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Alternative Market Briefing

Other Voices: The Financial Stability Plan has been lost in translation

Tuesday, March 03, 2009

This article was authored by Shahriar Shahida, CIO, Constellation Capital Management, New York.

The fact that the markets seem to hate the financial rescue plan is no secret. The question is, are they being too hasty in doing so? Secretary Geithner talks about a public-private partnership for working through the current crises, but what does he really mean? Many taxpayers are repulsed by the notion of continued infusion of taxpayer funds into the black hole of bank balance sheets. They argue that the government should not buy toxic assets above market levels (as the banks wish it to), unless they share in the upside. In turn, the banks argue that current asset prices merely reflect the total loss of liquidity in the markets, and not the true fundamental value of their underlying investments. Forced liquidations in a market with no liquidity only add to the systemic risk and lead to greater asset devaluation, in the process compounding our economic travails.

So what is this poor administration to do? Well the fact is that right under everyone’s nose, everyone that is, who cares to dig deeper, there is a very elegant solution that has already been proposed and is embedded in the government’s Financial Stability Plan.

Under the Term Asset Backed Loan Facility (TALF) program, a key component of the Financial Stability Plan, the Treasury has offered to provide US investors with non-recourse financing to buy newly created asset backed securities. I......................

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