Saturday, March 21, 2009

The Debts of the Spenders: TALF Plan Update

After doing some more research I have come to the following conclusion:

Geithner's TALF plan resembles buying OTM call options.

Small upfront risk. Big reward.

The max gain is POTENTIALLY enormous in terms of near unlimited theta.

The problem is w/vega or volatility. In this case that would mean transparency.

As some commentators already said, the "option writers" have a perverse incentive to enter the bidding process thru a back door so they can take both sides of the trade and pay a small premium to offload big losses onto the sucke- I mean taxpayers.

This collusion would drive away REAL BUYERS who would not want to participate in such a disgusting game.

After all the sellers would just be dumping their most toxic, underperforming assets (stuff that while it may have a cash flow "now" is unlikely to have one in the future).

Please remember we have the same people in power - GS flunkies in all levels of government for ex - to ensure maximum corruption. Keep in mind who is running the show here. And then ask yourself if they have any reason to be impartial.

The more things change the more they stay the same:

"Prior to joining the Bank in 2007, Mr. Dudley was a partner and managing director at Goldman, Sachs & Company and was the firm’s chief U.S. economist for a decade. Earlier in his career at Goldman Sachs, he had a variety of roles including a period when he was responsible for the firm’s foreign exchange forecasts. Prior to joining Goldman Sachs in 1986, he was a vice president at the former Morgan Guaranty Trust Company. Mr. Dudley was an economist at the Federal Reserve Board from 1981 to 1983."


Blog Archive