After a relatively quick read of the Bailout Legislation, here are a few quick points. Our Congressional Representatives have asserted that they are most interested in protecting the interests of the American Taxpayer. I can only summarize my comments by saying "Don't Believe Everything You Hear."
(1) The Legislation covers purchases of troubled assets assets from any financial institution having significant operations in the United States. Of course, the Secretary of the Treasury can include institutions that are necessary to promote financial market stability; whatever that amorphous term may mean. In addition, there is nothing that precludes a protected institution from buying assets anywhere and turning around and selling them to the Treasury.
(2) A trouble asset is a a residential or commercial mortgage, or securities related to such mortgages. There is no limitation on where the mortgaged property is located. Hello Marbella. In addition, such assets include "any financial instrument" that the Secretary of the Treasury determines necessary "to promote financial stability"; whatever that amorphous term might mean. Oh, and Section 8 of the Legislation precludes review unless the Secretary acts in an arbitrary or capricious manner, or abuses his discretion. Good Luck.
(3) Congress has proclaimed that the maximum exposure is limited to $700 Billion. Not as far as I can tell. The Act limits the purchase of trouble assets to $700 Billion outstanding at any one time. This does not preclude the Treasury from buying $700 Billion, liquidating these assets, and then doing the same thing again. And, ostensibly, again and again. And, potentially, losing money again and again. Keep in mind, when you listen to the parade of proponents, nobody seems to ever acknowledge that asset prices can drop, even if the asset is over-priced. Heaven forbid. It almost un-Patriotic to have such thoughts.
(4) Congress has promised the public it can participate in the success of the program by providing for the ownership of options. As I read this Law, Not Really. According to the Legislation, the Treasury will receive "Contingent" shares in the selling institution. If the Treasury loses money on the resale of assets it owns, it will receive shares equal in amount to 1.25 times the amount of the loss. However, if the government makes any profit on the sale of the assets, the contingent shares will not vest. Yes, there may be some money in the resale; but there is no minimum return target. In fact, the term profit does not seem to cover the cost of interest that will be paid by the government on the debt issued to fund this. I guarantee you Warren Buffett would never agree to these terms.
Do you really believe this Package has you in mind?