Bickering, anger, scandal & drama have gripped Washington and Wall Street.

If it were a movie ...

EPISODE 1: RAIDERS OF THE U.S. TAXPAYER

By Zhen Ming


DASHING, money market adventurer, Indiana Bank and Auntie Sam have been seeing each other for years.

They are on a 1-on-1 romantic date at a fine-dining restaurant on Wall Street in New York when an awkward moment arises.

When the bill for the meal is presented, Auntie Sam sits pretty, expecting the usual - that it would be paid for by Mr Bank since he's the one who had asked her out.

Except that, ahem, this time around, Mr Bank is almost flat bankrupt.

He can't make the payment on his mortgage, his credit cards are all maxed out, and now he doesn't know how to tell it to Auntie Sam, the love of his life.

Fortunately for Mr Bank, Auntie Sam is a considerate girlfriend. Sensing a problem, she offers to split the bill.

In some South American countries, the people use a Spanish phrase 'pagar a la Americana' - literally, 'to pay American style' - to describe this bill-splitting.

Closer to home, in Thailand, this propensity for bill-splitting among non-Asians, particularly Americans, is often referred to simply as 'American Share'.

And 'American Share' it will be.

You can count on it - when it's time for someone to pick up the tab for the US Treasury's proposed US$700 billion (S$995 billion) bailout of Wall Street.

But first, a quick recap of what has happened.

The US rescue plan announced 10 days ago had sent stock markets worldwide shooting up the day after. But, despite the initial euphoria, stock markets earlier last week were back to their 'business-is-not-usual' selves.

Sensing stiff political resistance, US President George W Bush went 'live' on Wednesday night to urge the American people and their lawmakers to support his rescue package, saying that a failure to do so could plunge the US into 'a long and painful recession'.

At the heart of this package is a so-called 'Troubled Asset Relief Programme' (Tarp).

In its original version, Tarp calls for US Treasury Secretary Hank Paulson Jr or his successor to oversee the purchase of rock-bottom mortgage-backed securities at any price it deems right 'without oversight or legal recourse'.

Amazingly, Tarp will also pay Wall Street to save Wall Street. At a 'standard' management fee of 2 per cent a year, never mind the 'traditional' 20 per cent upside, Tarp could provide Wall Street with a hefty windfall of US$28 billion over two years!

No wonder Main Street is outraged - it's a blatant act of financial highway robbery!

Outrage aside, is Tarp a big enough tarpaulin to shield the US economy from the current financial firestorm? Also, will this plan, even in a modified form, work?

According to columnist Jonathan Weil writing for Bloomberg, the US Treasury will pay financial institutions above-market prices for garbage assets nobody else wants.

Then, through the magic of 'mark-to-Paulson' (instead of mark-to-market) accounting, everybody else that owns similar stuff will use those same prices, or marks, to value the trash on their own balance sheets

'Shazam! Banks and insurance companies write up the asset values on their books. They post big profits. Their capital goes up. Everyone gets fooled. And nobody knows the difference,' Mr Weil explained.

Financial confusion

'Except, we do. And that's why the plan probably won't work.'

Now you know why time is literally 'running out' for Wall Street - 30 Sep, just two days away, will mark the end of the third-quarter reporting period for 2008.

If this Tarp is not set in place by early next week, then mark-to-market accounting could spell financial confusion for Wall Street!

Inclusive of Tarp, the latest guesstimate for this clean-up on Wall Street is a whopping US$1.6 trillion - roughly US$5,200 for every American citizen.

So will 'American Share', in the end, mean only US taxpayers will have to share among themselves to pick up the tab?

But be thankful at least for Tarp - even if you don't subscribe to 'American Share' and even if you don't believe it'll work the way it's intended

That's because, by making it known that he had a bailout proposal, Uncle Sam has bought the markets the most valuable commodity of all - time.

And with Wall Street's clock ticking away, there may be only one thing worse than Tarp: No Tarp.


Source: The New Paper, Sun 28 Sep 2008