Here's one thing we can all agree is unfortunate about the Geithner plan...

This is in no way critical of the plan. This is about the stock market.

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Private investors will make money on the plan because it is set up that way. That is not a criticism, it is a datum.

There will almost surely be a NYSE traded ETF of plan assets.

So individual folks can buy a few shares for small money and participate in the government subsidy...

Or can they?

What makes this a can't miss deal is that the government subsidizes the investments. That subsidy is known up front and will be priced into any fund within 30 seconds if it isn't priced in before it is even offered.

So little-guy investors would be buying into a toxic asset fund at a price that already discounts the subsidy which means they're just buying toxic assets for what they are. Gee, thanks!

It's like IPOs. During the tech boom only millionaires got to buy IPO shares. The IPO would be priced at $60 though everyone knew it would go to over $100 within minutes of opening. So the little guy could never get the subsidized price. (A price both parties know is below current value is subsidized. There were people who would have gladly paid $80 for the IPO shares that were sold for $60.) The little guy's first crack at the thing would be at $90 if he was lucky.

The "retail" investor is stock market cannon fodder. Always has been, always will be.

Goldman does your IPO.

Goldman doles out some IPO shares to their best customers.

So it's kind of just the cost of doing business, from the new company's perspective.

And it's an initiation fee to join the horrible fat-cat club... like people giving a cut of their robbery earnings to the Godfather as a show of respect.

everyone is touting. Personally, I don't think they're that bad. The banks are running scared of almost all mtgs, and want to get rid of all but the very best, but I think the majority of the really uncollectable ones are already in foreclosure. Those remaining do have some risk, especially since the job market is so bad, but I think everyone can make a few bucks on this deal.

These will be a tad more like bonds I suspect. Their value will be based upon the revenue stream they can potentially produce. The risk will be based upon the potential for future defaults to occur. There will be competetive bidding on them so it isn't like an IPO where someone gets "picked" to sell all the initial shares. And the various companies that set up mutual funds or other vehicles for small investors to participate will have to compete so they can't charge too much of a premium. I think folks might be surprised how high the bidding goes on some of these. As someone else pointed out, alot of the initial bad paper is already in default. The rest has probably some predictable level of future default (9% would be historically huge). That leaves 90% as "good" paper (although it could be years before the loan value is worth the original asset value). It could produce relatively good returns being sold at 60 - 70 cents on the dollar (if it is packaged well).

If there is a problem here it is that ultimately, yes, it might stablize the banks, but the consumers are still going to be extensively "stuck" in homes that are worth a fraction of their loan value and they have no real credit worthiness for years to come. People will be "stuck" spending only what they are making. That will continuously be a fraction of the consumer spending we've known for the last 20 years.

but the value of the subsidy itself will probably not be available to the retail investor.

(For one thing, if I want to buy 10 shares of the ETF the FDIC isn't going to say, "No, here... buy a hundred! I'll cover it.")

There might be pools where you put in a thousand dollars up front to a fund that will make a purchase, which would capture the subsidy. So there might be subscribed, limited mutual funds that are attractive.

But I don't see how an ETF could have latent subsidy value left unpriced on the second day of trading.

As for the performance... most of these assets are so highly leveraged that it's not a matter of whether any of the original mortgages are performing. Wouldn't high leverage suggest that the asset might be wiped out at fairly modest default rates?

(My understanding, r perhaps I should say assumption, is that most of these are not vanilla bundles of actual mortgages, but derivatives of vanilla bundles of actual mortgages.)

Even the administration predicts another 10-15% housing price decline in their rosiest scenario so there is probably considerable risk going forward for leveraged mortgage securities.

If they are going to go up assuredly then you should be happy. The amnerican people take 50% of the profit despite carying the most risk. If in fact as you surmise these assets jump in value (something I also think will happen) not only do we get our money back but we make a profit that will help pay for health care or other social programs.

So yea perhaps the little guy doesnt get his peice on the front side but we will get ours on the backside.