Monday, 23 March 2009

Will the latest US bank bail out product succeed?

Another Monday, another US bank bail out plan. By my count this is version 2.1. So far the product has failed to meet customer expectations and there have been few buyers.
However, with the CEO Bush and CFO Paulson replaced by Obama and Geitner respectively, expectations have been set much higher for the product; in spite of this the initial release of a few weeks ago was met with lacklustre enthusiasm. There has been much investment in time and R&D since V1.0 launch in September of last year, but now with funds running low, a market breakthrough is essential.

As an initial barometer the share prices of US zombie banks like Citigroup and Bank of America have soared on the news. Clearly shareholders of banks think that this is the real deal. in the UK, the asset plan announcement had varying effects on LLoyds and RBS share prices - with both still languishing at relative lows for the year. So this is a good sign for financial community users.

Other initial indicators are that the US Dollar has fallen, this seems to be on expectations that US Government debt is going to soar and be much harder to bring under control. This suggests to me that the new product will not be that appealing to customers in the tax paying sector of the market. Suggestions abound that Congress will not have to approve the plan, suggesting some underhand play here by the Executives responsible.

Also I note that the product contains some code which may yet prove it to yet another bug-ridden release. The product relies on private investors putting equity into banks bad loans. City sources suggest that some have been sounded out and so there will be at least a little appetite, but with no mechanism for pricing bad loans yet discovered, this new code is liable to prove inadequate at the first real hurdle. No doubt a patch will be rushed out to 'fix' this in the near future.

I look forward to bank bailout product v2.3 which will be along shortly.....

8 comments:

Steven_L said...

Why don't they just divide the loans into different 'tranches' and come up with some kind of formula to share the defaults unevenly between them?

With gvt guarantees maybe they could get the top tranches rated AAA and sell them for more.

CityUnslicker said...

SL - brilliant! more layer os securitisation - I bet they wish they had thought of that...

Mark Wadsworth said...

No it won't.

Is anybody keeping track of how much money they've thrown at the banks and insurance companies over the last year or so?

CityUnslicker said...

MW- I saw some good graphics on Big Picture for the US. For the Uk it is harder, as we seem to make open ended commitments, which are not the same as actual spending.

Suffice to say, we are endentured slaves to the Banking Government for some time to come.

http://www.cctvstar.blogspot.com said...
This comment has been removed by a blog administrator.
CityUnslicker said...

It is rare I remove comments like above, but linking to a totally unrelated post on an unrelated site will do it for me.

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