The market is certainly applauding it -- up 310 points -- but for me I think there's a fatal flaw in the structure. It's structured so you either overpay for the assets so that the banks are incented to sell, or if the prices are correct, then the banks don't want to sell and allow taxpayers to win.
The hardest aspect of this program is getting everybody to agree on pricing. When I did this, it worked because the banks shared in the upside. But the most important issue to me was that we didn't pay too much. The bank incentives are not aligned with the public and the private. I think it can be a great deal for the private investor if the pricing is correct. But on the other hand, if you pay too much, it doesn't matter how much leverage you have, you lose money.
Isn't competitive bidding supposed to achieve some kind of fair value?
Well, they're only choosing five players; this is not open to everybody. I don't like that you have to be very big to play. The whole idea is to get private money flowing. However, if you don't have $10 billion in assets, then you're not eligible to play. So you're only benefitting the BlackRocks (BLK), the PIMCOs, the Carlyles and the Apollos of the world.It has to be open to many more investors -- you're either too big to fail or not big enough to play. So how would you address those flaws in the plan? You have to walk the shortest distance between two points -- from where you are to where you need to be. My frustration is that with $3 trillion of spending, I have not yet seen the government take the shortest distance between two points to get credit flowing to starving industry, hemorrhaging jobs each day.
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