing some benefits via lower mortgage rates.
Give the man a chance. He has only been in office 69 days. Sure I, as a black man, am proud of Obama becoming the President of the United States of America. But unlike some of those bigots out there. I would not support him if I thought what he was doing was not financially good for the country.
It seems to me that there are those who would use any way to sabotage President Obama recovery plan because he is black. I certainly hope for the country sake either I am wrong or that they do not succeed.
Robert
Hi Robert: Thank you for taking the time to post such an important comment yesterday. I posted your comment again today because it is worthy of reposting. It seems that your comment is the one that explains part of Geithner’s plan that helps get the banks to get the toxic assets off of their books best. And By the way, I am using your definition of ‘toxic assets’ because it is the easiest one to understand.
So, if you don’t mind, I am asking you to rewrite the final explanation into a few sentences to simplify it. Take it from the 9-12th grader and pretend that you are explaining it to a 7th grader. Tell us again how Geithner arrived at the formula he used to get the private invester to come in. And also explain again to my readers why it will work and why it is advantageous to the American taxpayer to have our government to do it this way. Thank you.
Peace out…
Gratefully your blog host,
michelle
Aka BABE: Your Bad Ass Bitch Editor
For archives dated before January 17, 2008 click on my Blogroll:
or click here: “A Day in the life of…”
All content on this site are property of Michelle Moquin © copyright 2008
" Politics, god, Life, News, Music, Family, Personal, Travel, Random, Photography, Religion, Aliens, Art, Entertainment, Food, Books, Thoughts, Media, Culture, Love, Sex, Poetry, Prose, Friends, Technology, Humor, Health, Writing, Events, Movies, Sports, Video, Christianity, Atheist, Blogging, History, Work, Education, Business, Fashion, Barack Obama, People, Internet, Relationships, Faith, Photos, Videos, Hillary Clinton, School, Reviews, God, TV, Philosophy, Fun, Science, Environment, Design, The Page, Rants, Pictures, Church, Blog, Nature, Marketing, Television, Democrats, Parenting, Miscellaneous, Current Events, Film, Spirituality, Obama, Musings, Home, Human Rights, Society, Comedy, Me, Random Thoughts, Research, Government, Election 2008, Baseball, Opinion, Recipes, Children, Iraq, Funny, Women, Economics, America, Misc, Commentary, John McCain, Reflections, All, Celebrities, Inspiration, Lifestyle, Theology, Linux, Kids, Games, World, India, Literature, China, Ramblings, Fitness, Money, Review, War, Articles, Economy, Journal, Quotes, NBA, Crime, Anime, Islam, 2008, Stories, Prayer, Diary, Jesus, Buddha, Muslim, Israel, Europe, Links, Marriage, Fiction, American Idol, Software, Leadership, Pop culture, Rants, Video Games, Republicans, Updates, Political, Football, Healing, Blogs, Shopping, USA, Class, Matrix, Course, Work, Web 2.0, My Life, Psychology, Gay, Happiness, Advertising, Field Hockey, Hip-hop, sex, fucking, ass, Soccer, sox"
April 1st, 2009 at 8:41 am
THE MAGIC OF YOUR TOUCH
For centuries, mothers have instinctively known it works — pick up young children and they’ll stop crying… gently rub babies’ backs and it’s off to dreamland they go. Now scientists are also coming to recognize the power of touch — and not just touch therapies such as reflexology, but simple acts such as giving a backrub, holding hands, sharing a hug or putting your arm around someone. With research demonstrating the healing power of touch, more hospitals are incorporating massage programs into care protocols for cancer and cardiovascular patients, among others.
Tiffany Field, PhD, director of the Touch Research Institute at the University of Miami School of Medicine, has studied the benefits of touch for many years. Her book, Touch, reviews medical and sociological research on the importance of touch to good health and also argues that the Western world, including the medical profession, has marginalized and minimized its importance. When I called her to discuss her work, Dr. Field told me that many forms of touch can help reduce pain, anxiety, depression and aggressive behavior… promote immune function and healing… lower heart rate and blood pressure… and improve air flow in asthmatics. All this, and no drug side effects!
THE VITAL IMPORTANCE OF TOUCH
Previous research has suggested that touch deprivation leads to aggression and violent behavior in animals, so it was no surprise when Dr. Field shared her concerns that living in our largely touch-deprived Western society can have negative consequences. It was these concerns that led researchers at the Touch Research Institute to examine how touch is treated differently in two cities with very different cultures — Miami and Paris.
In one study, published in Early Child Development and Care in 1999, Dr. Field and her colleagues measured how much affectionate touch preschoolers received from their parents on playgrounds and also the children’s level of aggressive behavior. In Paris, they found there was more touch toward peers and parents by children and less aggression. In a separate study, researchers also observed that French adolescents — raised with more affectionate touch — were more affectionate and less physically and verbally aggressive with one another than American adolescents. This association does not imply or prove causation, but does make a case for closer examination with further research.
REACH OUT AND TOUCH
Dr. Field explained that the benefits of touch seem to stem largely from its ability to reduce levels of cortisol, a stress hormone manufactured by the adrenal glands. This was measured in two dozen studies. She said that touching with moderate-pressure (a firm handshake) stimulates activity in the vagus nerve, one of the 12 cranial nerves in the brain, which in turn slows the heart and decreases the production of stress hormones including cortisol.
Other studies published from the Touch Research Institute, published in peer-reviewed journals, demonstrate that touch contributes to…
• Decreased pain. Children with mild to moderate juvenile rheumatoid arthritis who were given massages by their parents 15 minutes per day for one month experienced less anxiety and lower cortisol levels. Over a 30-day period, parents, kids and their physicians reported less pain overall in the children.
• Enhanced immune function. In studies, women with breast cancer and HIV patients showed a measurable increase in natural killer cells?– part of a line of defense in the immune system against virus-infected cells and cancer cells — after massage. They also experienced less anxiety and depression.
• Happier, healthier babies. Preemies who were touched more while in the NICU gained more weight.
• Less labor pain. Women in labor who received a backrub the first 15 minutes of every hour of labor reported less pain and made fewer requests for pain medications. Their labor was also shorter, on average.
• Enhanced alertness and performance. Following massage, adults completed math problems in significantly less time and with fewer errors.
TOUCH IS MUTUALLY BENEFICIAL
Touching is good for the giver as well as the recipient, says Dr. Field. She cites a study in which 20 children with leukemia were given daily massages by their parents. After one month, the parents’ depressed moods decreased, and the children’s white blood cell and neutrophil counts increased. In another study of elderly volunteers who were trained to give massages to infants, Dr. Field found that after three weeks the seniors experienced improved mood with less anxiety or depression, decreased levels of stress hormones and more social contacts and fewer doctor visits.
GET IN TOUCH
Touch comes more naturally to some people than others. You can make a conscious effort to bring more touch into your daily life — and more happiness to yourself and those around you. Give your kids hugs when they leave for school in the morning and when they come home. Hold your partner’s hand when you take a walk, exchange back rubs and don’t forget good-night kisses. Pet your dog or cat. Schedule a few sessions with a professional massage therapist and pay attention to what feels especially good — then try it at home on one another. Relax and enjoy.
Source(s): ??Tiffany Field, PhD, director of the Touch Research Institute at the University of Miami School of Medicine in Florida.
April 1st, 2009 at 4:07 pm
Robert, excellent points. All anonymouses will just have to find a name if they’d like q&a from me. That’s not a rebuff just lack time to sddrss numerous anons. Names are easier to banter with and identify with, no offense intended to anyone in particular.
Speaking of anons’s, where is our Anonz??
Caio, Zen Lill
April 1st, 2009 at 5:36 pm
Okay Michelle I’ll give it a try. 1. THE REWRITE IN A FEW SENTENCES – The US government is offering any investor 13 times what the investor is willing to put up for his/her investment for the investor to accept the US as an equal partner profit wise. They would share any profits 50/50. The US has a hedge that it will not lose any of its investment dollars until their partner loses all of his investmen.
Since examples often explain math formulars, here’s mine: For every $1.00 invested the government will add $13.00.
This will give the investor $14.00 to invest in the bidding on the bank’s “toxic assets.”
The investor will have to lose his entire vestment of in this case $1.00 before the government will be required to spend any of its $13.00.
Any profits above up to and above the $14.00 will be split evenly between the investor and the taxpayer.
2. Geithner probably arrived at his budget by guessing how much he had to offer the seasoned investor to get him to put up his money.
3. The government needs the private investor to keep the taxpayer from having to pay too much for the bank’s toxic assets.
4. The simple formula for any one looking to get the government to be a partner in the purchase of the banks’ toxic assets is. I + 13(I)= how much the investor will have to bid on the toxic asset he/she is interested in acquiring.
I hope this helps.
Robert