If anyone hasn’t noticed this about using the Fed as part of a bad bank strategy:
John Ryding, chief economist at RDQ Economics LLC in New York, and Matt Chasin, chief operating officer of Sorin Capital Management LLC, a Stamford, Connecticut-based hedge fund that manages about $1 billion, say the Treasury Department should provide loans at commercial rates to investors for up to 50 percent of the purchase price of securities. The financing would be for as long as the maturities of the assets being acquired.
“One of the problems the banks have been facing is that the markets have forced artificially low prices on these assets because there’s not enough financing available for buyers,” said Ryding, 51, a former Federal Reserve economist who advises hedge funds. “There’s a lot of capital looking for distressed assets, if hedge funds can get good financing.”
The sort of proposals that are being kicked around are the sorts of proposal that make Uncle Sam the lender at an interest rate of approximately 2.5%. If an investor had to go out into the market today and secure similar financing, no easy proposition, the interest rate would be in the 8% to 9% range. Market pricing is not artificially low. Capital is scarce and pricing reflects those conditions.
Of course, “good” financing in this sense is the sort of low cost financing that will allow equity investors to bid up the price of an asset to a level acceptable to the banks. I don’t know. This cheap debt – bidding up prices thing has too familiar a ring to it…
Dave:
Yeah, no kidding….Report