Thank you for sharing!

Your article was successfully shared with the contacts you provided.

For more on the financial crisis, check out GlobeSt.com’s Webinar, “Wall Street In a Freefall—The Winners and Losers.”

WASHINGTON, DC-My mid-day on Friday it was clear that Congress was in for a long weekend of negotiating the details of the proposed federal rescue plan, which is expected to cost taxpayers $700 billion. Leaving aside the charges of partisan gamesmanship flung from both sides of the aisle, it is that figure, coupled with an outraged sense from the majority of Americans and the anathema most fiscal conservatives hold toward government bailouts in general that derailed the negotiations on Thursday. Leaders of both majority and minority parties in both the House and Senate, as well as Pres. George Bush, have given indications – overt or otherwise – that negotiations are moving steadily forward and could well result in a finalized bill by Monday.

What that measure will look like at this point is anyone’s guess. There is the administration’s original plan of creating a federal entity to absorb toxic debt, plus the proposal by critics that the administration eventually accepted – namely the limits on executive compensation of companies that benefit from the bailout, and provisions that the government reaps some profits from the asset sales. In addition, on Thursday there were talks that the $700 billion would be dispersed in three stages, with the final $350-billion tranche dependent on a congressional vote. A number of House Republicans have proposed other plans that call for an insurance-focused bailout sweetened by cuts in capital gain tax rates and regulatory relief.

For all the talk of responsibility, fairness and political gain, little insight has been provided about the pricing mechanism for these assets – a strategy that will be at the heart of whatever plan eventually takes shape. “I don’t see how anybody could opine on the plan without knowing what the pricing mechanism will be, how it will be deployed and who it will be deployed to,” Lawrence J. Selevan, principal with investment merchant bank firm Chesterfield Faring Ltd., tells GlobeSt.com.

Furthermore, whatever solution is adopted will have to take into account the needs of the non-US holders of this paper, hopefully by establishing a global clearinghouse, he continues. Similar to the creation of the IMF and World Bank after World War II, such an institution could govern standards for valuing derivatives, non-prime mortgage debt securities and corporate debt securities while also purchasing the least desirable paper, he explains.

“Most of the multi-trillion dollar securities were sold to sovereign wealth funds, global banks owned by countries, and other pooled investors at global banks, pension funds and institutional investors. A ‘bailout’ only for US banks does not eliminate the risks in the credit markets and may cause wholesale dumping by non US holders, depressing the securities and increasing the losses of the securities to be bought by the US government,” Selevan says. With more than $10 trillion in US Treasuries at risk mostly held by foreigners, he concludes, this is not a good time for foreign investors to either dump their Treasuries or securities in the marketplace.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?


Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.