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Archive for October 3rd, 2008

Institutional Finance ≠ Financial Institution

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The term `financial institution’ means any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State, territory, or possession of the United States, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, Guam, American Samoa, or the United States Virgin Islands, and having significant operations in the United States, but excluding any central bank of, or institution owned by, a foreign government.

Emergency Economic Stabilization Act of 2008, §3(5)

Even with the extensive – almost totalitarian – powers granted to the Administration by this bailout (yes, bailout) legislation, I don’t see any reasonable reading of that definition that would reach far enough to include pension funds, whether public or private.

Then again, the text does say “including, but not limited to.” So any institution at all might be eligible? Perhaps any U.S. institution at all, even a mental institution, could unload a troubled asset on the taxpayer?

In exercising the authorities granted in this Act, the Secretary shall take into consideration–

* * *

protecting the retirement security of Americans by purchasing troubled assets held by or on behalf of an eligible retirement plan…

Emergency Economic Stabilization Act of 2008, §103(8)

Backstage, state and local governments may already be honing their arguments for lining up behind California in the next bread line that has already started forming, one of many additional “necessary” bailouts that will be required through the coming months. What, did anyone seriously believe that $700 billion would be the end of it?

But while banks can hold hostage the credit they extend to ordinary citizens, and while state and local governments can claim they are Main Street America, what will pension plans be able to employ for leverage? Will a municipal pension plan or two have to stop paying retirement checks to widows before pension funds can justify getting their share of bailout bounty?

Seriously, though. Any pension plan – even a public pension plan – that faces liquidity problems that might be traced to the sub-prime mortgage quagmire will encounter numerous other legal problems long before they get to any point of seriously endangering “retirement security of Americans,” which in reality may be more at risk from plummeting 401(k) account values invested in equities than from the mortgage market. And whereas the purchase of a troubled asset from a bank might arguably polish up a bank’s balance sheet enough to ease up some credit in the general market, the purchase of a bad mortgage at any fair price in a mark-to-market climate is not going to change anything in a pension plan’s financial status, at least not immediately. So what if anything might the Treasury Department have to offer to pension plans?

Time will tell. Meanwhile, any pension plan running to get in line at the Department of Treasury, hoping to unload bad mortgage-based securities? Not just yet. Wait for the regs.

bumper sticker [] - vagblanc

Written by macheide

3 October 2008 at 3:08 pm

Posted in vagblanc

ride ’em

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“stick another quarter in! stick another quarter in!” chirps sarah palin as she rocks vigorously back on forth on one of th two broken-down children’s mechanical horses outside th store. we stand nearby a little nervously, wondering who gets to inform her those old horses don’t work anymore

“shows how tough this neighborhood can really get” preaches th news commentary voiceover along with th sound of a set of false teeth falling on a manhole cover

[whereas th boys don’t much care whether or not they get included in this episode. what they are doing in gym class, they will do frequently enough to get picked up one of th next times through]

Bumper Sticker [] - oneirra

Written by macheide

3 October 2008 at 4:04 am

Posted in oneirra