Monday, March 23, 2009

Into the singularity...

When I was in High School I postulated that Quasars are the "exit points" for Black Holes. I clearly new nothing about advanced particle physics (which is still true), but it seemed a symmetrical way to explain what "happened" to all that matter flowing in...a bright shiny beacon created from so much inconceivable destructive power.

It is a strange function, with input and output unknown to mere mortals, and the forces expressed in numbers are...well...astronomical. Similar things can be said about the Treasury's plan to repair the credit markets.

I wrote in a previous post regarding the importance of the acronym "PPP", which stands for "Public-Private Partnership.

The Treasury plan has unveiled the largest PPP program ever, and "private" suitors are only too willing to play a game where the house appears determined to keep the value of gambling chips as high as possible.

This is a very interesting policy move by the Treasury and if executed will ensconce Washington as the only place that matters for finance. It will be a black hole where capital flows...and god only knows what comes out the other side.

But some can barely restrain their joy over Geithner's plan, and for very, very good reason.

The large players know this is as good as it gets...guaranteed liabilities, zero counter-party risk, little or zero basis risk, zero liquidity risk, zero (or rather more accurately, "low") political risk, zero morale or moral hazard risks, zero or low principal risk...

...and participation on the upside!

March 23 (Bloomberg) -- Laurence Fink said BlackRock Inc., the biggest publicly traded U.S. asset manager, will participate in the U.S. Treasury’s programs to purchase troubled securities from banks.

BlackRock will take part in programs outlined today by the Treasury that will purchase loans and set up funds to buy mortgage-backed securities, Fink, chief executive officer of New York-based BlackRock, said today in an interview.

“This is not a panacea; it is not a silver bullet,” Fink said. “But this will take some of the overhang out of the marketplace. It is incrementally a really good thing.”

Treasury Secretary Timothy Geithner said today that the government will finance as much as $1 trillion in purchases of devalued real-estate assets, using $75 billion to $100 billion of his department’s remaining bank-rescue funds. The Public- Private Investment Program will also rely on debt guarantees by the Federal Reserve and Federal Deposit Insurance Corp.

BlackRock, which manages about $1.3 trillion in assets, has received government contracts in the past year to oversee securities from insurer American International Group Inc. and debt formerly held by Bear Stearns Cos.

Bill Gross, co-chief investment officer for bond manager Pacific Investment Management Co., said his firm also would participate in the bailout programs.

BlackRock will raise money from investors such as pension funds and endowments for the new Treasury programs, Fink said. The company might consider creating mutual funds so that individual investors can also participate.

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