FROM NOURIEL ROUBINI'S WEBSITE...YOU NEED TO UNDERSTAND THESE DETAILS...AS THEY ARE ROBBING YOU BLIND

http://www.rgemonitor.com/ TARP Progress Report: U.S. Treasury Will Buy Ownership Stakes In Nine Major Banks for $250bn Oct 13: The Bush administration will announce a plan to rescue frozen credit markets that includes spending from $125 billion to entire $250bn tranche for stakes in nine major banks, according to people briefed on the matter. Recipients Include Citi, Bank of America, Goldman; Government Pressures All to Accept Money as Part of Broadened Rescue Effort * Problem: In order to meaningfully recapitalize the U.S. banking system a good part of the TARP budget should be used for this purpose. This leaves but little resources for addressing the root cause of the problem in the housing market. * Oct 13 Interim Assistant Secretary for Financial Stability Neel Kashkari progress report on the bipartisan Emergency Economic Stabilization Act of 2008 in implementing the Troubled Asset Relief Program (TARP). * TARP Goal and Scope: Treasury is implementing its new authorities with one simple goal - to restore capital flows to the consumers and businesses that form the core of our economy. The law gives the Treasury Secretary broad and flexible authority to purchase and insure mortgage assets, and to purchase any other financial instrument that the Secretary, in consultation with the Federal Reserve Chairman, deems necessary to stabilize our financial markets. Implementation: 7 policy teams are devising optimal strategies in the following areas: 1) Mortgage-backed securities purchase program: which troubled assets to purchase, from whom to buy them and which purchase mechanism (detailed auction protocols)--> under a separate program, Fannie&Freddie are ready to start purchasing $40 billion a month of underperforming mortgage bonds.(Bloomberg) 2) Whole loan purchase program: especially for regional banks; 3) Insurance program for troubled assets: on Friday we submitted to the Federal Register a public Request for Comment to solicit the best ideas on structuring options (14 day period); 4) Equity purchase program: standardized program to purchase equity in a broad array of financial institutions. As with the other programs, the equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions. It will also encourage firms to raise new private capital to complement public capital.5) Homeownership preservation: When we purchase mortgages and mortgage-backed securities, we will look for every opportunity possible to help homeowners. This goal is consistent with other programs - such as HOPE NOW - aimed at working with borrowers, counselors and servicers to keep people in their homes. 6) Executive compensation: define the requirements for financial institutions to participate in three possible scenarios: One, an auction purchase of troubled assets; two, a broad equity or direct purchase program; and three, a case of an intervention to prevent the impending failure of a systemically significant institution. 7) Compliance: Oversight Board (members: Secretary of the Treasury, Fed Chairman, SEC Chairman, HUD Secretary, FHA Director), on-site participation of the General Accounting Office and the creation of a Special Inspector General, with thorough reporting requirements. Procurement: Taking aggressive steps to manage potential conflicts of interest is essential because firms with the relevant financial expertise may also hold assets that become eligible for sale into the TARP. * Luigi Zingales: Treasury's piecemeal equity injection plan a la AIG might be too little too late. Nothing short of a 5% increase in the equity capital of the banking system will do the trick - or $600bn. * cont.: But even if the entire TARP budget is used for capital injection, there is still no guarantee that the money will be used for new loans: First, to restore the necessary confidence, a capital infusion needs to reduce a financial institutions’ risk of default to trivial levels. This implies transforming the existing, outstanding debt (roughly two trillion if we just count the long-term bonds) into safe debt. A large fraction of the equity injected will not go to generate new loans, but to provide this insurance to the existing debtholders. How much? At recent CDS prices the cost of insuring the two trillion of outstanding long-term bonds outstanding would be more than $300 billion. * cont.: Second, a capital infusion does not address the root of the problem, which stems from the housing market. * Where do we stop? If we bail out Wall Street, why not bail out Detroit (probably another 150 billion) and Main Street? Even if we limit ourselves only to the subprime mortgages, we are talking about $1.3 trillion. * to do instead: For Main Street: Government should prevent costly foreclosures and instead provide standardized option to renegotiate underwater/unviable mortgages per zip code according to house value drops in exchange for paying a large fraction to the government when reselling the house at a gain. * cont: for Wall Street: follow the same renegotiation principle: facilitating an efficient renegotiation with a pre-packaged bankruptcy that would allow banks to restructure their debt and restart lending. Firms who enter into this special bankruptcy would have their old equity holders wiped out and their existing debt (commercial paper and bonds) transformed into equity.