Paulson Debt Plan May Benefit Mostly Goldman, Morgan While Screwing American Public

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``Its benefits, in its current form, will be largely limited to investment banks and other banks that have aggressively written down the value of their holdings and have already recognized the attendant capital impairment,'' Jeffrey Rosenberg, Bank of America's head of credit strategy research, wrote in a report dated yesterday, without identifying particular banks.

Many banks may not participate in the Troubled Asset Relief Program because they haven't had to write down as much assets under accounting rules, meaning decisions to sell into the program would cause them to lose capital, Rosenberg wrote. Investment banks operate ``under a mark-to-market accounting model while commercial banks hold assets at cost until realizing a loss (or until they reasonably expect one),'' he wrote.

Rosenberg assumed the government will use a reverse auction in which banks submit the lowest prices they are willing to sell certain types of assets for and then the government buys the cheapest ones, with the goal of ``protecting the taxpayers,'' the report said.

Treasury Secretary Henry Paulson's push for the program, now considered by lawmakers, is designed to remove ``illiquid assets'' clogging the financial system, reverse declining asset values and prevent the freezing of lending for U.S. financial firms, companies and consumers.

The intervention into markets would be the broadest since at least the Great Depression. House Financial Services Committee Chairman Barney Frank, a Democrat from Massachusetts, said today lawmakers and Paulson narrowed differences on the plan.

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