You hoped for change, didn't you? So did I.

So where do you buy these things. I didn't see that in the white paper.

This is NOT change we can believe in. THIS is simply more of the same old song and dance. Didn't work for Bush. Ain't gonna work for Obama, Blind Alley -- again. The folks who got us into this mess -- in both parties -- do not have the credibility to get us out.

Referring to these non-assets as "legacy assets" is, I think, simply the administration's attempt to remind the public that this mess is another legacy from the previous administration. I doubt that anyone will be bamboozled into thinking that they're worth more by Geithner's attempt to rename them. Besides, "Legacy assets" sounds so much better than "steaming pile of dog shit."

They were called "toxic" because no one was willing to purchase them at the price the holders were looking to sell because of the illiquid market (no pricing mechanism (computer pricing models ALL predicated on the market being liquid) and potentially no bottom). To the extent you can price them, they are no longer toxic.

Tough crowd. Tough crowd indeed.

There are times when filigreed bullshit actually has merit. Legacy, IMO, simply means we ain't gonna be forgetting about this for awhile.

Aren't these the CDO's and the CDS's that people are talking about?

Weren't these "products" developed thanks to holes in our regulatory system?

Is there a good reason to keep them on life support?

You either believe in the marketplace, or you don't. Nice litmus test for the commentariat. To do this without market participation is horse shit. The valuation issue was always the most difficult, this approach seems like it has a better chance to succeed then anything Krugman is suggesting. And yes, give the markets an incentive to buy this stuff, don't put limits on the return they can make, and maybe the tax payers make some money back. Its the best of several bad choices IMHO.

Is that legacy as in 'A Tragic Legacy'?

Krugman in the NY Times has already ripped this up as the same ol' same ol' Bush administration style cash for trash. I wish 60 Minutes had asked Obama tougher questions and follow-up questions re Geithner and Summers. Obama needs to sideline those 2.

simply the administration's attempt to remind the public that this mess is another legacy from the previous administration.

"Legacy" does have that sort of Bush/McCain like quality, doesn't it?

So where do you buy these things

In the white paper do a CTRL+F "Sample Investment".

KJ has a point, if you sold these packages at a nickel a pop, they're HIGHLY desirable, but the "legacy" label has a positive connotation.

Don't kid kidders, Mr. Geithner. Call them "unquantified value assets" if you like. Just the facts, man.

Science is good, now, right? Assume facts are good for economic approaches too.

Leo: The securities will likely be mortgage back securities or other CDOs, but not credit default swaps, since the latter is a derivative of the former. Once the former gets moving, theoretically the latter will get moving.

The other piece is targeted toward moving loans off the books of the banks and into a secondary market. These loans have been performing for the most part, or the banks have already taken significant charges/writeoffs related to the loans. So the losses are in some sense baked into the asset at this point.

We need to get these items moving if we actually want to restore the flow of credit. We already tried injecting large sums of money into banks and it didn't have the desired effect. I suspect this, coupled with the stress test will clear the air quite a bit. That and the introduction of a new regulatory scheme.

You either believe in the marketplace, or you don't. Nice litmus test for the commentariat. To do this without market participation is horse shit. The valuation issue was always the most difficult, this approach seems like it has a better chance to succeed then anything Krugman is suggesting. And yes, give the markets an incentive to buy this stuff, don't put limits on the return they can make, and maybe the tax payers make some money back. Its the best of several bad choices IMHO.

No, it's not the best of several bad choices. It's a bad choice among a bunch of bad choices.

Listen, people took risks on this stuff. They lost. And if those who spout off about "TEH MARKETZ!!111!one!!" truly believed their own words, they'd favor letting the investors go down the shitter.

Instead, Timmeh (as well as Obama) have decided to come and not only rescue the assholes who created this mess, but also to put those very same assholes in charge of cleaning it up.

It's a stupid idea that's the very definition of "moral hazard" and is not anywhere close to a "market solution." But I guess they decided that simply setting fire to a few trillion dollars would be too obvious, and have decided to destroy it this way.

Yes, letting a few of these banks and insurers and investors just go up in flames would be painful. But it'd actually wind up making the recovery easier in the long run. All this plan does is prolong the agony.

Tooweary: I was just explain where the original name came from. There was never any factual evidence that the loans or securities were worthless. But I appreciate the snark, nonetheless.

Crum: I read Krugman's take and the only thing I was left with is that he thinks the plan sucks but doesn't offer any real alternatives. I know he's the smartest guy still standing in the room, but at some point if you aren't helping improve the situation, you are making it worse.

And who shall be the legatee of all these wonderful legacies. Let me guess.

Getting snowed

Then there is this from Christina D. Romer, the White House’s chief economist:

“What we’re talking about now are private firms that are kind of doing us a favor, right, coming into this market to help us buy these toxic assets off banks’ balance sheets ... They are firms that are being the good guys here.�

I hate being snowed. These firms aren't in the business of doing favors. They care about one thing only. They smell the stink of enormous profits with practically no risk and gigantic tax payer supplied leveraging. FREE MONEY!

To claim they are doing us a favor is bush league politics.

Lipstick on a derivative.

People, take a step back. It took a long time for the system to drive into the ditch. It will take some time for the tow truck to arrive...and even more time for the repair shop to fix the dents and re-align the wheels.

Sheesh! We live in such a pill-popping, instant gratification, I-want-it-all-and-I-want-it-now society that we grumble the moment things take longer than a nono-second.

For Flying Spaghetti Monster's sake, it has been two months snce Obama took office. Two months!

There's some sense to the euphemism here. I mean, pick up the phone and ask somebody "Do you want to buy some toxic assets? Can I offer you some strychnine-laced mocha frappuchino's at my superfund site-located coffee bar as well?"

In truth, "toxic assets" was a media applied label that just caught on. Though it might be accurately descriptive of some of these assets, the whole problem is actually that we can't tell whether these assets are toxic or not in the real sense, and nobody can value them well enough for their to be a market for them.

What we need to be doing is speaking of these things in accurate but calmer terms.

I don't care how short a time they've been in office; when you have to try to disguise what you're really doing with doubletalk, what does that say?

What happened to all the BS about a new era of transparency?

I'd say that nearly anything toxic qualifies under Bush's legacy, actually. So, this isn't too far off.

"For Flying Spaghetti Monster's sake, it has been two months snce Obama took office. Two months!"

But we want it NOW, dammit.

I hope there's a Blue Ribbon Commission to study this, cuz then I'd be OK with it.

Legacy = Toxic = wildly irresponsible, reckless, stupid, perhaps criminal, and abysmal judgment on the part of lenders and AIG.

Even toxic is a euphemism that seeks to make responsibility vanish. Curare is toxic--but only when crafted by an expert, applied to a dart and aimed at another person. Toxicity isn't the problem, an indifference to bad consequences is. And, when the public has to swallow the consequences, those who created the problems and participated in the profits don't need to be rescued, they need to be scornfully set to the side along with the management and shareholders who enabled them.

I will say freely that I have no fucking idea whether this is a good plan or a bad plan. I don't know. I'm stupid about these kinds of things.

And I'm starting to find completely unreadable all my usual haunts in the blogosphere because everyone has to be first off the blocks with the scathingest criticisms possible. Atrios has been the worst. At least he's an economist, but all he writes lately is a bunch of foot-stampling and one-liners.

In a world where no one knows what they're talking about, somehow we just keep talking anyway.

My understanding is that only a small percentage of each CDO is actually worthless. I mean, if all mortgages were as bad off as the CDOs make them look we'd all be living in cardboard boxes. So the trick is to get them separated into individual assets again. Once the Treasury department does that they will all be pretty valuable (at least more valuable than they are now).

All this renaming is beginning to sound like Nazi Germany to my R friends. Enough already!

For all the naysayers, answer me just one little question:

Why are these assets "toxic?"

And no---the bullshit about their being "worthless" won't work---that's the coward's way out, and is worthy, in the most optimistic of best case scenarios, of the label "Bush Lite."

Let me know when you can set down the Krugmanese-to-English dictionary, and demonstrate some simple arithmetic, coupled with some middle-school science lessons on dissecting a frog. You do that---and you'll start to see how Geithner's going to get these god-damned "assets" fixed.

I hope there's a Blue Ribbon Commission to study this, cuz then I'd be OK with it. Posted by: MikeB-C on March 23, 2009 at 10:41 AM

Ok, I know that's some fine snark, but I actually think the interesting part is that there is a Blue Ribbon Commission, lead by Paul Volker. And per Talk of the Nation this morning, Timmeh and Larry "The Puppetmaster" Summers wont listen to or even discuss with him (or Stiglitz or Krugman. . .) any of this and basically wont let him sit with them at the kool kids lunch table.

note to self: have adequate coffee before playing with tags in the morning. 'bold off' should be after "is." sorry.

but while i'm here again anyway, let me add that one thing Obama really needs to get hold of as a management matter is Geithner and Summers ability to create an echo chamber and operate in a bubble. Obama needs to crack some heads and make them take input from Volker.

Geithner has sugar-coated this pill.

We have to swallow it, so ridding toxic from the discussion makes the pill not so bitter.

But swallow it we must.

Wealthcare lives.

How many trillions of dollars have we thrown at this economic meltdown?

Leg Uh See. Tock Sic

By adding a syllable, Wall street smiles.

I can see wanting to avoid "toxic"; how about using the old standby, "baggage" assets?

As in, Citi has a lot of baggage assets that need to be unloaded.

@Steve W.
The reason these assets are "toxic" is because nobody wants to buy them. Isn't that simple enough?

Belittling people who disagree with you doesn't constitute much of an argument. You have to understand that people have no faith in the so-called financial wizards right now. What people outside the system looking in see right now is a bunch of financiers who booked heavy profits for years that they kept to themselves, and now when faced with losses, they run to the taxpayers to bail them out.

That situation is a political loser from the standpoint of pretty much everybody in the US except for politicians taking donations from banking and investment interests.

The outright fraud on the part of many of the banks doesn't inspire any confidence, either.

I was thinking more along the lines of "financial fixer-uppers." Or maybe "previously loved loans."

certified pre-owned loans that have undergone Treasury's 7 point inspection plan

Ever get the feeling you've been cheated?

Johnny Rotten, 1978

Its time to consider how the Democratic party can throw a few rocks at Obama's head about this. I know we've been ruled by an Imperial Presidency for the last eight years, and we're all really excited to have a competent president again, but congress needs to assert itself as an independent voice and source for some intra-party discussion.

It's a bad sign that I couldn't right that last part about congress without snorting derisively.

my only problem with that, inkadu, is that as leery as I am of Summers/Geithner, i trust Congress even less. Reid has shown absolutely zero leadership ability, very few folks in Congress have any relevant experience to solving economic crises, and both chambers now have Blue Dogs as spoilers, screaming about spending an amount of money that most credible economists believe is too small rather than too large. and we haven't even gotten to the Republicans, who would rather see Obama fail than see the country succeed.

not sure there is much help to be had there.

i'd settle for them just having a frank meeting with the current econ team, Goolsbee, Volker, Krugman, Stiglitz, and some of the other nobel-winning critics of the current plan.

flipyrwhig: excellent point. i have a background in economics, i've followed markets for 25 years, i called the housing bubble and yet i still don't believe i have sufficient expertise to know the best course of action.

meanwhile, a bunch of people who have never read a balance sheet in their lives are enjoying the chance to see "this is stupid" without understanding what they are saying.

the losses will be socialized. all the resentment about the wizards of finance is valid, but it's not like in this plan, we socialize the losses and in some other plan we don't. the krugman plan - sweedish-style receivership - socializes the losses.

the best thing about the blog world is the vigorous give and take. the worst is instant expertise.

this issue brings those two into conflict....

Ah, all the fine talking points. If you're not an expert, you don't get to have an opinion. If you formed your opinion by reading experts, well, you're reading the wrong ones. If you don't have a better solution, you're not allowed to criticize Geithner's. If Krugman doesn't offer his solution over and over in every single column he writes, he's not offering a solution. Oh, and as long as it enriches the very people who blew up the economy, it's a "market" solution, but if they actually have to suffer the downside, it's unfair.

Do some of you even listen to yourselves?

The phrase "legacy loans" comes from JPMorgan's CFO.

From JPMorgan Chase's mouth to Geither's ear.

Changing toxic to legacy isn't policy, it's pr.

I don't understand the angst over the word 'legacy'. Securities of any kind have to be marketed, giving them a name which is accurate but salable is important to the plan Geithner is proposing. You cannot sell 'toxic assets'. And in truth, there is no toxicity involved, they are just of undetermined value.

michael: explain, in detail, how krugman's "solution" works.

begin with how it gets through congress. then explain the mechanics of picking off the bad assets. sum up what we need to recapitalize the banks and send them on their way.

look, i'm sure in an idealized environment, krugman is correct and receivership is the most efficient way to go.

but we don't live in an idealized environment, and a lot of the complaints about the giethner plan assume we do. that has nothing to do with expertise.

what does have to do with expertise is having some clue what the "toxic assets" are and mean. people who don't have that knowledge are unlikely to be able to make a good judgement about the best way to deal with them.

Mark D, all I know from your post is that you read Atros' blog. I thought anyone who was serious about this situation had long ago agreed that just doing nothing was a disaster. You sound dangerously close to espousing such a position. If you are making this case for nationalization? Your joking right? No serious case can be made. We simply can't afford it, either economically or politically. It is a non-starter, and a republican trap for this administration, even if it is the only alternative (which I doubt). Any other suggestions from the Obama sucks as bad as Bush Crew on the Left? Any suggestion how to value the shit pile? I am not hearing any? As we speak, someone is getting ready to make their next fortune. I don't care, provided the tax payers are paid back and we put in place regulations that create greater transparency and protect against fraud.

The world pretty much knows that these "assets" are pretty much a dog load of doo doo. There may or may not be anything of value in the middle of the load.

When this all came out private investors went hands off immediately and wanted governments to give them guarantees that they would not take a hit on the dog doo doo they bought. The governments complied but the dog doo-doo is still around.

Now that we call it legacy poo-poo we are still in the same position. Private investors may or may not buy it. Since they haven't rushed to buy the doo-doo on their own as of yet, they will not buy with their own money.

So in essence the governments have already bought the dog doo doo and we're trying to pay private investors to take ownership of legacy poo-poo.

The pooch has been screwed both coming and going.

I'm basically a cynic at heart, but I have a hard time understanding why, if Geithner's plan is so transparently stupid, it would be proposed in the first place. I don't think Geithner is anywhere on the ideological spectrum; I think he's a technocrat trying to figure out what might work. I can't evaluate that. I can evaluate what the political implications are, and know that I don't like them, but I have no idea if those implications are "worth it." That happens a lot in politics and policy.

Learning from Ladeen and Luskin, the Democrats might finally get the upperhand in framing a public debate. Right...

We had better start cranking the spin machine right now because the budget is going to be a real b*tch to sell. Today, E.J. Dionne had another great op-ed in The Post outlining the GOP framing defense: We don't need to talk about or commit to anything because: The real story is the president is doing too much (and we really liked a two-day work week).

To capture the conversation on The Hill and The Media, Obama should be direct in his Tuesday night chat:

"On the economic side, I want to respond to Paul Krugman, a Nobel Laureat, a columnist on The New York Times, and someone I really respect. If you want some background, Google the discussion between him and Professor Brad DeLong.

"On the political side, another op-ed, by E.J. Dionne in Monday's Washington Post, demonstrates that opposition to this budget and to us as citizens is simply baseless politics. We need to succeed.

Michele's vegetable garden is part of that success. Cutting back to keep your house, fixing the broken gutter when it means fewer cigarettes and less booze, buying a car because you have to, fixing your kid's teeth while yours rot away... We are in a world of increasing sacrifice. It will get worse for each of us, even those with millions in the bank.

"Have I mentioned that politicians, young and old, get help and funding from special interest lobbyists? This isn't necessarily a bad thing because a lot of lobbyists are experts with years of experience. We do need to hear from them. Yet, when these experts are beholden to a master that is not mammon, I draw pause. I and my secreatries need to hire superior staff for our government is a difficult task.

"It is difficult to start a conversation on energy or the climate when the initial response is: 'That's a lie. You fell for the hoax.'"

Sorry, didn't mean to start a speech...

At the same time, the word "toxic" is also spin.

And the problem with these assets; legacy or toxic - is perception. The banks can't attract a satisfactory volume of investment if there is the perception that they have too many toxic/legacy assets.

What is toxic about these assets?

1. Opaque and generally worthless risk-assessment process. If the Risk-assessment is too complicated for non-math-phd's to understand, then the risk-assessment itself shifts from a clearly-understood mathematical expression, to an "article of faith" . . . faith in this high-priesthood of quantitative analysts and derivatives expert. It becomes an emotional thing, rather than a logical thing. And right now - nobody trusts the risk folks because they've been wrong, and there is (well-deserved) suspicion that they were profiting by acting in bad-faith. THIS PROBLEM MUST BE FIXED BEFORE TRUST CAN BE RESTORED IN OUR FINANCIAL SYSTEM. Having the govt buy-up these assets is probably a good quick-fix.

2. These assets are only as toxic as the financial stability of the people paying these mortgages. In other words: Give these people jobs, and a decent income, these mortgages will get paid, the assets will become profitable, and nobody gets hurt.

And in addition to #2: is our nation's lack of public infrastructure investment, has put a HUGE burden on private industry. Private industry can't build highways (bridges, roads, rail, telecommunications) to move their goods. They don't have the means or the wherewithal. Healthcare is also an "infrastructure" that has placed a huge burden on private industry - that they are no longer able to bear. Healthcare, and Infrastructure investment are going to make private industry more able to address the jobs and income situation.

So I think Obama's on the right track. "Legacy" somewhat addresses the "faith" issue. It puts a less-negative spin on something that, frankly, nobody knows how to assess anyway. At least the rank-and-file investors.

But the real way to address the faith issue, is to restore ACTUAL trust by removing these assets from the open market.

(some high-profile prosecutions and HARSH punishments for bad actors has to happen as well!)

But that sticks US, the TAXPAYERS, with these bad assets.

So; the best thing to do is address the jobs and income situation. Obama's stimulus hopefully will do that. Will these assets then become detoxified? Might they not turn out to be a good investment after all? Might the taxpayer not profit hugely from this in the long-run?

Nobody's going to pay jack squat on debt or mortgage, if they don't have jobs. And that has been the main problem since Reganomics. Declining real income for middle-class wage earners. Because the spoiled-brat republicans didn't want to invest in infrastructure, and didn't want to pay their taxes.

@Steve W.
The reason these assets are "toxic" is because nobody wants to buy them. Isn't that simple enough?

Whispers, you're still not getting the point: You're bailing out on giving a detailed answer as to what makes these assets "toxic."

You're still trying to play the circular line of reasoning, in that (a) the assets are toxic because no one wants to buy them, and (b) that no one wants to buy them because they're toxic. If you don't like my tone, then stop trying to sell me your pathetically-shallow bag of goods; it's not going to work. 'Kay?

Here's what you do (and no---I don't need "Krugmanese" to undertaken it; it's simple arithmetic, and a wee bit of middle-school frog dissection skill):

1.) You pull an "asset"---which is basically an amount of debt that never should have been allowed to pass muster with any loan officer, then camouflaged by many, many layers of good debt---and you peel it apart, one layer at a time. As a result, you now have a collection of individual debts.

2.) One at a time, your auction off each of these individual debts, setting a minimum bid for each. Given the desperation in the global investment community for good debt, each individual item should probably net slightly more than its base worth.

3.) Once all of those good debts are auctioned, you take 100% of the net proceeds, apply it against the principal balance on the bad debt, and then re-issue the bad debt at the now-reduced principal balance, coupled with a lower fixed rate, instead of the "jumbo adjustables" that were used in the first place. (These were used in a lot more than just the subprimes that everyone's concerned about.)

This does three things, being (1) the economy begins to uptick, as credit starts seeping back into the system---because the banks don't have to hoard as much cash to cover their egregious asses for the gargantuan screw-ups they made; (2) the "toxic core" (the bad loans that should never have been made, no matter who was at fault) gets cut down to a manageable size; and (3) the fraud that's buried between the layers of repackaging gets pulled out into the light of day and the clowns that neither of us want running the system find themselves exposed, de-licensed, unemployed, and (if we're just a little bit luckier than we are right now in that the whole global economy hasn't imploded like a sonofusion bubble already)---a good many of them get to join Bernie Madoff as a long-term guest of our dear old Uncle Sammie.

It's not an overnight solution---but it is a solution. Do you have an alternative to offer? I'm all ears....

"Legacy" is used all the time in the computer business- it just means equipment or machines that you inherited before you took over the job. Something like "a networked pc system had to be configured to interact with the legacy mainframe system". It's not new in any sense. People are reading too much into this.

Wowwee!

Wonder what overpaid marketing genius came up with the term "legacy" in a lame attempt to rebrand away from "toxic".

This is a low-rent, "we-think-you're-stupid", Bush-type move. The Obama Administration really seems to have jumped the rails, at least in the economic arena.

Ok, so the Geithner plan is it. I regard this plan as not optimal, but it's what we have, so how do we improve on it? Here's a couple of my suggestions along with a discussion on how we can apply the leverage to make them happen:

Transparency going forward - The only way to prevent scamming the plan is to force open the process. The taxpayer is the majority funding provider for all the deals. Can we get a seat at the auctions? Can we use FOIA? Can we find support in Congress?

Digging into the Legacy History - Can we examine "the tapes" for the assets? Can we find all the CDS ties to the asset? Can we send somebody to physically examine the assets?

Fixing the Legacy Assets - How can we make the assets successful? How can we find the right people for the right homes? How can we make them profitable and have the taxpayer at least break even rather than be left holding the bag?

Grassroots, baby!
So what was the real revelation about Obama's campaign? Us little people can raise a lot of money. Can we get a stake in this game? Can we put together the right people to actually get some of that "hot-love gov'ment" money? Are there some organizations which already provide low cost housing to pre-screened people? Community banks? Credit unions? Sugar daddies? Grassroots hedge fund?

Stimulus!
Can we tie stimulus programs to legacy assets? New community centers? Parks facilities? Golf courses! Schools? Take legacy assets in sensitive wetlands and recover them?

Congress/Obama Is Our Ally!
We want PPIP to succeed, but we're obviously still MAD AS HELL about what Wall St did. Rather than have Congress write some law taxing bonuses, how about getting us that seat at the auction and all the contracts for us to pour over and post on the web? How about giving Treasury funding OTHER THAN the FDIC (more on this later)?
Plus, Obama needs our support. He knows the right thing to do, we just need to provide him the political capital to do it. He needs to hear from all of us that we want transparency!

Those Ugly, Ugly Details -
Do you think AIG owns any legacy assets? No, they've only been writing the "insurance" for those assets, so AIG is still going to be busy unwinding those blinding stupid CDSs. And these are potentially more expensive that ALL the legacy assets combined. What does magically converting a toxic assets to legacy assets do to those CDSs? Who knows? But somehow AIG is like the nexus of evil in this whole mess. Let's push to get AIG-FP (or the whole AIG if rumors about the insurance part being bad too) bankrupt and get the whole mess out where everyone can see it.

DID everyone notice that the FDIC is paying for all of this? Why is that? Is that so Congress is cut out of the loop? I suspect so. Do I really want the FDIC paying for this? (It feels just like when Bush was going to put Social Security into Wall St to re-re-re-inflate the bubble.) Call/write your Congresscritter/Senator/President. Cutting Congress out is wrong, and spending my bank insurance fund is wrong.

Ideas?