Skip to main content

Rescuing the Bailout

Note: This news story by Chris McMahon originally appeared in the November 2009 issue of Futures Magazine.
Link to original @ Futures Magazine

To say the first iteration of Treasury Secretary Henry M. Paulson's $700 billion bailout plan was poorly received understates the case. In a closed-door meeting, House Minority Leader John A. Boehner (R-Ohio) reportedly referred to the bill as a "crap sandwich." Even after President George W. Bush addressed the nation to explain the looming catastrophe and the potential effects of the credit crisis on Main Street, the House of Representatives rejected the bill, sending the Dow Jones Industrial Average into a 774-point nosedive. Days later, another version of the bill was passed by the Senate and the House and signed by the president, and the Dow dropped 342 points.

The bill authorizes a total of $700 billion for the Treasury secretary to purchase troubled assets, with an initial outlay of $250 billion. The president could then certify the next $100 billion, and thereafter, funds will be made available by joint resolution in the Congress. Treasury will buy troubled assets and attempt to maximize the return on assets to the government. It also includes a temporary increase in FDIC protection for insured deposits to $250,000 from $100,000; adjustments to the alternative minimum tax; requirements for Treasury to create a homeowners assistance plan to limit foreclosures; and limits on executive compensation.
Perhaps most surprising is that the bill does include provisions for an ownership stake for taxpayers: "The Secretary may not purchase, or make any commitment to purchase, any troubled asset under the authority of this Act, unless the Secretary receives... a warrant giving the right to the Secretary to receive non- voting common stock or preferred stock in such financial institution, as the Secretary determines appropriate; or ... a senior debt instrument from such financial institution."

Despite the bill's passage, enthusiasm remains muted and the success of the plan is uncertain. "The bailout retards the potential for price discovery in this environment and it does not give us any indication of where value is," says Kevin Hubbell, partner at Bear Brokerage in the CME's Eurodollar options pit.

Note: This news story by Chris McMahon originally appeared in the November 2009 issue of Futures Magazine.

Popular posts from this blog

Customer Connections - The Heart of the Hedge

By Chris McMahon While hedge funds are better known for seeking alpha than philanthropy, many channel their generosity through innovative non-profit organizations and foundations. They just do not usually talk about it. With the economy limping, charities are concerned. The 2008 Study of High Net Worth Philanthropy found that between 2005 and 2007, charitable giving increased for nearly all high net-worth households, except for those with $5 million or more in income. The study said charitable giving dropped 9.7 percent, to $80,249, for those households in 2007 from $88,845 in 2005, after adjusting for inflation. That was before the recession.  While many fear charitable giving will decline even more in the face of the global economic downturn, hedge-fund sponsored philanthropies appear to be weathering the storm better than most. Philanthropy professionals say it is due in large part to the active participation by hedge fund leadership in such organizations. << Read th

Options at the Crossroads

Options at the Crossroads Note: This feature length story by Chris McMahon originally appeared in the February 2010 issue of SFO Magazine. Link to original @ SFO Magazine As U.S. regulators come to grips with the public perception that they have been asleep at the wheel while financial markets careened into chaos and lawlessness, there is legitimate concern that regulated markets, which have performed remarkably well, could be become victim to oversteering. Public outrage is growing about seemingly rampant insider trading rings, enormous compensation packages for firms that have received bailouts and a string of hedge fund frauds and Ponzi schemes. Those issues, in conjunction with a new presidential administration and recently appointed heads at the Securities and Exchange Commission and the Commodity Futures Trading Commission have prompted a thorough reconsideration of what kind of markets Americans want and the consumer protections and regulation they need.

The Year of the Ox: Is It a Bull for China?

Note: This feature length cover story by Chris McMahon originally appeared in the November 2009 issue of SFO Magazine. Link to original @ SFO Magazine “At this critical juncture of countering the financial crisis, I called for perseverance, as perseverance will lead us to final victory. The dark cloud of the financial crisis will disperse. Let us work together for a more splendid future.” The Year of the Ox: Is It a Bull for China? ~ Chinese Premier Wen Jiabao In Chinese astrology, 2009 is the year of the ox, a symbol of wealth created by strength, hard work and perseverance. Those born under the sign of the ox are thought to be quiet, patient and determined. That’s an auspicious sign for China’s stimulus plan and newly resurgent economy. But those born under the sign are also thought to be stubborn, eccentric and quick to anger. As the global economic slowdown approaches the end of its second year, China’s economy appears to have pulled out of the downturn and to have don