The market explodes upwards as CNBC’s Charlie Gasparino reports that the federal government may create a big garbage can that banks can shovel all their balance sheet crap into. Morgan Stanley (MS) and Goldman Sachs (GS) have recovered entirely.
CNBC reports (transcript below) that Paulson is shopping a proposal to members of congress that would closely resemble the Resolution Trust Corporation which helped resolve the S&L crisis in the 80s.
If the new facility operates similarly to the RTC, it will use federal funds to guarantee a pool of bad assets, and then seek private sector equity partners for particular pools to help liquidate them.
No word on how much the plan will cost taxpayers, or what sorts of prices the government might acquire the securities for (and, therefore, how much money the banks and brokerage firms would have to raise). If the government’s going to save the day, can Merrill Lynch back out of its Bank of America deal?
Transcript courtesy CNBC:
CNBC’s Charlie Gasparino: WELL, IT’S OUT OF MY SOURCES ON WALL STREET , BILL. TREASURY SECRETARY SECRETARY HANK PAULSON IS WORKING ON A PLAN TO PUT SOME OR ALL OF THE TOXIC WASTE AND PUT IN SOME SORT OF RTC LIKE STRUCTURE. OBVIOUSLY THIS A PLAN TO DEAL WITH THIS SORT OF ISSUE AT HAND AS THE BAD ASSETS ARE STILL ON THE BALANCE SHEETS AND IT’S STILL DISRUPTING THE MARKET. WE HAVE TO BE A LITTLE CAUTIOUS HERE. I’M GETTING THIS FROM MY WALL STREET SOURCES. STEVE LIESMAN, THE ECONOMICS REPORTER, HAS A CALL INTO TREASURY.THEY BASICALLY NEITHER CONFIRM NOR DENY THIS. BUT BASICALLY FROM WHAT I’M HEARING FROM MY WALL STREET SOURCES WHO DEAL WITH PEOPLE IN THE TREASURY DAILY NOW BECAUSE OF THE SITUATION AT HAND IS THAT HANK PAULSON, THE SECRETARY TREASURY, IS WORKING ON SOME SORT OF RTC-LIKE PLAN TO GET AT LEAST SOME OR ALL OF THE TOXIC WASTE OFF OF THE BALANCE SHEETS OF THE BANKS AND BROKERAGES AND WHAT HAS BEEN DESCRIBED TO ME IN ONE BITE OF AN APPLE, TO DEAL WITH THIS ISSUE. IT’S OBVIOUSLY A LEGACY ISSUE. HANK PAULSON IS A FORMER GOLDMAN SACHS CEO. BUT AT LEAST THIS IS WHAT PEOPLE ON WALL STREET WHO DEAL WITH THE TREASURE DIRECTLY ARE TELLING ME. STEVE LIESMAN, WE TALKED ABOUT THIS EARLIER. THERE WERE A LOT OF TEA LEAVES SAYING THAT THINGS LIKE THIS WERE COMING DOWN THE PIKE. MAYBE YOU CAN HELP ME OUT.
CNBC’s Steve Liesman: A BUNCH OF COMMENTS AND IT BEGINS WITH THE PRESIDENT. GUYS IN THE BACK, IF YOU HAVE THE SOUND FROM THE PRESIDENT, I’D LIKE TO ROLL IT AS PART OF THE DISCUSSION HERE AS TO WHY MAYBE THIS CERTAIN — DO WE HAVE SOUND, GUYS? THIS IS FROM PRESIDENT BUSH WHO SPOKE TODAY.
Pres. Bush: AMERICANS WILL CONTINUE TO ACT TO STRENGTHEN AND stabilise OUR FINANCIAL MARKETS AND IMPROVE INVESTOR CONFIDENCE.
Liesman: SO THE WHITE HOUSE SPOKESPERSON SAID THEY CONTINUE TO ACT AND WOULD NOT COMMENT ON THAT BUT SAID WE CAN’T TELL YOU THE PRESIDENT WANTS TO MAKE SURE THAT HIS GOVERNMENT IS ACTING SO NO FURTHER DAMAGE COMES TO THE ECONOMY. MEANWHILE, “THE WALL STREET JOURNAL” EDITORIAL PAGE, SUPPORT OF THE IDEA AS IT COMES THE BITE OF THE APPLE SOLUTION…..
Griffeth: AND NOW IF YOU HAVE TREASURY TALKING ABOUT THAT, AS CHARLIE’S SOURCES SUGGEST, MOMENTUM IS MOUNTING FOR SOMETHING FOR SOMETHING LIKE THAT. BUT LIKE BARNEY FRANK SAYS IT’S A DIFFERENT ENTITY THAT THEY WILL NEED FROM RTC BECAUSE THEY WERE JUST BUYING UP —
Griffeth: GUYS, WE’RE VERY MUCH AT THE HIGHS OF THE SESSION AS WORD IS GETTING OUT ABOUT THIS. WALL STREET IS LOOKING FOR SOME MORE BACKSTOPPING BY THE FEDERAL GOVERNMENT.
Gasparino: Bill, Bill, I want to caution everybody. This is from my sources who deal with the Treasury Dept. We have yet to get a confirmation from the Treasury Dept. but what these sources are saying they want to do this thing with one bite and they want to do this fast. Like announce something imminently. But we don’t know this just yet because the Treasury won’t tell us.
Liesman: I WOULD SAY THE BIG PROPONENT IN THE HOUSE, BARNEY FRANK, WAS TAKING A VERY WAIT AND SEE ATTITUDE.THEY ARE GOING TO BE STARTING THEIR HEARINGS NEXT TUESDAY AND HE SAID THEY DON’T WANT TO FORMULATE ANYTHING UNTIL THE NEXT ADMINISTRATION. BUT MAYBE IT WILL HAPPEN SOONER. THE FIRST THING IS, I HAVE TO THINK THAT THE $180 BILLION INJECTED THIS MORNING, I WOULD THINK THE FEDERAL WOULD EXPECT MORE EFFECT THAN IT GOT. THE CREDITS ARE STILL SUBSTANTIALLY FROZEN OR OTHERWISE IMPAIRED. THAT WOULD GIVE MOMENTUM TO THIS IDEA. THE OTHER THING WHEN WE TALK ABOUT BARNEY FRANK SCHUMER, McCAIN, IT SHOWS THAT THE POLITICAL WINDS HAVE SHIFTED IN
SUCH A WAY , CHARLIE IS RIGHT THAT IT’S POLITICAL BUT IT’S POLITICAL AT THIS POINT IN favour OF DOING SOMETHING BIGGER THAN NOT.
Gasparino: AND I WANT TO POINT OUT ONE OTHER THING. I’M GIVING THE VIEWER AND US A TASTE OF WHO MY SOURCES ARE ON THIS. THEY ALL HAVE VESTED INTERESTS IN THIS HAPPENING JUST SO YOU KNOW THE REASON WHY, THE MARKET IS GOING UP DRAMATICALLY.IF THIS THING HAPPENS, CAN YOU IMAGINE, MORGAN STANLEY MIGHT NOT HAVE TO MERGE WITH A BANK. AND IF IT NEEDS TO MERGE WITH A BANK, IF SOMETHING LIKE THIS HAPPENS, WACHOVIA IS 120, 180 BILLION, I CAN’T REMEMBER THE NUMBER, OF MORTGAGES ON THEIR BOOKS. THAT DOESN’T BECOME SUCH AN ISSUE ANY MORE.
Liesman: LET’S BE CLEAR, NO COMMENT FROM TREASURY OR THE FEDERAL
RESERVE AT THIS POINT. WE HAVE CALLS INTO THEM AND WE’RE WAITING TO HEAR BACK.
Griffeth: STEVE LIESMAN, CHARLIE GASPARINO, AS ALWAYS, THANK YOU VERY MUCH.
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