Treasury Secretary Henry Paulson obviously recognizes that huge problems require huge solutions. This morning, he announced that in contrast to the federal government\u2019s piecemeal approach to the growing financial crisis of the past couple of weeks, \u201cWe must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system\u2019s stresses,\u201d that root cause being illiquid mortgage assets.\u201cThe federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy,\u201d Paulson said. He acknowledged that the plan, to be hashed out in rough form over the weekend by Treasury officials and Congress, will have to include \u201ca significant investment of taxpayer dollars.\u201dPaulson added, however, \u201cI am convinced that this bold approach will cost American families far less than the alternative: a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion.\u201dUnconfirmed reports have pegged the dollar amount of a comprehensive rescue plan at $1.2 trillion, comprising an $800 billion fund to purchase \u201cfailed assets\u201d and a $400 billion FDIC pool to insure money-market fund investors. During this morning\u2019s press conference, however, Paulson only said, \u201cWe\u2019re talking hundreds of billions. This needs to be big enough to make a real difference and get at the heart of the problem.\u201d Paulson also announced two specific measures that are going into effect immediately. Fannie Mae and Freddie Mac have been instructed to increase their purchases of mortgage-backed securities, and the Treasury Department will expand the MBS purchase program it announced earlier this month.Finally, calling the current financial regulatory structure \u201csub-optimal, duplicative and outdated,\u201d Paulson pledged to work with Congress \u201cto improve the financial regulatory structure so that these past excesses do not recur.\u201d\u00a0 Reacting to the Treasury intervention, Dan Fasulo, managing director at Real Capital Analytics, New York, told CPN that \u201cBeing a pure capitalist myself, honestly it\u2019s hard to digest.\u201d That said, he conceded, the plan is a good thing under the circumstances, a \u201cresponsible move\u201d in the face of what he calls \u201can old-fashioned run on the bank, but in 21st-century terms.\u201d\u00a0Fasulo added that the next six months will present \u201ca tremendous opportunity for savvy investors to pick up assets on the cheap\u2026. There\u2019s a lot of good stuff out there\u201d among CMBS. He noted, however, that finding the solid ones could be difficult, as would convincing one\u2019s own investment committee to move on them.Bob Bach, senior vp and chief economist at Grubb & Ellis Inc., told CPN, \u201c There will be Ph.D. dissertations written about the past few days a hundred years from now.\u201d With the market starting to resemble a runaway nuclear reactor, he said, the federal intervention \u201chad to be done.\u201d Further, he said, \u201cI think it can work.\u201d Bach compared the situation to that in 1989 when the Resolution Trust Corp. tackled the fallout from the savings and loan crisis. \u201cIt really did work,\u201d he said, noting that the RTC \u201cset commercial real esate back on a firm footing by the mid-1990s.\u201d He pointed out that the Japanese government at that time failed to do what the U.S. government did, with the result that Japan\u2019s economy stagnated for a decade or more. In contrast, the RTC helped clear the way for commercial real estate in the U.S. to flourish during most of the 1990s.<\/p>\n","protected":false},"excerpt":{"rendered":"
Treasury Secretary Henry Paulson obviously recognizes that huge problems require huge solutions. This morning, he announced that in contrast to the federal government\u2019s piecemeal approach to the growing financial crisis of the past couple of weeks, \u201cWe must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system\u2019s…<\/p>\n","protected":false},"author":1314,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21742],"tags":[],"class_list":["post-1003852782","post","type-post","status-publish","format-standard","hentry","category-latest"],"acf":[],"yoast_head":"\n