Wall Street sure saw a spark today igniting the markets to run on a 6.8% increase. This all coming after the Government and Federal Reserve released more details on their plan to purchase back $1 trillion in liquid real-estate assets. The goal is by removing devalued loans and securities from the banks balance sheets we will be able to help them start lending again and get credit flowing again. Obama stimulated this action with the goals of helping credit markets with have crashed. Obama feels that without the flow of credit small business will be unable to come back something that use to thrive in America. Questions still arise though on how the U.S. Federal Reserve's plan to buy back toxic assets will pan out. Many still have stipulations on how this will affect the U.S. economy and whether or not private investors like Hedge Funds and Private Equity Firms will truly be interested in purchasing these toxic assets? Currently I am not feeling too confident in the plan. The Obama administration has already done everything possible to alienate Wall Street and large Financial Institutions that by asking them now to partner up shows tremendous hubris. I believe our economic policies our becoming far too left. The government has come to a very thin line with almost Nationalizing some of our largest Financial Institutions. We need to decide what kind of economy we want, a Free Market Enterprise or a Government controlled one. My biggest concerns however come amid how to value the assets to be purchased without turning the balance sheets of the banks that are to be acquired upside down. If the prices are too low, then the balance sheets will turn insolvent, and a wave of defaults will occur. If the prices are too high, the taxpayers and purchasers will get screwed. I want to know who will be able to determine the true value and if they mess up who is too take the burden for another faulty mistake? There has never been any historical precedence where a program like this worked so only time will tell. If you are wondering who benefits? The beneficiaries will be the large institutions Goldman Sachs, Morgan Stanley as well as large private equity firms. In the end we will ultimately need to see the full details on the plan before we can assess any value. At the end of the day though this will just put the Big Boys like Goldman Sachs back in position to rule the U.S. financial world.
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