This morning the Treasury Department held what we think may be the first ever conference call on the economic bailout directed at financial bloggers. We were expecting a contentious and perhaps chaotic call—a lot of bloggers aren’t used to how this type of thing works, and government officials haven’t mastered the art of talking to bloggers.
We were reassured that our prediction would be borne out when one of the callers introduced herself as Muffie Benson-Perrella, the pseudonymous satire blogger from DealBreaker.com. Uh oh, we thought, this could get really messy, really fast.
As it turned out, the call went off without a hitch. You can read Joe Weisenthal’s liveblog of the call here. The first question came from a hedge fund manager who wanted to know about the application process. He was referred to the application information which has been made available online. We actually would have liked to hear more clarity not about how the criteria for participation were arrived at. Why, for instance, must an asset manager have at least $10 billion to participate? Were there metrics that led to that level as safe for managers or is that an arbitrary number?
Next up was famed econ-blogger Brad DeLong, who wanted to know if the Treasury was just gambling on the idea that the government could create confidence in financial markets just by announcing its willingness to step in and buy assets—just as happened with the Bank of England and the Chancellor of the Exchequer in 1830s Britain.
Gene Sperling, the Treasury Department official managing the call, actually chuckled and admitted he wasn’t going to try to challenge DeLong on the financial history of 19th century Britain. His more formal answer was basically to admit that there is some hope that the Treasury will be able to reinvigorate markets simply by being there.
We asked the last question. The primary question—meaning, the first test of the effectiveness—of the plan will be whether the government’s guaranteed loans and equity contributions will narrow the gap between the bid and ask on the assets enough to induce banks to sell the assets without increasingly the price so much that the partnerships overpay.
Treasuries answer was that they would have to see whether the program narrowed the pricing gap enough to encourage liquidity.
“The banks may sell assets at a loss if it means they can raise private capital again,” Sperling said. “That is the feedback we’ve heard from several institutions specifically. The ultimate shrinking of that offer spread will be a combination of that psychology, both the seller psychology and buyer psychology.”