The worst possible plan

I’ve been reading Tom ‘s comments on the “Dodd Plan” to stabilize the market, and IMHO he’s missed the most noxious part of the plan.  Here’s the proposal

(3) VESTING OF SHARES.—If, after the purchase of troubled assets from a financial institution, the amount the Secretary receives in disposing of such assets is less than the amount that the Secretary paid for such assets, the contingent shares received by the Secretary under paragraph (1) shall automatically vest to the Secretary on behalf of the United States Treasury in an amount equal to— (A) 125 percent of the dollar amount of the difference between the amount that the Secretary paid for the troubled assets and the disposition price of such assets; divided by (B) the amount of the average share price of the financial institution from which such assets were purchased during the 14 business days prior to the date of such purchase.

Let’s consider a scenario:

  1. Government takes $50 billion in “bad assets” off the hands of company X
  2. It’s June, 2010.  President Obama is raising funds for Democrats running in House and Senate races.  One of Obama’s fundraisers goes to the executives of X, and “encourages” them to give money to a slate of Democrat candidates.  The executives refuse.
  3. Two weeks later, the Treasury “sells” the “bad assets” to an Obama supporter for $20 billion dollars.  The Treasury takes it’s $37.5 billion in equity in X, and takes over X.

(You want to replace Obama w/ McCain and Democrat with Republican, go right ahead.  Of course, in teh reversed case the MSM might actually pay attention to what’s happening.)

How much were those assets really worth?  We don’t know.  But, in the end, what they’re worth is control of the company for political purposes, and giving the government more power.

It’s a bad plan.


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