Yes folks, it’s the Troubled Asset Relief Program, or as we like to say here on FT Alphaville, the Mother of All Bail-outs.
WHO IS REALLY GETTING THE HELP HERE?Here’s a quick crib to the MOAB:
What?: According to Bank of America, the goal of the program “is to preclude or at least postpone systematic failures in financial institutions.” The Treasury’s description is slightly more long-winded: “This program is intended to fundamentally and comprehensively address the root cause of our financial system’s stresses by removing distressed assets from the financial system”
Come again?: The US Treasury, through this MOAB, will buy up to $700bn in assets, financed by an equivalent issuance of government bonds and defined as “residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages”. Hank P also reserves the right, in consultation with Ben B, “to purchase other assets, as deemed necessary to effectively stabilize financial markets.”
How?: The MOAB will probably purchase assets through reverse auction, although this has not yet been decided. Management of these assets will be outsourced to the private sector (BlackRock anyone?). The Treasury may sell the assets at its discretion or may hold assets to maturity.
Who?: Companies eligible to tap the program include but are not limited to banks, brokers-dealers and insurers with “significant” operations in the US.
Timing?: The program will, if approved by Congress, run through September 2010, although it will only accept assets originated or issued on or before 17 September 2008
Who’s eligible?: Any institution including, but not limited to, banks, thrifts, credit unions, broker-dealers, and insurance companies having significant operations in the US. and, if Hank P and Ben B agree, any other institution he deemed necessary to promote financial market stability.
Quis custodiet ipsos custodes?: Within three months of the first asset purchases, and semi-annually thereafter, the Treasury will provide the appropriate Congressional committees with regular updates on the program. BUT - “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”
What about the taxpayers?: “Cash received from liquidating the assets, including any additional returns, will be returned to Treasury’s general fund for the benefit of American taxpayers,” according to the fact sheet.
What’s the word on the Street?: Generally pleased
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