According to Bloomberg coverage, former Goldman Sachs vice president and current Asst Secy appointed by Hank Paulson to oversee the Wall St bailout, Neel Kashkari, has announced the first two private firms to be awarded contracts to do the actual work involved with the scheme known as the Troubled Assets Relief Program (TARP) — i.e., the plan to use public funds in reverse auctions* to purchase equities or bonds held by banks, pension funds, hedge funds, private equity firms, and other institutions that are basically of no fixed-value but more or less worthless junk:
The Treasury has tapped law firm Simpson Thacher & Bartlett LLP and investment consultants Chicago-based Ennis Knupp & Associates for roles in the program. More selections are expected in coming days, he said.
The first-mentioned law firm is famous for mergers and acquisitions activity on Wall St. The latter is an investment management firm who will advise on custodial questions and suchlike. Its chairman, Richard Ennis, recently recommended Northern Trust Bank, also based in Chicago, for the role of custodian:
“Certainly Northern Trust would qualify; it’s one of the leading institutional custodians,” said Richard Ennis, chairman of Ennis Knupp & Associates, a Chicago-based consulting firm that advises pension funds on the selection of money managers and custodians. “There’s no doubt Northern Trust has the requisite infrastructure and resources to do that.”
A firm who would collaborate with Northern Trust, NYSE Euronext, owner of the NYSE, is also involved in the bidding and is likely to be awarded a contract together with Northern Trust (against two other bidders):
NYSE Euronext’s commercial technology unit is expected to develop an electronic trade-matching system for the auction Treasury wants to set prices for the troubled mortgage-related assets it plans to buy from banks and other financial institutions, according to people familiar with the situation. Northern Trust would act as custodian and provide accounting, cash management and other record-keeping services for the assets the government acquires.
Credit default swaps are likely to be handled by Chicago’s CME Group Inc. and private hedge fund Citadel Investment Group LLC. These firms:
said this week that they are teaming up to create a marketplace for trading and clearing credit default swaps, another goal of Treasury that isn’t directly related to the $700-billion rescue plan.
The Treasury Department also plans to hire private firms to directly manage the mortgage-related securities it acquires, as well as a separate firm or team of firms to manage the mortgage loans it buys up during the bailout process.
All in all, it’s good times for some. Bernanke will oversee conflict of interest issue, but apparently it’s not a process that calls for any intervention:
The government’s plan to make sure private managers of a $700 billion bailout plan are free of conflicts of interest is weak, according to some critics, and allows too much room for abuse.
The Treasury Department is in the process of hiring financial experts to run the giant, taxpayer-financed fund, created by the legislation that President Bush signed on Oct. 3.
The law allows the department to offer contracts that are not governed by federal procurement regulations, but requires it to draw up conflict-of-interest guidelines.
Interim guidelines released last week require applicants to disclose "any actual or potential conflicts of interest" that may come into play. Applicants must submit a plan to show how they will "avoid, mitigate or neutralize" such conflicts.
While Treasury employees will oversee the plan, there does not appear to be anything in the rules that requires the government to make sure the applicants are being truthful.
"It basically says that these companies are responsible for disclosing their own conflicts of interest," said Laura Peterson, a senior policy analyst for Taxpayers for Common Sense, a private watchdog group. "And they are then responsible for coming up with a plan to fix them. Nowhere in there does it say Treasury will also be doing due diligence."
Treasury can waive the conflict-of-interest provision.
Department spokeswoman Jennifer Zuccarelli said the government will do more than simply require the companies to identify potential conflicts. "While we ask the firms to independently identify their conflicts, Treasury then independently identifies potential conflicts ourselves," she said.
Jennifer Zuccarelli was apparently the Treasury spokeswomen who said of the $700 billion figure: "It’s not based on any particular data point. We just wanted to choose a really large number."
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* A reverse auction is the opposite of a forward auction. A buyer with the highest bid gets the item in the latter. In a reverse auction the buyer seeks the lowest offer from a group of suppliers.
In the case of TARP, NYSE Euronext, e.g., would arrange for banks to make offers to Treasury, until it is determined that the lowest price has been reached within some alloted time. The actual bidding process is not known to me.
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SOSDD
wow. just wow.
and recommended.
too stunned there for a minute to remember.
Europe to U.S.: You messed up the rescue, too
“PARIS (Fortune) — First you mess up the world’s financial system. Then you blow the rescue of it. Now let’s show you how to do it properly.
That, in a nutshell, is the less-than-flattering message European governments are sending to the U.S.”
(AND it is the message we, the voters/taxpayers should be sending to our Congress critters)
“By contrast, the initial Paulson plan involved the U.S. government buying up the problem securities of banks in a procedure that risked being anything other than prompt and transparent. “It looks as complex as the credit derivatives that caused the problem in the first place,” one top European finance official told me, on condition I didn’t quote him by name.”
Don’t you find it fascinating that given that 70 per cent of ‘GDP’ is related to consumerism -which was facilitated by ‘easy credit’- and now that consumers are scaling back big time and credit is tighter (and will remain so) that the ‘pundits’ are saying nothing about what such implies?
shock doctrine privatization. we’ll see if this one works out as well as the business in Iraq after Mission Accomplished
digg
Thank you. It’s absolutely critical imho that liberals/progressives stay on top of this. Waiving the conflict of interest rules is unacceptable.
Paulson’s very recent change of plan motivated by the Europeans’ actions last weekend, puts the other TARP activities in the background for the moment. What is described as a ’short-term solution’ entails Treasury purchase of banks stocks. The list of candidate banks has not been made available, but there is this one at Bloomberg.com:
In a sort of profile of Neel Kashkari (not pronounced cash-and-carry), we get a sense of just how disorientated Cdr. Paulson is:
I take it, tho, that the other TARP components are still being put together. Got to offload those toxic assets while they can, before anyone really starts to sit up and take notice.
Oh, one other thing:
Somehow I missed the fact that Neel Kashkari is actually interim head of a new Treasury unit called the Office of Financial Stability:
Staff includes at least one additional Goldman Sachs alum, appointed as of October 13, 2008:
Right, a further update at bloomberg.com:
The Bank of New York Mellon used to be The Bank of New York founded by Alexander Hamilton. It merged with Irving Trust but kept the BNY name and moved to 1 Wall St. Then merged with Mellon in 2007. A deal was being considered as far back as 1999. They have major payments and trusts operations.
It was one of the two bidders not mentioned in the post above, the other being State Street Corp. The item here mentions a couple other bidders that weren’t mentioned Monday.