Treasury Rushes to Set Up Rescue Program

Treasury Rushes to Set Up Rescue Program

The Treasury Department plans to hire five to 10 asset management firms that will set up a process to buy up to $700 billion of distressed mortgages and mortgage-related assets from financial firms.

One firm will be selected by Friday to provide custodial services such as tracking cash and assets. The asset management firms will be named next week.

Federal Reserve Chairman Ben Bernanke has said the government won't pay "fire sale" prices for the distressed assets, which would be less likely to achieve the bailout plan's objective of bolstering the financial sector.

Only companies with $100 billion in bonds and other fixed-income assets under management are eligible to apply to be asset managers, the department said, though future contracts will be opened to small businesses. Among those expected to bid are: Legg Mason Inc., Blackrock Inc. and bond manager Pacific Investment Management Co., or PIMCO.

Some anaylsts are concerned that the short timetable will result in the government overpaying for services. "We can't criticize them for rushing when we're telling them it's an emergency," said Steven Schooner, a law professor at George Washington University, but "there's no question when you rush, the contracts tend to be less well-drafted ... and lead to less disciplined cost control."

Source: The Associated Press, Christopher S. Rugaber (10/07/08)

Mortgage Bonds are unchanged

Mortgage Bonds are unchanged after being pressured lower yesterday. Bond Traders took some of their recent profits following an uneventful speech by Federal Reserve Chairman Ben Bernanke, as he did not give any hints about a rate cut.
Also weighing on bond prices yesterday was a strong showing in the stock market. In sessions when there has been an absence of market-moving economic news, as has happened recently, Stocks and Bonds have traded in opposite directions. Yesterday Stocks bounced back to the upside and Bonds were sold. With no major economic news to grace the airwaves again today, we could see Bond prices once again engage in a little tug of war with Stocks.
Bonds remain overbought and appear poised to follow the path of least resistance lower. However, should Stocks stumble in this lean news environment, any selling of Bonds could be tempered.