In the waning days of December, U.S. Treasury Secretary HenryPaulson ensconced himself in a smoke-filled back room (well,presumably that's where it was; that's where shady deals are sooften made) with the heads of several large banks, includingCitigroup, Wells Fargo and Washington Mutual. Also present were theheads of the FDIC, the OCC and the OTS. They met to forge a plan tobail out subprime ARM borrowers facing looming resets.
Before dissecting Paulson's plan, let's get some important factson the table. First, 1.5 million to 2 million ARMs worth about $540billion will reset in 2008. Of that, about 80 percent is subprimeor alt-A paper. And second, the market values of the three banksmentioned above were down 42 percent, 14 percent, and 60 percent onthe year, respectively, the day before the meeting. That's a keyfactor in their participation.
The best-laid plan?
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