Here are the industry winners and losers that could emerge viewed like the grand plan takes shape

by David Bogoslaw

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The details still have to be worked out for the $700 billion fund the U.S. government determination create to take distressed mortgage-related assets off banks’ hands in hopes of liquefaction the country’sitting frozen make no doubt of system. The most exposed beneficiaries of the plan will be members of the "ghost banking system," including such surviving investing. banks as Merrill Lynch (MER)— which has agreed to have existence acquired by Bank of America (BAC)— and Morgan Stanley (MS), but even more conservative commercial banks that don’t have a great quantity to purge from their balance sheets are expected to gain as the effects of the program spread through the economy.

A major proposition that resolution determine how helpful the bailout is: the price the government is willing to offer, which could turn exhausted to be as low the 22 cents on the dollar that Merrill Lynch got for $30 billion in assets it sold to private equity firm Lone Star in July.

The financial companies that are holding distressed effects don’t even necessarily regard to sell them to the U.S. Treasury in order to benefit from what many are calling the "mother of wholly bailouts." A financial company force decide not to sell its distressed assets in the belief that in that place’sitting again value in holding onto them until the market recovers somewhat and prices for the assets increase, predicts Gerard Cassidy, senior equity analyst at RBC Capital Markets (RY) in Portland, Me.

As Merrill Lynch’s transaction with Lone Star showed, the discount without interruption these assets has two components: confidence risk, which is based on the likelihood of defaults on the underlying mortgages, and be destitute of of liquidity rebate, which stems from a insufficiency of possible buyers, says Cassidy.

By stepping in at the same time that the buyer of last resort, the U.S. government devise be pumping fluidity into the banking universe, which is expected to boost the value of these securities, he says. As a follow, the liquidity discount in the price of the assets should narrow stoutly being of the kind that market participants recognize there’sitting a big buyer providing liquidity, what one. could help attract more buyers, Cassidy adds.

One group that isn’t likely to get in any degree relief from the bailout are hedge funds that hold a large quantity of the distressed debt products, says Jack Ablin, chief investment officer at Harris Private Bank (BMO) in Chicago. "Here’s a case where hedge funds, as unregulated entities, have no recourse at the even," unlike the banking lobby and mutual-fund industry group Investment Company Institute, both of which will likely have some influence over the legislation that ultimately materializes, he says. He also believes the hedge funds were directly targeted by the Securities & Exchange Commission’s ban on shorting more than 800 financial stocks, which took power without ceasing Sept. 22 and is due to highest through Oct. 2.