Purchase of toxic assets of the White House to release what information

The "public - private investment project", the White House give a lot of private capital on favorable terms to enable the market to see "hope" and the market exchanges of necessary material, so Wall Street has been a positive response. However, if the move also should not produce substantial results, the White House is entirely possible for "nationalization" of these toxic institutions. As long as the mobility characteristics of panic in U.S. and European markets remains unsolved, the Government will certainly want Obama in the "capital injection strategies" and "take over the strategy of" a painful dilemma between selection!

LIJIAN SUN

The United States on the 23rd at the Ministry of Finance announced the creation of a "public - private investment project", the Government will provide 75-100 billion U.S. dollars in order to deal with financial institutions of "toxic assets." A message, the Wall Street stock prices immediately. Obama took power out of so many initiatives to rescue the market, only this time the market finally has a positive response. Since the adoption of the Government to fully let "Lee" - give a lot of private capital on favorable terms, such as low-interest loans, credit guarantees, limited exemption from the salary system, so that the market saw the "hope" and the market exchanges of material required. Of course, if private capital does not appreciate, then the market can only be a flash in the pan on the rebound. The United States announced last month, Timothy's financial rescue package, on the plan because the details of the lack of interoperability, it is difficult to reach a consensus with the market, so market reaction is very cool.

According to IMF projections, in the current environment, the size of the nation's toxic assets is estimated to reach near 6 trillion U.S. dollars, and now the Government can put the "sterilization" of funds, only 100 billion U.S. dollars, very insignificant. Nevertheless, the United States Government is still desperate, tenacious fight, I think mainly due to the following considerations: First, do not continue to inject liquidity, has surfaced in the slightest signs of economic recovery has probably been completely high lending rates and rising corporate bond risk premium caused by the mobility of panic engulfed acts! Two are looking forward to the early stage of government funding to bring private capital into the effect of joining in order to improve efficiency and save the market, won the American taxpayer's identity; are three financial institutions in the United States to grasp the lifeline of the U.S. economy, as long as 100 billion rescue package can surely produce some positive effects, there is in favor of Obama at the Congress Government for more resources, to achieve his blueprint to rescue the market. Of course, if the current capital of the United disinfection measures themselves also should not produce substantial results, then, Obama is still entirely possible for the Government and the Japanese Government to solve the problem of financial institutions, the "nationalization" of these toxic institutions.

A long time, the U.S. government to resolve the crisis and save the market the concept of participation is mainly depend on the market. 11 years ago, in the settlement of LTCM (long-term investment in American companies) in the Russian financial crisis hit the brink of collapse when the crisis, Alan Greenspan led the Fed successfully than private financial institutions, United go to buy the toxic assets of LTCM, thus avoiding the operation of a number of European countries to entrust the management of the central bank's foreign exchange assets, financial investment in the United States "Dream Team" because of the collapse of the global financial crisis triggered the tragedy. This time, the U.S. government continues to think through the market's ability to repair itself, but the crisis has developed today to people's financial system has lost a high degree of trust and full confidence in the pessimistic state, left the government a powerful intervention, has been impossible to rely on market own to solve the problem. On the other hand, even now, the U.S. government to rescue the market in a positive process, or are the limits of its capacity, at least in how to buy the toxic securities on or toxic loan problem, left the private investors to check on prices is entirely possible because there is Government's over-transfusion of contaminated blood or blood transfusion caused by lack of markets or investment rampant moral hazard effect of out-of-control situation. Therefore, the White House want to act through a blood transfusion to arouse the confidence of market investors, so as to solve the market's liquidity panic over scramble caused by acts of "blood" status.

To the author's observation, the market because of the United States Government announced the details of public-private partnership to save the market reacted so strongly, because private investors are going through such a long period of investment environment in the painful process of deletion, but also are looking at the credibility of the Government guarantee, access to remove the risk of actual receipts. In order to allow private capital to join as soon as possible, so as to reduce the cost of follow-up to save the market, Washington is also being introduced to encourage private capital to enter a series of incentive mechanism design. For instance, the participation of aid agencies, the remuneration of its executives to break the upper limit set by the Government and so on. Of course, the more critical are the risks of investors and the government recognize the design of incentive mechanisms match, which will directly affect the public-private partnership to rescue the market effect. It is not difficult to speculate that in the future the United States government and the market game, the optimal solution is possible because between each other "uncooperative" and had to be abandoned. However, even if private capital is willing to "co-operation" may also be because they are too toxic assets, the purchase price down and really will not achieve the effect of injecting liquidity, rescue delayed effective time that the Government invested in pre-taxpayers wealth go down the drain.

Of course, before the G20 summit, the United States government's act to save the market, but also in order to avoid the world of the United States to rescue the market may have a binding effect, on the other hand, Obama also hope the Government can come up with a more satisfied with the rescue transcript, up summit in London for more U.S. support. In fact, because of AIG scandal, governments are using their taxpayers to reflect on the wealth of the greed of those who go to fill the money pouch Whether or not "reasonable" question.

Because of the crisis caused by the "liquidity panic" at the United States is still very grim, with the world economy has "bottomed out" of optimism may be premature to judge. Impact on market liquidity because of personal and business credit and corporate bond interest rate risk "premium" high, if not to control this kind of liquidity panic trend, the real economy's ability to withstand external shocks will be more and more weak, self-restore even the possibility of hematopoietic recovery will be more and more small. Therefore, the U.S. government can only use all the possible "disinfection" means injecting liquidity to the market.

Worrying is that in the market for the future high cost of capital brought about by the economic outlook pessimistic expectations, the American use of the liquidity injected by the Government, the "opportune time" in their lending rates, or enhance corporate bond yield to compensation for possible loss of future mobility and the resulting economic losses. So, this is expected to be generated enormous "liquidity trap" into the number of funds are unable to generate market liquidity of a virtuous circle! Even a lot of institutions and enterprises in defiance of the senior management of companies use the legal "contract revenue" as much as possible before the arrival of the bankrupt " enterprise mobility." Therefore, the U.S. government in the "blood" at the same time, if not control the "bleeding" situation, and that loose monetary policy will not have any "blood" the possibility, but will also bring the U.S. economy stagflation disaster, in a globalized environment, the more will the healthy development of world economy, adding great trouble.

Recently, the U.S. index and the employment rate of housing starts are at a certain extent, a good market expectations, seems to have surfaced in order to consolidate some of the "blood" signs of the government Obama wants to follow up the victory and the "rescue the market" means to expand the policy effect , the Fed has started running HKNPL machine - regardless of the move to his country's interests and the impact of possible future economic negative consequences, only to release the enormous liquidity in the market looking forward to "blood" function.

In short, the mobility of the characteristics of panic in U.S. and European markets remains unsolved, the United States economy and the world economic recovery cost will become larger and larger. In future, the Government will certainly want Obama in the "capital injection strategies" and "take over the strategy" (institutional nationalization) to make a painful dilemma between selection! (LIJIAN SUN Author School of Economics Department of Fudan University, vice president, finance professor)