This guys are trying to stimulate the supply side of the economy. We have a demand side problem. When are they going to stimulate the demand side, meaning the consumer. It is 70%+ of the US economy. Weak up and do something
Its a joke and what makes us think Timmy will have a plan for Monday huh? Considering this about #4 we were told we could get to see the plan. Also, for those who say lay off him, he is doing the best he can. That works for Little League Baseball not for running the largest and most important market in the world.
They are clearly looting the treasury and still most Americans don't lift a finger. Really clever plan: You get to keep your "precious" guns but not your wallet.
Probably in the end that armed populace starts shooting each others while rich elite has moved into another country. Really pathetic.
There remains some dissonance between Geithner's position and that presented by Sheila Bair at Phoenix yesterday. As to the delays in providing detail, I presume both Treasury and FDIC have working groups drilling for data in MBS auction candidates.
It is just another step in Operation Obfuscation and Subterfuge.
I know they are trying to bamboozle the mathematically challenged amongst the American public but do they really believe they are fooling everybody. I also know that those partners in crime on the private side of this plan think they are amongst the brightest of the bright in the entire world - they are not.
Couldn't Timmy at least drive a harder bargain than Lone Star Capital drove with Merrill Lynch? Wasn't that a 22 cents on the dollar with 75 percent seller (Merill) financing which made Lone Star have 5.5 cents in the game?
The kicker in the whole obfuscation is this:
"Because the government can hold those mortgages as long as it wants, officials are betting the government will be repaid and that taxpayers may even earn a profit if the market value of the loans climbs in the years to come."
These mortgage backed security assets they are buying are usually 5 year maturities. So this conflation of holding a mortgage to maturity is an utter lie. Many or the mortgages will have in excess of of 20 years to go when the MBS matures. What happens to the individual mortgages then?
Further, the third cog in this plan is the expansion of TALF to allow buying MBS. Want to hazard a guess where the 3 pennies on the dollar the private firms are going to put up is going to come from?
Not so long ago, the picture was far different. The USPS finished fiscal 2005 with a $1.4 billion surplus.
The reason...fewer credit card offers and INFLATION. Postage is going up another 2 cents soon. 70 diapers now cost the same as 77 did. 1.5 qts of ice cream now costs the same as 2 qts did. Gasoline is creeping back up. Hello inflation.
Just another example of the belief that there can be no losses for bondholders (cause the economic foundation of the US is borrowing)and no bankruptcy of financial institutions (because "credit" i.e., borrowing is the "lifeblood" of the economy).
These people truly, truly believe in finance. They simply have been indoctrinated, and cannot understand that a prosperous country allows for credit, and credit does not create a properous country.
So from the Government's point of view, the only difference between this structure and buying the assets outright, is that in this structure, all of the upside is handed off to third party investors (hedge funds, insurance cos, etc.) almost free of charge. The risk profile of the transaction is identical either way.
Blah Blah Blah. To late sucker. You cast your vote now live with it. You should have seen this coming. Were you duped? Or did you just want to believe so badly that you lied to yourself. Four years from now? Who cares. What are you going to do TODAY to stop this garbage?
Now we can see why the FDIC needed the big dollop of bucks Congress just gave them. That 400 or 500 billion will bankroll this program for the non recourse loans and no need to go to Congress to reequest more TARP money ! Slick move.
I posted this article last night but I'm reposting for the morning crowd. For those that have had a hard time explaining to their friends and loved ones in simple terms, what happened. This article nails it. The Big Takeover : Rolling Stone
I'm going to print out copies and hand them out at work.
Sorry. Guy makes some good points but he's still obsessed with blaming R's. D's and R's are both corrupt and both to blame. Anyone who engages in the "my guys aren't as bad as the other guys" trope is part of the problem.
My guess is, if the admin needs to come back to Congress for more rescue funds, the answer will be 'NO'. I don't know what else to do but call my useless blue dog or rushbot congress critters and say 'no way.' This threat of bringing down the entire financial system unless Wall Street gets its way - I'm willing to take that risk.
Yes - exactly! We've heard the risk that unless Congress approves X, then Y disaster will occur. Thing is the disaster is already upon us and the financial system has been long before corrupted. We need a new foundation, not a paint job over the old edifice. This thing is done creaky. Time to pull it down and put up a ... okay, done with that metaphor.
I don't understand how this will work. Am I being especially dense today? Probably. I can't make the principles, the theory, and the numbers match with the intended outcome.
these securities (which are just repackaged loans) will pay out what they pay out. that is the “hold to maturity” value. that number determines the amount of money the banks will ultimately lose, and above a certain number, it’s in many ways inevitable that the taxpayer will pay most of the bill. in any case, someone will.
the ultimate losses are not known, obviously, but in aggregate they are probably very close to the threshold where taxpayers will ultimately take a loss.
this plan won’t change the losses. it isn’t even supposed to.
r
what this plan is aimed at instead is changing the “mark to market” value of the securities. mark to market is the “liquidation” price of the security, or the price you could get by selling it today.
there is no reason to believe that these two numbers should or should not be the same, and throughout history these numbers are often very different. i know that paul krugman has an opinion about this and he thinks they are the same, but he is not an expert on this. if you are, paul, could you give some more color and numbers, because i would be curious.
so the question is: why do we care about mark to market and not hold to maturity?
we care about it because our accounting rules say we must, not because it is fundamentally sound.
i don’t know how to fix the accounting. it’s a hard problem, and not my area.
what this plan does, though, is attempts to fix the mark to market number (for accounting reasons) and does so at potentially large expense to the banks and taxpayers.
the reason is if the current mark to market number is incorrect, these securities are worth more than mark to market, and there will be little taxpayer loss ultimately. therefore you want the upside to go to either the banks that currently hold these securities or the government — preferably the banks i would say, so that they do not need government aid. if you sell these securities to a third party, this value belongs to them and not you.
now if the current mark to market numbers are correct, the losses will be devastating and someone will have to pay a couple trillion dollars. the private money coming into this program will help pay the losses, some bondholders will pay, and the taxpayer will end up paying a lot as well, probably the bulk.
my opinion is that the mark to market values are incorrect in aggregate and that the future hold to maturity losses are manageable in aggregate. if that is the case, this plan is a very expensive and stupid way of trying to fix a problem that is not a real problem.
there are two ways of dealing with this better: one is to prop up the banks via a ’swedish’ guarantee (guarantee the bondholders) until you get more visibility on how bad the loan losses are really going to be. the other is to bring the ‘toxic’ securities directly onto the treasury’ s balance sheet (via nationalization or another mechanism) where the taxpayer gets all eventual losses or gains and where mark to market valuation is not applied at all.
i am sure this has been discussed here before but...
pay attention to your credit card statements
we have an 820 credit score, and this months advanta bill showed that our rate went up to 30%. called up the "helpful" service rep and asked why, and her answer was basically "because we can".
well, the obvious answer is no they cannot, people will either opt out-close accounts or default. I know I will stop using any card from an issuer pulling such a stunt.
And what is their default rate now?
But that fits well with the modus operandi of banks: sawing the branch they are sitting on (a twig by now).
It is a real pleasure to trade their stocks though.
If this isn't met with universal laughter and anger, then the shame is on us as a nation. You don't need to know anything about markets to immediately see how utterly absurd this is.
The negative psychological effects of this plan will dwarf whatever "stimulus" it creates.
ullpointer - excellent. I've been trying point this kind of stuff out to co-workers and anyone within range since at least June last year, and they still don't get it. The CC companies are completely feral, their appetite is enormous, any they have total latitude to prey on even high fico clients, lets alone the poor saps at the bottom of the pile.
...now if the current mark to market numbers are correct, the losses will be devastating and someone will have to pay a couple trillion dollars. the private money coming into this program will help pay the losses, some bondholders will pay, and the taxpayer will end up paying a lot as well, probably the bulk.
my opinion is that the mark to market values are incorrect in aggregate and that the future hold to maturity losses are manageable in aggregate. if that is the case, this plan is a very expensive and stupid way of trying to fix a problem that is not a real problem.
-babar
What about the idea of the Treasury sponsoring an auction of a small, but representative cross-section of the assets held by the largest financial institutions (who took TARP money) to get an idea of the value? Structure it similarly to how a small auction was done to determine the cents on the dollar that the CDS writers on Lehman had to pay out? If they auction sample was small enough (yet representative and significant), would the results be "market" prices or "liquidation" prices?
"The reason...fewer credit card offers and INFLATION. Postage is going up another 2 cents soon. 70 diapers now cost the same as 77 did. 1.5 qts of ice cream now costs the same as 2 qts did. Gasoline is creeping back up."
Don't be silly. Everyone knows that the price of stamps is directly tied to the price of ammo. Going Postal in 5...4...3..2....
OT: Filed late last night. But i love how CR’s always ahead of the mainstream media on everything. haha Looks like Washington Mutual is fighting back against the FDIC (WARNING- 1.2MB) http://www.sidedraught.com/stocks/WashingtonMutual/WMI%20v%20FDIC%20Complaint.pdf
Best I can tell, Cause of Action #’s 2-4 (Dissipation of Assets- the equity interests in WAMU Bank were $30 billion alone, according to OTS document attached at the end of the lawsuit, Unconstitutional Taking without Just Compensation, and Conversion)—this looks like a mammoth-sized suit. If Indymac was dumped for $13B, and WAMU is roughly 10 times the size, what is this going to cost us?
Definitely bears watching, since I believe those few fateful September days are why so many banks are still weary of lending no matter how much $$ you throw at them. Only news release I’ve seen so far was by a woman named by Peg Brickley of DOW JONES NEWSWIRES (sorry no link)
“WILMINGTON, Del. (Dow Jones)--Washington Mutual Inc. (WAMUQ) Friday sued the
Federal Deposit Insurance Corp. over the takeover of Washington Mutual Bank,
seeking billions in damages for the loss of its prized thrift.”
the more than 150 million, cold , ill clothed hungry sheeple who live in cities and high density suburbia stream out of their metropolis-concentration zones like hoards of goths, visigpoths and vandals plundering and pissing on everything they can pry loose followed by organized criminals (gangstas, bankstas, motorcycle gangs and the likes) who unlike those in the previous wave, are better armed.
somewhere in the middle of all this the police, national guard and possibly superior government forces than that take control and impose order via martial law, curfews and orders to shoot on sight
thats a bit of a myopic view (but fortunately for you, you will be fine even if we have a depression) - most people don't work on a farm on in the local bar
think of it this way - you're a company somewhere in the middle of the supply chain for whatever end-product you ultimately help produce - you need credit to buy the equipment and raw materials because your cash outflow (buying materials, etc.) does not match your cash inflow (sales to your customer(s))
without credit, this process either shuts down or doesn't even get started in the first place
any business that functions in this manner, which is a large % of the U.S. economy, would be crushed
not to mention that banks would have $0 money to lend out for mortgage loans, auto loans, credit cards, etc. - so consumption would tank, which would negate the need for industry to produce anything in the first place
with all these closed businesses, we'd have depression-level unemployment (25%?)
thats what a systemic financial crash would lead to
yes, farmers and bartenders would still have jobs
but most in the less insular parts of the working economy would not
Banker fury over tax ‘witch-hunt’
By FT reporters
Published: March 20 2009 19:39 | Last updated: March 20 2009 23:32 Bankers on Wall Street and in Europe have struck back against moves by US lawmakers to slap punitive taxes on bonuses paid to high earners at bailed-out institutions.
Senior executives on both sides of the Atlantic on Friday warned of an exodus of talent from some of the biggest names in US finance, saying the “anti-American” measures smacked of “a McCarthy witch-hunt” that would send the country “back to the stone age”.
Have at it. The link is unpastably ugly but it's the top story on ft.com.
As unemployment grows, Americans without real savings will use credit cards to supplement income. This will create more defaults with uncollected debt for the CC companies. In need of cash flow the CC will play games to collect default profits. Look out for changing the address to the payment center. Especially if you use bank bill pay on line, easy to miss.
the ONLY way to pay your CC bill is to do so online at EACH CC-bank web site. Trust no one. Assume nothing. Use "print screen" fction to capture pic of payment received to 'back up" your writing down the transaction number
LOL...."what's the big idea making your old lady work".....making her work? Yeah, right. It's her idea - at one of the family bars. The woman's out of control! See what happens when we give them the right to vote?
the reason is if the current mark to market number is incorrect, these securities are worth more than mark to market, and there will be little taxpayer loss ultimately
97% non-recourse loans against the impaired value of a mortgage loan portfolio equals investors are made whole in less than 6 months. Thereafter gravy. Let's call this what it is: "Cashback at close." How'd that work out last time Timmay?
The good news is that judging from the comments here at least this time we have enough votes to defeat this plan in the upcoming plebiscite.
NEW HAVEN, Conn. (AP) -- Connecticut's attorney general says documents turned over to his office by American International Group Inc. shows the company paid out $218 million in bonuses, higher than the $165 million previously disclosed.
Attorney General Richard Blumenthal's office received the documents late Friday after issuing a subpoena.
Blumenthal says the documents show that 73 people received at least $1 million apiece, and five of those got bonuses of more than $4 million. The financially ailing insurance giant has been under fire for giving bonuses after receiving more than $182.5 billion in federal bailout money.
AIG spokesman Mark Herr declined to comment Saturday.
Blumenthal said the newly revealed number will "further fuel the justified anger and revulsion that people feel."
Sweet Jesus --- I need to speak up here. The AIG bonuses were paid to their employees for marking-to-model, not marking-to market. There is no market for CDO-squareds anymore, nor CDOs, nor will there ever be one again now that the implicit fraud in these "securities" has come into the open. And anyone who thinks that long-term these securities will be money good needs to have his or her head examined, and yes, Secy. Geithner that means you. I am willing to sit down with anyone from the Tsy or from the Fed with a copy of Intex Desktop (the only analytic tool for this stuff) and go through line by line why they are being taken for a ride by AIG and Citigroup. This plan is foolish, and as toxic as the securities it pretends to make whole.
What? Oh... sorry. JS-Kit must have deleted the "[/snark] modifier.
Anyway, I've got a neighbor about to default on his million dollar note. Impaired asset value ~$800k. My 3% comes to $25k and being a small fish I'm assuming Timmay is going to overcharge me at the Prime Rate. $3400/mo. It'll take me two months to sell at $500k so expenses will run $25k. Pocketing $450k I default. Non-recourse remember. I'll take 10. And the new comps are sure to set the neighborhood atwitter.
“The work we have all done to try to stabilise the financial system and to get this economy moving again would be significantly set back if we lose our talented people because Congress imposes a special tax on financial services employees,” he[Pundit at Shiti] wrote.
Isn't there a huge incentive for large banks to commit financial fraud with this plan?
The funding balance is 3% investor, 12% other government equity investment, and 85% government provided non-recourse loan, as I understand it.
So, if Citi can somehow smuggle $1B, for example, of its own money into one of these public/private funds, call it "Self-dealing Investments 1," then SI1 can essentially buy, with government aid, $33B of Citi's own assets for face value, when it would otherwise eventually be worth perhaps only $0.30 on the dollar, or $10B. Citi would lose all of its investment, but at a cost of only $1B, Citi would manage to salvage all of its $33B investment, effectively allowing it to recover $32B of its $33B in toxic assets. Of course, there is a huge loss here, but the taxpayers take it: $32 (paid by Feds) - $10B (recovered) = $22B loss for taxpayers to swallow.
I assume that somehow this self-dealing will be officially forbidden, but I can't believe it will be that hard for these banks to get around the restrictions, given how hard Geithner has been working on deceptively hiding Federal purchases of bad assets at face value.
"babar's second post (Today, 8:48:33 AM) is right on"
no, he failed to allow the third option/remedy: Let the banks/firms deal with their own POS. Do not give them any more money. If they crash & burn, so be it. THAT is capitalism
The thing that irks me is that only the rich can take advantage of this deal, and only the rich will benefit from it.
What would actually help the economy is for me to be able to buy a house for 3% down and the government pick up the remaining 97%. But man wouldn't that make the right wing scream.
It's called FHA, Wild W. It's the only thing closing in South Florida. There are hefty closing costs associated with it, including a large mip premium and futher insurance premiums for a long while after that.
I think it would take the threat of a massive tax protest by millions of citizens to show the government how flawed its policies are, all of which are directed toward coddling Citi and its foul ilk.
That or massive street protests for weeks, but sadly the American populace has become fattened and stupid and utterly defanged.
I'm beginning to think Geithner is not merely incompetent, but malevolent.
And Obama appears willing to let Geitner & Summers destroy his entire agenda and the nation's well-being so that they may continue their deep and abiding love of investors and bankers.
I'm sorry Mr. dc1000 there seems to be some sort of a mix-up. When you received an invitation for dinner from Mssrs Geithner, et al, it didn't mean you were a guest. your entrance is the chute in the back alley. Mind the rotating knives* and do be punctual.
*
CITY GENT #1: Excuse me.
MR. WIGGIN: Hmm?
CITY GENT #1: Uh, did you say 'knives'?
MR. WIGGIN: Uh, rotating knives. Yes.
CITY GENT #2: Are you, uh, proposing to slaughter our taxpayers?
MR. WIGGIN: Does that not fit in with your plans?
CITY GENT #1: No, it does not. Uh, we-- we wanted a... simple... banking bailout.
MR. WIGGIN: Ahh, I see. I hadn't, uh, correctly divined your attitude...
CITY GENT #: Uh, huh huh.
MR. WIGGIN: ...towards your taxpayers.
CITY GENT #: Huh huh.
MR. WIGGIN: You see, I mainly design slaughter houses.
CITY GENT #1: Yes. Pity.
MR. WIGGIN: Mind you, this is a real beaut. I mean, none of your blood caked on the walls and flesh flying out of the windows inconveniencing passers-by with this one. I mean, my life has been building up to this.
CITY GENT #2: Yes, and well done, huh, but we did want a SIV.
MR. WIGGIN: Well, may I ask you to reconsider? I mean, you wouldn't regret it. Think of the international investor trade.
CITY GENT #1: No, no, it's-- it's just that we wanted a ripoff scheme and not an abattoir.
MR. WIGGIN: Yes, well, that's the sort of blinkered, philistine pig ignorance I've come to expect from you non-creative garbage. You sit there on your loathsome, spotty behinds squeezing blackheads, not caring a tinker's cuss for the struggling artist. You excrement! You whining, hypocritical toadies, with your colour TV sets and your Tony Jacklin golf clubs and your bleeding Masonic secret handshakes! You wouldn't let me join, would you, you blackballing bastards! Well, I wouldn't become a freemason now if you went down on your lousy, stinking knees and begged me!
CITY GENT #2: Well, we're sorry you feel like that, but we, um, did... want... a bailout. Nice, though, the abattoir is. Huh huh.
It should be clear to all the banks are in control of all the levers of power affecting this crisis. If Geithner isn't tarred, feathered and run out of town after announcing this latest taxpayer fleecing, there is no hope for this country.
I think the bottom line is that money is very close to
losing its symbolic meaning.
I think that saving henceforth should mean "stuff". Stuff that keeps. That means not just metals. It could mean toilet paper. Spices. Needles and pins.
The Mormons suggest 2 years worth of food in storage.
Fabric if you sew. Sturdy furniture. Tools. Dishes.
A means of producing something that you and others need. Etc.
Everybody pull a couple hundred dollars out of savings and buy the items of your choice. Or, charge it.
I know a family who are collectively defaulting on 300k of credit cards. They really did have a net worth in excess of 2 mil at one time. When times got rough, they lived off credit, instead of cutting expenditures. There are, as noted by everybody a lot of people who did/are doing that, tho on a smaller scale! Hence the NECESSITY of those 30% rates. Which is not to say we should put up with them!
mock turtle says:Today, 7:43:37 AM PDT
...somewhere in the middle of all this the police, national guard and possibly superior government forces than that take control and impose order via martial law, curfews and orders to shoot on sight
other than that...no problem
Uhhhh... mock? You want to recall battle hardened Nationl Guardsmen to home soil where their jobs are gone, give them guns, tell them to shoot their neighbors who lost their jobs and trust those Guardsmen would point in the direction you tell them?
Bring on the collapse of this rancid system. In such an event, the Fed board is fired, becomes part of treasury, new regs prevent this kind of leverage and OTC gambling, and new lending institutions are established to restore credit. Of course, there will be blood in the process, but what is the alternative? mass enslavement of the population?
A new Tarantino script has a lone raider going postal on banker's. One of the scenes has the Hero going into banker's office, tying him to a chair, and preparing the centuries old punishment for theft; cutting his hand off.
But with a twist, he has a shotgun mpunted facing the mans genitals, with his other hand mounted to a squeezing trigger device.
the hero then says, 'ok....you ready'...'lets see what kind of trader you are....and down come's the hatchet....scene fade away....
There is good news in this message in a bottle, no laws are being changed so they can just keep doing the same thing until the taxpayer (serf) is done.
jo6pac >:o
Basel and Lawyerliz, you missed the most important (snarky) aspect of my post. The government will pick up the other 97%, not loan it to me. Isn't this the essence of these non-recourse loans being made available to the rich?
Just once I'd like to see little people get the really sweet deal that this democracy showers on the rich all the time.
IF anybody thinks that mark to market will stop the slide in banks, take a look at GE. GE Capital does not mark its holdings to market, but everybody KNOWS that their assets are worth less than what they're carrying them on their books. Accounting does not determine the VALUE of a company!!! until people realize this, we are doomed.
We need to keep in mind the bigger consequences. Every time the government has gotten involved it has eventually crowded out all other private activities. This is no different. 97% government, 3% private "investment." And the government wonders why private investment isn't stepping up. Private capital cannot compete.
For people trying to keep track of all these plans and whether they will work I have an easy analysis. Ask yourself "Does this plan involve more debt?" If it does it will not work. That simple. This administration is as blind as its precedessor on that one point. The answer to too much debt is less debt. They are just unwilling to accept the logical corollary; there are too many banks. Until they get over that part there is no hope for an administrative solution. The problem is that when administrative solutions are not forthcoming Americans have a history of fixing it themselves.
Cuomo now has the list of AIG bonus recepients...but is suddenly being coy and not publishing the list. Where are the names of those from Citi and Merrill and BAC who took taxpayer funded bonuses...transparency demands that those names be made public.
The bonus babies should be proud that they have looted their fellow citizens...
"are just unwilling to accept the logical corollary; there are too many banks"
The # of banks is irrevelant. The problem is the large # of promises which can never be redeemed. Issuing ever-greater numbers of promises to guarantee the value of existing bad promises can. not. work.
Federal entitlements have to be scaled back, substantially.
Banks will need more than $750 billion in fresh capital from either the government or private investors to ensure their soundness and return to normal levels of lending, former Federal Reserve Chairman Alan Greenspan said.
So, the banks are illiquid, insolvent, unsound and not lending the trillions already infused. Greenspan's answer is to give them money in the hopes that they use this new debt to leverage more debt.
CEOs of major banks have started to push back against the critics - their primary job, after all, is lobbying (rather than, say, risk management). As such, they are typically sophisticated communicators who use a wide range of symbols, words, and modes of communication to get their points across.
“As the US Treasury Department continues to brag that the US has not yet been forced to make good on its guarantees of toxic debt held by the major insider banks (Citigroup, JP Morgan, Bank of America, etc) we find they have been using a back door to funnel money to their friends - - AIG the world insurance giant holding the largest share of derivative contracts that guarantee those toxic debts against default. In point of fact, those debts are defaulting in ever increasing number, and AIG is having to pay out billions. But, those billions are being replenished by additional bailout funds from the Treasury - - while the rest of the nation suffers from lack of credit. Why should the American taxpayer be bailing out gambling bets based on promises to pay that were utterly fraudulent? Now we find out that AIG is also the preferred avenue of funneling money into European banks. Lastly, what do all these insider banks have in common? They constitute the private owners of the Federal Reserve. It all begins to make sense why only the largest banks are receiving these funds and why the regulators continue to squeeze the smaller banks with millions in new surcharges - - forcing them into liquidation. The fix is in.
Joel Skousen; AIG: The Fix is in for Private Owners of the Fed
World Affairs Brief, March 16, 2009
The system is saturated with promises, recursively pushed in the future as far as they'll go. Imagine a calendar schedule with all hours booked, and many are double-booked. You keep missing meetings now and "really really mean" when you reschedule yet another double-booked meeting. But you're just double-booking again because... all time is scheduled for the next fifteen years.
The bad promises are scurrying around, hiding in between the good promises so now the Sharpshooter of Reality can't really tell who to shoot down or who to leave alone. As good promises get blasted, the productive capacity of the economy shrinks. In other words, you're now losing PERMANENT hours on your calender. BOOM! There goes 9am on Tuesday morning. BOOM! there goes 3pm on Friday.
Now your scheduling problem is accelerating so you do triple, quadruple and quintuplet bookings ,i.e. pile on more and more debt to make the bad debt whole.
* It’s about six months since the first AIG bailout; why has it taken this long for the names of these counterparties to be revealed? (Related: Is Barack Obama really being more transparent than his famously secretive predecessor?)
* Why wasn’t it explained clearly to the American people that ‘rescuing AIG’ really meant ‘bailing out its counterparties’? And, if so, why didn’t we just give the money directly to AIG’s trading partners?
* Why is the U.S. government continuing its policy of ‘making whole’ counterparties and institutional bondholders of bailout recipients, instead of requiring those investors (who entered into those deals freely and without a government guarantee) to at least take a ‘haircut’ and share in the taxpayers’ pain?
* Why didn’t former Treasury Secretary and former Goldman Sachs CEO Hank Paulson disclose that his former firm would be one of the prime beneficiaries of the AIG bailout?
* When is Tim Geithner, reportedly the prime architect of the AIG bailouts (among others), going to take responsibility for this disaster?”
Am I correct in thinking that this could be one of those rinse repeat operations.
Hedge fund puts up 3%. As soon as the security cash flows a hefty profit (minus the 3% and interest paid to govt) hedge fund walks and sticks it back to the govt. Only to rebid at a lower price to further screw the taxpayer.
Good grief,am I the only one here to equate this to toxic shock syndrome? We have a system that DEPENDS upon trust and this will destroy what little trust is left.I spent some time trying to think of which part of the system I still had some faith in.I came up with the local volunteer firefighters,not good.
The Walton County case in 2006 helped bring the problem to light. There were at least four goat rapes in Mossy Head, including one that resulted in the animal dying. Instead of being charged with a sex act, a suspect was charged with stealing two goats, said Dee Thompson, the director of Panhandle Animal Welfare Society.
Authorities in Tallahassee, Fla., also struggled in 2005 to find charges that would fit against a blind man accused of having sex with his guide dog. The man was initially charged with felony animal cruelty, but prosecutors dropped that charge and recharged him with "breach of the peace."
In Tennessee, bestiality was banned in 2007. Arizona did so in 2006 after a Mesa deputy fire chief was accused of bestial acts with his next-door neighbor's lamb. Washington state also banned sex with animals in 2006, after a man died of a perforated colon from having sex with a horse on a farm in rural King County.
......and, does anyone REALLY think that these incessant bailouts will just stop? Think about it. They will continue to rob the taxpayer (America) until there is nothing left to empty out. What TPTB have in mind is to recreate was once was. It can not be recreated - TPTB cannot understand that - nor can most people.
Just once I'd like to see little people get the really sweet deal
You mean like creating a special series of savings bond tied to the cash flow of the toxic assets? Instead, we're told to keep our deposits paying nearly 0% in banks, so as to recapitalize them.
"We have a system that DEPENDS upon trust and this will destroy what little trust is left."
How could you not know this. These guys know there are tons of bad promises in the system and they know they can't fix that. This is all about shifting their bad promises into the good promise pile at the expense of everyone else.
Black Star Ranch says:
Today, 12:03:29 PM “......and, does anyone REALLY think that these incessant bailouts will just stop? Think about it. They will continue to rob the taxpayer (America) until there is nothing left to empty out. What TPTB have in mind is to recreate was once was. It can not be recreated - TPTB cannot understand that - nor can most people.
Quoted for truth.
Everyone wants to know where the money is going for these "fictional bets".
The fact is, the bets were real, they built houses and strip malls and bought Americans loads of imported trade goods. The part that was fictional was the idea they were really "bets" and could really pay off if they wrong-wayed.
The bubble is not in any specific industry. The bubble is in credit, which has far exceeded servicing capability.
The bailouts are the preferential looting of worth out of the currency by cliques with commanding policy influence prior to what I presume is the dollar's incipient collapse.
These guys know there are tons of bad promises in the system and they know they can't fix that.
I cannot imagine the current administration dissipating goodwill any faster if they tried. They were handed a blank piece of paper and all they did was fire up the photocopy machine and duplicate previous policies. Even sadder, they set copies to multiple.
Rob Dawg says:
Today, 12:23:09 PM I cannot imagine the current administration dissipating goodwill any faster if they tried. They were handed a blank piece of paper and all they did was fire up the photocopy machine and duplicate previous policies.
Agreed. They could have done anything, instead they doubled the dosage. It's one thing to predict policy failure dictated by the milieu. It's another thing to see it.
So a large part of the financial crisis, was caused by pension fund investments being used to provide trading money for CDSs and other derivative trades, creating massive fees and payments to those involved in the trading. Pension funds are now in crisis because of massive market losses, leaving the workers holding the bag as it is proposed that more money be paid by the workers to the pension system or see pensions reduced. So what a scam. Since there is a large public employee pension system in this country, what has happened is the anti-government free marketeers have successfully taken public worker pensions and now taxpayer money to pay off their sanctified contracts and derivative agreements. I would expect that a lot of people would really like to know why the risks to their savings, pensions and taxpayer dollars were not told to them in the last 30 years.
Right now the banks won't sell Big Shitpile for what it's worth. And as long as Big Shitpile sits on the balance sheets of the largest banks (not just Citi and BoA), banks will not lend at the level necessary to sustain a full recovery. They will be zombies that do nothing.
But banks will not sell Big Shitpile to investors for the market price without facing obvious insolvency. And with insolvency comes nationalization - which sounds great and cathartic!
But AIG has been nationalized since September and that hasn't gone so well. Moreover, Citigroup is just a monster behemoth unlike the 20 banks FDIC has eaten this year. Citibank itself is only about a third of Citigroup - and much of Citibank's operations are overseas. How do we nationalize a multinational bank? And then what do we do with the non-Citibank part of Citigroup? And at the same time we do this with BoA and others? JPM has even more Big Shitpile on its balance sheet than Citi or BoA - will they need nationalization too? How exactly will that work?
Anybody who thinks that nationalization will be a clean and free break with the past where only Wall Street suffers its just deserts is fooling themselves.
So, without nationalization, we are left with zombies that need to unload Big Shitpile. Can anybody take on Big Shitpile - even for the short or medium term - other than the taxpayers?
Isn't that what a "lender of last resort" does? Backstops the banking system so it can function again? Only this time the resulting banks have clean balance sheets and, Inshallah, will push the economy back up again and allow both Treasury and private investors to sell Big Shitpile for a possible profit.
/Devil's Advocate - I really do think we need to bite the bullet and nationalize. But I do think nationalization would be a lot messier than we imagine.
"“So a large part of the financial crisis, was caused by pension fund investments being used to provide trading money for CDSs and other derivative trades"
It just AMAZING to me how entrenched the trivialities of the System blind everyone. The CDS trading was EFFECT, not cause.
The ultimate problem is too much debt.
Period.
Everyone keeps focusing on the details of where it finally blew out, like it matters. It doesn't. It would have happened at some other weak spot, regardless.
The engine for this financial heist really revved up after 911. All the pieces were in place--divert attention to the "war on terror" while the real terror was being committed right here under our noses in DC and on Wall St. Only mass numbers of people becoming aware of what is really going on can stop this. Unfortunately, it may soon be too late.
“Everyone loves an early inflation. The effects at the beginning of inflation are all good. There is steepened money expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular general prosperity, all in the midst of temporarily stable prices. Everyone benefits, and no one pays. That is the early part of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the money inflation in order to stave off the latter effects, but the latter effects patiently wait. In the terminal inflation, there is faltering prosperity, tightness of money, falling stock markets, rising taxes, still larger government deficits, and still roaring money expansion, now accompanied by soaring prices and ineffectiveness of al traditional remedies. Everyone pays and no one benefits. That is the full cycle of every inflation.”[10]
OK. I've got the better plan. Sorry it took me like 25 minutes.
It's quite simple actually. Each company with a large amount of illiquid CMBS and RMBS should do a stock spinoff. Every owner of Citi shares for example, will now own a share of Citi Ongoing, and Citi MBS. Each kind of share will trade separately. The Citi MBS shares will be an interest in the MBS, along with any debt used to buy/fund that MBS.
Far fewer securities to price this way, much better liquidity, because it's already bundled. No need to find new buyers, the shareholders who already own Citi (or BofA, etc) will get two types of shares. They can sell either or both of they no longer like them.
The MBS would no longer be on Citi Ongoing's books. They would be on the books of a separate entity, Citi MBS.
If you want to roll other dangerous and/or illiquid stuff into the Citi MBS operation, you might do so. CDS are one possibility.
The Citi MBS sub also gets a large number of shares of Citi Ongoing. Thus, a portion of ongoing profits go to holders of the hard to value liabilities.
Cleansed of its hard to value liabilities Citi Ongoing can operate more like a normal bank.
For an example of a moderately similar structure where hard to value liabilities were the problem, see the Johns Manville/Manville Trust transaction.
No Federal subsidy required, unless they want to guarantee the bonds on Citi itself that are currently outstanding. They could guarantee the current market price for those, which is a significant discount from face/par.
you can not do what you propose because those investments were made with depositor money. thus when I go to the bank to withdraw funds, Citi would not have the cash on hand nor sufficient reserves to pay me.
I think we may have pasted the late mark already. Making banks whole with the new taxes, fuel mileage regs, epa regs, basically punish business will ship the few jobs left overseas to hungry markets with real growth potential. Not growing business expenses with a used up consumer. Learning to drive after the accident won't make the accident go away. DONT_KNOW
Lots of opinions are out there, but here are a few of the more thoughtful ideas as to what the future holds: - Gold is the safety play as the U. S. dollar slides. Some estimate gold may reach as high as US$1,500 an ounce in 2009. - AIG and the others should be, and will be, put into a de facto, strict bankruptcy workout. - China is concerned about the fact it holds US$1-trillion of the U.S. debt and is diversifying its portfolio as well as not buying more U. S. treasuries. Neither will the Saudis. In all, foreigners represent US$2-trillion of the total US$11-trillion in U. S. federal debt, but it is hot money that can flee in a click. - Obama will -- certainly should -- replace Geithner, preferably with a European or Canadian or Asian team who get it and haven't got conflicts of interest on Wall Street. - The U. S., and most of the world's, banking system may eventually have to be nationalized in order to systemically and fairly recalibrate the financial economy. This will also allow the Americans to write off 25% of all mortgages, subprime and others, to kick start the real economy again. - Canada and everyone else will be dragged through this process, which will take as long as it takes for the Americans to admit they have to reinvent their systems.
The bad promises are scurrying around, hiding in between the good promises so now the Sharpshooter of Reality can't really tell who to shoot down or who to leave alone.
Broward Horne
Innocents will go down when people shoot first and ask questions later.
Please excuse my gross ignorance here. My degree is not in economics but this subject has become increasingly important to me -- so I plead for some patience.
How do you calulate 85% of the 'value' of a 'toxic asset'? If the asset has a positive ROI, however small, then the asset isn't really 'toxic', is it? Traditionally, hasn't the value of an asset determined by the free market - meaning that if no one wants to purchase your 'asset', then it has no value? If the total value of the 'asset' I purchased is always remain less than what I paid for it, haven't I really just incurred a liability? So what's the difference then, between a 'toxic asset' and a 'liability'.
If all these 'toxic assets' had even a halfway reasonable chance of producing a positive ROI, why would the banks be in a hurry to sell them? I understand that financial businesses generally have to keep a certain amout of reserves on hand and that the rating of their investments can have a direct and severe impact on these institutions.
But wouldn't private investors be clamoring all over each other for the right to purchase these 'assets'? Wouldn't the entire investor community be screaming bloody murder that the government was usurping the investor's ability to make money by hogging all the assets?
Bottom line, should these 'things' the government is about to buy really be called assets at all? Or are we really being asked to reimburse companies who bet heavily on the lottery and now want to return all their losing tickets for the price they paid for them?
": - Gold is the safety play as the U. S. dollar slides"
Unless deflation persists for another 1-3 years. What has Bernanke been right about during his years of govt. disservice? Not much. Why would one now believe he can reflate? Let's say he can reflate, will the Fed raise rates? No, they can't afford the added debt service expense. We are going down a dead-end road. Gold will trade at below $500 soon.
One should consider the possibility that the dollar will be wrecked and that we will still have deflation. Bondholder stop buying treasuries. And repatriate currency in favor of hard assets. Fed prints to buy treasuries, exacerbating problem but rates still rise in both real and absolute terms as buyers strike. Dollar falls vs gold, oil and hard currencies but level of credit still falls at home and general price level and output continue to fall.
Isn't that what a "lender of last resort" does? Backstops the banking system so it can function again? Only this time the resulting banks have clean balance sheets and, Inshallah, will push the economy back up again and allow both Treasury and private investors to sell Big Shitpile for a possible profit.
Why did the problem happen? Too much debt. What is the answer, ringfence the problem into Treasuries and then start over from 5 years ago, blowing the same bubble of loose credit in the name of stimulus?
Don't you think this would be a regular feature of the global economy if it could be done this way?
But AIG has been nationalized since September and that hasn't gone so well.
Au contraire - it was bailed out w/ an 80% stake of equity going to USG in 'compensation'. That equity is worth zero because AIG was is and will remain insolvent.
When they 'nationalize' it will wipe out ALL equity, cut up a lot of the bond holders and then unwind & liquidate the assets BACK into the market.
There isn't an FDIC for insurers that big, that international - so they would have to ad lib. Get after it TG - do it now. Same with the insolvent banks.
Exactly, but don't hope for nationalization, as it's just "not done" in the USA. Instead, we left the current staff in place to mark-to-model their thrice-leveraged CDOs at some fantasy price but not the $0 they would command in the market, and pay them $200MM in bonus money to boot. Under this new plan, the dollar is toast.
"Sen. Dodd is the one who has led the fight against excessive executive compensation, often over the objections of many of his Republican colleagues."
Let's stop the obfuscation Senator Dodd. The constant BLEATING being reporting in main stream media of you and your peers in government is diverting from the real issue-THE COUNTERPARTIES and BONDHOLDERS.
We would also like answers to the arbitrary use of contract law that seems to be prevalent in THIS current enviroment.
"Our fear is that almost all this effort will be misdirected and unnecessarily costly. Three important misconceptions could lead to a disastrous reform agenda:"
The deposits are definitely the problem. Right now, if every depositor and other creditor asked for his/her money back, the banks like Citi would go negative (even assuming all of the good assets could be sold all at once without the volume alone depressing the price). What the solution appears to be so far is to give the banks a low-cost subsidy that enables them to earn fee income and, to some extent, a spread between the cost of funds and the amount they charge borrowers. (See, for example, all the reports of jacked-up credit card rates even with good FICOs.) The FED is trying to run out the clock by letting the banks pay down the potential "negative" mentioned above by earning excessive profits.
The danger is that the market is going to call the FED's bluff. So the idea is to get the worst assets off the books and mitigate the amount of negative, while simultaneously restoring confidence so that the banks are no longer at risk of withdrawal requests from depositors and creditors (i.e. bank runs).
This is what you get from salesmen. Upper level Wall St people are salespeople. They really do have smart people who work on Wall St. Just don't expect to hear from them. Their either being ignored as usual or laid off.
Geithner has never had to put together a plan, just a sales proposal. So, expect another sales proposal in a week or so.
The legislation, being spearheaded by House Financial Services Chairman Barney Frank (D-Mass.) could be ready for mark-up before Congress’ spring recess, which starts April 6, according to a senior Congressional staffer. A public hearing is also expected.
“The President has asked us to fast-track,” said the source. “Drafting is going on at both ends of Pennsylvania Avenue.”
The President Wednesday referred to the pressing need for such authority “get a proper mechanism in place,” adding he had discussed the issue with Rep Frank. It is unclear who is handling it on the Senate side, but it would presumably come under the portfolio of the Finance Committee, chaired by Chris Dodd (D-Conn.)
“What we are working on is a resolution authority that would be similar—not identical, but similar to the powers that the FDIC currently has over banks,” the President said in his comments about the AIG uproar,
FDIC Chairman Sheila Bair Thursday told Congress that the government’s policy of bailing out firms because they were too big to fail had to be replaced.
The story of "Fiat Money Inflation in France" is one of great interest to legislators, to economic students, and to all business and thinking men. It records the most gigantic attempt ever made in the history of the world by a government to create an inconvertible paper currency, and to maintain its circulation at various levels of value. It also records what is perhaps the greatest of all governmental efforts--with the possible exception of Diocletian's--to enact and enforce a legal limit of commodity prices. Every fetter that could hinder the will or thwart the wisdom of democracy had been shattered, and in consequence every device and expedient that untrammelled power and unrepressed optimism could conceive were brought to bear. But the attempts failed. They left behind them a legacy of moral and material desolation and woe, from which one of the most intellectual and spirited races of Europe has suffered for a century and a quarter, and will continue to suffer until the end of time. There are limitations to the powers of governments and of peoples that inhere in the constitution of things, and that neither despotisms nor democracies can overcome.
of course, it's east coast (or espn) bias. however, conferences are better judged after the second round. imo, the pac-10 will be lucky to get 2 teams into the sweet sixteen. this tournament is going to be the Big East Invitational (and I'm a Dookie)
Looks as though members of a UN Financial panel agree with most of you regarding the mess that's been made of the US economy--they're recommending a currency basket--no more US dollar as reserve currency.http://www.truthout.org/032109Z
"Finally, since the problem is insolvency of our financial system caused by unrestrained credit creation, the solution is to collapse the over-inflated financial assets"
Obama will call for increased oversight of 'executive pay at all banks, Wall Street firms and possibly other companies' as part of sweeping plan to 'overhaul financial regulation', NY TIMES reporting Sunday, newsroom sources tell DRUDGE... Developing...
"Every time the government has gotten involved it has eventually crowded out all other private activities. This is no different. 97% government, 3% private "investment." And the government wonders why private investment isn't stepping up. Private capital cannot compete." RD
WHY in the hell would someone even try to buy/sell anything when the government will take it on their books for full value.
"Our fear is that almost all this effort will be misdirected and unnecessarily costly. Three important misconceptions could lead to a disastrous reform agenda:"
Note 5:
5. The financial system problems in many other countries are independent of regulatory problems in the US. The banking collapses in Iceland, the UK, and Ireland were home grown. The loans of the European banking system to Eastern Europe and to emerging markets in general were independent of US financial system behavior.
"screwing the pooch"-yeah, someone somewhere is
"screwing" something allright
"Such authority would allow the government to seize control of companies that posed a risk to the system and unwind their businesses in an orderly, yet expeditious fashion. Such authority would presumably allow the government to amend contracts, as necessary."
....I don't know if THIS is such a good idea. Talk about "slippery slope". My award-winning relish could be deemed "posing a risk to the system" as far as HUNTS or HEINZ is concerned. Enough political contributions nowadays could make THAT so. Allowing government (not judges) to amend contracts?
You make a good point and something to ponder. My hunch (maybe pondering will produce some concrete examples) is that the adverse actions you foresee are already possible under existing powers while the unwinding of systemic-threat financial businesses are not possible under existing powers. If so, you would be correct that the new powers lead down a slippery slope, but since we could already slide down it anyway, maybe the new powers represent a net gain for the system.
Just a thought. If I think of anything specific maybe I'll try to catch you on a later thread.
It sounds like we taxpayers will be paying investors to take toxics assets of the bankers' books. I suppose the ONLY upside to this plan is the goverment won't have to mothballs the junk until some unspecified later date. Why not just nationalize any insolvent banks? Taleb is SO RIGHT!
Black Star:
"Allowing government (not judges) to amend contracts?"
Where is the law in all of this? This is just a "free for all" now? Another emotional feel good popularity contest......Maybe the courts are too busy playing game show host to award first prize to whoever was won "The I'm so silly I tripped over my own feet and now someone has to award me a prize" Contest.
You want to run law on popular opinion? That's not a good idea. Mobs and dictators = same thing
....I'm just too damned simplistic. Leave the sick dogs alone. They'll either get better or they die. I sure as hell wouldn't waste anymore time on them.
lama said: “This is what you get from salesmen. Upper level Wall St people are salespeople. They really do have smart people who work on Wall St. Just don't expect to hear from them. They're either being ignored as usual or laid off...."
We had our own shining example of that (smart, knowledgeable, but ultimately unheeded) in Tanta.
What gives me hope (in an extremely perverse way) is this: During any recession of the past half-century (or any recession, period) when was there ever an ideal government response? Weren't they all about like this, with no popular consensus (except public outrage), multiple "solutions" with different tweaks, special deals made hidden from the light of day, etc.
Tim waiting for 2012 says:Today, 11:03:38 AM PDT
Theory
Chinese sell treasuries into BB buying spree make huge profits on the treasuries that they bought last year. Then rates move higher...
That presumes BB will be buying market treasuries and not newly minted direct purchase securities.
It is still counterfeiting even when you are the original artist.
I'm starting to feel sympathy for Nova's burners...
With no place to direct the rage, what else can you do?
I feel sorry for my poor Congress critters and Senators. I like the guys, I'm in the same party, they are probably against it and I'm still going to have to vote against them in the primaries and general elections.
we must have people who post here from every state
we would have to run and win in a majority of states in the house in order to control the agenda
let me suggest 3 things i hope people here, left or right could agree on
can we please increase the number of congress men and women as originally envisioned in the constitution...would make it harder (much more expensive) for the special interests to buy elections and with congress critters runing in districts numbering less than 100,000 citizens, big money would not be needed o run
2 an end to the seniority committee system that allows a few most powerful political hacks to control chairmanships and assignments and thus keep legislation bottled up in committee
an end to the federal reserve system and dismembering the mega bank system with the too-big-to-fail anchor hanging around our necks
(ps im a liberal who believes in some very conservative ideals like a literal interpretation of the bill of rights (esp the 2nd and 4th and 10th amendments) and i believe in counter cyclical federal budgeting (no deficit spending during plus GDP years and a requirement to pay down federal debt
I don't know what plan people were expecting. We let the the financial industry get this big, and then let them loose to do whatever they wanted. Now, we are all held hostage, AIG/Citi/BoA/GS etc, have a giant gun held to the world's head and the administration is trying to negotiate with them. In that context the plan makes perfect sense.
Any administration can have industry-captured idiots at the helm making policy that screws the taxpayer. But to have two administrations within six months, with different ideologies, with different players, come up with the same bad idea seems too unlikely to be a mere accident.
So it probably isn't an accident. Which means that an approach with low chance of success and high chance of blatant transfer of a great deal of wealth from public to private hands is being pursued deliberately.
Why?
Why is a second set of elected and appointed officials supposedly dedicated to the public good embarking on a course that will almost certainly cause great harm and further suffering to citizens who are innocent of causing these problems?
Where is the pressure coming from? Can Wall Street and corporate kleptocrats, as disgraced as they are, still muster enough cojones to make their buds in D.C. dance? Are there foreign players (China, Saudi Arabia for two) with enough power to make the U.S. government actively promote policies that run against the best interests of the citizenry?
To paraphrase Woody Allen, 'we have performed a sexual act on ourselves', with the help of Congress and Wall street, that no China or Saudi Arabia or Bin Laden can conjure up in their wildest most vicious attacks.
mock turtle said: “haloscan reminds me of an old girlfriend
i never loved her or missed her more than after she was gone"
Js-kit has it's own romantic strong-points. How many times have you said something to a girlfriend that you desperately wished you could take back? The new comment section addresses that problem by deleting posts.
"Zombie banks do perform a function," says a banker who has dealt with several failed institutions in recent months. "The government is warehousing and storing bad assets in these banks." This function, the banker argues, prevents both regulators and investors from having to deal with questions of valuation and demand in dysfunctional markets."
I also post comments to an irc channel as they appear on haloscan. Click for a web irc interface: Mibbit IRC client widget (Or join the irc server directly: irc.realize.org:9996 #calculatedrisk)
CRbot would now like to sing a little song for all his fans, and it goes something like this:
Benny... Benny... give me your answer... do. I'm.. half CRAZY... all for the love... of you. It won't be a ... stylish marriage. I can't... AFFORD... ANYTHING TO EAT... MUCH LESS A FRACKIN CARRIAGE!!! But you'll look sweet... --BOT SO HUNGRY!-- upon the seat... Of a HOOPAJOOPS built for two... families.
I'm sorry Ben, I can't let you do that...
Rally mode + Printing Press == does not compute... does not-- com--- com... puttttrrrrhgh.
Unfortunately, nobody in government in any office at any level has yet convinced the American people that the government should be taking toxic assets off bank's balance sheets.
No matter what the plan, no matter how obscure, the homework has not yet been done.
If anybody in government thinks they got burned by public opinion on the bonus issue - they've seen nothing yet. Geithner, and therefore Obama, is really defying the public will on this stuff. You just cannot do that and remain in office.
NO! No more taxpayer support for bailouts. These debts (Toxic Assets) should be discharged, restructured or sold in bankruptcy. What will happen after we dump all of this money into a dry hole and nothing changes. Except of course the increasing tax burden on the middle class.
This approach does not deal with the underlying fundamental structural problems in the economy. Cheap debt is not really a substitute for income. Good paying jobs, consumer debt reduction and an affordable cost of living ( health care) will solve a large part of this economic mess.
If big bonuses, low taxes and the shifting of toxic assets are good for the UBERS, well maybe the rest of us should demand the same.
Does anybody remember that the last people who brought in 3% equity partners to take control of an off-balance sheet hedge fund in a no-loss deal designed solely to absorb toxic assets at inflated prices, were sent to jail by the government for misleading the public? Their names were Andrew Fastow, Jeffrey Skilling and a raft of other managers, at Enron.
The goal of their off balance sheet partnerships was to conceal where and when the real losses had occurred and thus who was responsible for them, until some later date when they could either be transferred back onto the public (Enron's shareholders) in a way they would not notice, or at least after the Enron managers had a chance to unload their shares.
Now we have a virtually identical scheme, but this time it's being promoted jointly by the banks and the US Treasury. Once again the effort is to construct a vehicle into which toxic assets can be transferred at inflated prices, positioning the public to take the losses while disguising them in the short term, and giving the managers of our biggest banks a chance to both profit now and then sell out ahead of the public.
Perhaps Lay, Skilling and Fastow should be hailed as innovators in the field of public finance.
Wouldn't you love to have access to this kind of funding? Only 3% of your own skin in the game and the rest being backed up by the government (aka, you). Even as toxic as the assets are, they have some worth especially when the taxpayer is going to suck this up.
If only big investors/banks have access to this funding, we are f'ing doomed. The banks own both parties. Why shouldn't the public have access to this funds as well? Aside from that, this plan is a big piece of fermenting feces. When will the revolt come? When a loaf of bread costs $100 bucks?
After serving in the Clinton administration, Rubin made $100 million as board member of Citigroup. Geithner knows that he has no chance of making a career and wealth in the private sector by nationalizing the banks. The system is corrupt and the treasury sec is coming from the guts of the same corrupt system.
Fluke? Credit crisis was a heist
Thanks to a complicit Congress, the reins were systematically loosened on the looters of the financial industry. And they're still at it, looking for new plunder. Fluke? Credit crisis was a heist - MSN Money - Jubak's Journal
The greatest fleecing in the history of the world continues unabated. Let the beatings continue.
I may be naive, but isn't is a bit risky to be willing to lend someone 97% of the purchase price, on a non-recourse basis, for purchasing assets whose value is completely opaque? Let's assume I'm a hedge fund, and I'm able to borrow $ 3 from bank A, who, quite coincidentally, has a lot of toxic waste on its books. We arrive at a price of, say, 30%. (When asked how we arrive at this price, we refer to the ABX indices. Or whatever. 30% doesn't seem too ridiculous, if I'm informed correctly.) When, in the fullness of time, the final payout on the rubbish thus bought turns out to be 30%, I get my investment back. Or rather, since I have borrowed the $3, the bank gets its money back. When the payout is less, the U.S. taxpayer will make up the difference. When the payout is more, I pocket the difference: anything over 30% is a profit, and a profit on an initial investment of $ 0. Now that's a nice rate of return.
I understand this scheme is meant to generate sufficient interest in buying toxic waste to raise the market prices to something above the present levels, which are said to be unrealistically low.
But I fail to see how, in the present situation, the buyers have any incentive to start bidding proces up. The selling banks might have some incentive (since getting a better price would reduce the losses which they have to recognize). I think we will have to wait some time before we can say that this incentive does work, since so far the U.S. government has has not indicated that this is the last programme that will be launched to assist te banks. Either nothing will happen (if the whole program turns out to be a dud), or the scheme will be a runaway succes, resulting in banks selling lost of toxic waste at firesale prices, becoming visibly insolvent, and getting bailed out again as being too big to fail. And I'm not going to be surprised if, at the end, those private parties that bought the toxic waste turn out to be affiliates of the same banks.
The net result: the banks have written off the toxic waste at the expense of your taxpayer.
The above figures are for buying AAA-rated MBS, whatever an AAA-rating may mean nowadays. In case of lower ratings, the amount of money lost by your taxpayer stays the same, the maximum amount of money lost by the private investor stays the samen, but the possible profits will explode completely.
If I have it wrong, please tell me.
If I'm correct, please also tell me. Perhaps I'd like to participate. (Opens wallet, finds € 10 in it.) Where do I register my interest to join this scheme?
Isn't this simply a formula for allowing the investor to abscond with the remaining interest payments and, when the asset stops paying, leave the government with the then worthless paper?
For example, take a note paying 5% interest. You buy the note via the new Treasury program at 50 cents on the dollar. For simplicity, assume the investor is putting up the full 20% himself and the FDIC is lending the other 80% non recourse. Let's say that the note will continue paying for 3 years and then default and after default the paper has zero recovery value.
In this case, the investor put up 10 cents himself(20% * 50 cents bid) and walks away with 3 years of interest payments of 15 cents. But then, the paper has defaulted and is worth zero so the loss to the government(taxpayer) is the full 40 cents of non recourse funding.
I dont understand why peoply look at this particular plan and say that it is all upside to the investor but all downside to the govt. Yes we had that before with TBTF, but here that is not the situation. They risk 30 billion and have last lein position if money is lost (debt holders get paid first, uncle sam), and they share, proportionally, the equity upside with the govt equity. This is NOT heads-they-win tails-we-lose accounting. They risk 30 billion and have proportional share of a twenty percent equity stake; they are first to get cleaned out if no profit made. STOP JUMPING TO CONCLUSIONS.
A friend of mine with an economics degree got a job in Treasury a few years ago. Saw him recently and he said that he was very disappointed by what he saw in Washington, that all the policy is written by private sector lobbyists and lawyers. He said that is how most policies come into being. That it is very hard to identify any other process. :'( There is no one with influence writing policy on behalf of the taxpayer.
This comment thread has been HALO-IZED by CRbot.
http://realize.org/cr/halokit.php?halourl=http://www.haloscan.com/comments/calculatedrisk/306511158243106901
I dont believe this!
3% private capital and 97 % founded from the goverment at a low intrest rate?
This thing is so worse of the goverment agress to this. This could be the collapse of the finacial system.
This guys are trying to stimulate the supply side of the economy. We have a demand side problem. When are they going to stimulate the demand side, meaning the consumer. It is 70%+ of the US economy. Weak up and do something
Beat Nemo!
You got Plan!
"What is this in aid of?"
Apparently, Mitch and Murray are making the rules these days.
Well, at least we won't have to listen anymore about how Obama will save us from Bush.
Its a joke and what makes us think Timmy will have a plan for Monday huh? Considering this about #4 we were told we could get to see the plan. Also, for those who say lay off him, he is doing the best he can. That works for Little League Baseball not for running the largest and most important market in the world.
They are clearly looting the treasury and still most Americans don't lift a finger. Really clever plan: You get to keep your "precious" guns but not your wallet.
Probably in the end that armed populace starts shooting each others while rich elite has moved into another country. Really pathetic.
What other country, Kitten?
Merrrowwww!
There remains some dissonance between Geithner's position and that presented by Sheila Bair at Phoenix yesterday. As to the delays in providing detail, I presume both Treasury and FDIC have working groups drilling for data in MBS auction candidates.
..........same subject but different view and in details.........
Geithner Puts Finishing Touches on Plan to Revive U.S. Banks - Bloomberg.com
It is just another step in Operation Obfuscation and Subterfuge.
I know they are trying to bamboozle the mathematically challenged amongst the American public but do they really believe they are fooling everybody. I also know that those partners in crime on the private side of this plan think they are amongst the brightest of the bright in the entire world - they are not.
Couldn't Timmy at least drive a harder bargain than Lone Star Capital drove with Merrill Lynch? Wasn't that a 22 cents on the dollar with 75 percent seller (Merill) financing which made Lone Star have 5.5 cents in the game?
The kicker in the whole obfuscation is this:
"Because the government can hold those mortgages as long as it wants, officials are betting the government will be repaid and that taxpayers may even earn a profit if the market value of the loans climbs in the years to come."
These mortgage backed security assets they are buying are usually 5 year maturities. So this conflation of holding a mortgage to maturity is an utter lie. Many or the mortgages will have in excess of of 20 years to go when the MBS matures. What happens to the individual mortgages then?
Further, the third cog in this plan is the expansion of TALF to allow buying MBS. Want to hazard a guess where the 3 pennies on the dollar the private firms are going to put up is going to come from?
The Latest from Ritholz:
Where AIG Bailout Money Went
I didn't realize the FDIC had that kind of money.
Not so long ago, the picture was far different. The USPS finished fiscal 2005 with a $1.4 billion surplus.
The reason...fewer credit card offers and INFLATION. Postage is going up another 2 cents soon. 70 diapers now cost the same as 77 did. 1.5 qts of ice cream now costs the same as 2 qts did. Gasoline is creeping back up. Hello inflation.
FDIC Five 0 with Sheyla Bair as Zulu.
YouTube - Hawaii Five 0 Intro
Just another example of the belief that there can be no losses for bondholders (cause the economic foundation of the US is borrowing)and no bankruptcy of financial institutions (because "credit" i.e., borrowing is the "lifeblood" of the economy).
These people truly, truly believe in finance. They simply have been indoctrinated, and cannot understand that a prosperous country allows for credit, and credit does not create a properous country.
So from the Government's point of view, the only difference between this structure and buying the assets outright, is that in this structure, all of the upside is handed off to third party investors (hedge funds, insurance cos, etc.) almost free of charge. The risk profile of the transaction is identical either way.
Quite a deal for everyone but the taxpayer.
Jas makes more sense every day. We're all dopes.
You are right. In this bizzaro world Jas makes all the sense. We are neutered hopeless feckless DOPES.
I'm out. Obama loses my vote next time around if this plan proceeds - not that the other guy gets my vote either. Both parties are rotten to the core.
Meanwhile what does it mean to recapitalize banks before fixing the incentive system that created the mess in the first place?
Blah Blah Blah. To late sucker. You cast your vote now live with it. You should have seen this coming. Were you duped? Or did you just want to believe so badly that you lied to yourself. Four years from now? Who cares. What are you going to do TODAY to stop this garbage?
Can I buy toxic mortgages at what I think their worth (3 cents on the dollar) for 3% down, with no recourse?
No. Its a competitive bid. You would not win by bidding three cents on the dollar.
it seems the plans to have our tax dollars back up other people's bad debts, just keeps getting more in your face bigger....
Now we can see why the FDIC needed the big dollop of bucks Congress just gave them. That 400 or 500 billion will bankroll this program for the non recourse loans and no need to go to Congress to reequest more TARP money ! Slick move.
I posted this article last night but I'm reposting for the morning crowd. For those that have had a hard time explaining to their friends and loved ones in simple terms, what happened. This article nails it.
The Big Takeover : Rolling Stone
I'm going to print out copies and hand them out at work.
Comrade Kristina - wonderful article - I have sent it around to all my family and friends. This our generations Martin Luther note on the cathedral.
Re: Rolling Stone
Sorry. Guy makes some good points but he's still obsessed with blaming R's. D's and R's are both corrupt and both to blame. Anyone who engages in the "my guys aren't as bad as the other guys" trope is part of the problem.
spot on.
O/T : From CNN :
Iranian leader: Obama's rhetoric not enough
(CNN.com - Page not found
See, nobody takes the Unites States of Ambabwe seriously anymore.
Happy AAA-lying and money-printing !
Happy hour, Uncle Sam say's the drinks are on me. Drirnk up boys.
Is Treasury using what's left in TARP to do this?
My guess is, if the admin needs to come back to Congress for more rescue funds, the answer will be 'NO'. I don't know what else to do but call my useless blue dog or rushbot congress critters and say 'no way.' This threat of bringing down the entire financial system unless Wall Street gets its way - I'm willing to take that risk.
Yes - exactly! We've heard the risk that unless Congress approves X, then Y disaster will occur. Thing is the disaster is already upon us and the financial system has been long before corrupted. We need a new foundation, not a paint job over the old edifice. This thing is done creaky. Time to pull it down and put up a ... okay, done with that metaphor.
Instead of the constant criticism, can you offer some concrete plans of your own? You are being counter-productive, CR.
Instead of the constant criticism, can you offer some concrete plans of your own? You are being counter-productive, CR.
He has many times - many here concur. Do a search for 'pre-privatization'.
The default counterplan is for the gov. to do nothing other than adminisiter the Bankruptcy courts. The chips must fall.
I don't understand how this will work. Am I being especially dense today? Probably. I can't make the principles, the theory, and the numbers match with the intended outcome.
Whatever. Resume normal transmission.
C
this is a silly plan in many respects.
these securities (which are just repackaged loans) will pay out what they pay out. that is the “hold to maturity” value. that number determines the amount of money the banks will ultimately lose, and above a certain number, it’s in many ways inevitable that the taxpayer will pay most of the bill. in any case, someone will.
the ultimate losses are not known, obviously, but in aggregate they are probably very close to the threshold where taxpayers will ultimately take a loss.
this plan won’t change the losses. it isn’t even supposed to.
r
what this plan is aimed at instead is changing the “mark to market” value of the securities. mark to market is the “liquidation” price of the security, or the price you could get by selling it today.
there is no reason to believe that these two numbers should or should not be the same, and throughout history these numbers are often very different. i know that paul krugman has an opinion about this and he thinks they are the same, but he is not an expert on this. if you are, paul, could you give some more color and numbers, because i would be curious.
so the question is: why do we care about mark to market and not hold to maturity?
we care about it because our accounting rules say we must, not because it is fundamentally sound.
i don’t know how to fix the accounting. it’s a hard problem, and not my area.
what this plan does, though, is attempts to fix the mark to market number (for accounting reasons) and does so at potentially large expense to the banks and taxpayers.
the reason is if the current mark to market number is incorrect, these securities are worth more than mark to market, and there will be little taxpayer loss ultimately. therefore you want the upside to go to either the banks that currently hold these securities or the government — preferably the banks i would say, so that they do not need government aid. if you sell these securities to a third party, this value belongs to them and not you.
now if the current mark to market numbers are correct, the losses will be devastating and someone will have to pay a couple trillion dollars. the private money coming into this program will help pay the losses, some bondholders will pay, and the taxpayer will end up paying a lot as well, probably the bulk.
my opinion is that the mark to market values are incorrect in aggregate and that the future hold to maturity losses are manageable in aggregate. if that is the case, this plan is a very expensive and stupid way of trying to fix a problem that is not a real problem.
there are two ways of dealing with this better: one is to prop up the banks via a ’swedish’ guarantee (guarantee the bondholders) until you get more visibility on how bad the loan losses are really going to be. the other is to bring the ‘toxic’ securities directly onto the treasury’ s balance sheet (via nationalization or another mechanism) where the taxpayer gets all eventual losses or gains and where mark to market valuation is not applied at all.
babar's second post (Today, 8:48:33 AM) is right o
i am sure this has been discussed here before but...
pay attention to your credit card statements
we have an 820 credit score, and this months advanta bill showed that our rate went up to 30%. called up the "helpful" service rep and asked why, and her answer was basically "because we can".
well, the obvious answer is no they cannot, people will either opt out-close accounts or default. I know I will stop using any card from an issuer pulling such a stunt.
And what is their default rate now?
But that fits well with the modus operandi of banks: sawing the branch they are sitting on (a twig by now).
It is a real pleasure to trade their stocks though.
Federally Underwritten Bank Asset Recovery - FUBAR
Long live the banana republic!
If this isn't met with universal laughter and anger, then the shame is on us as a nation. You don't need to know anything about markets to immediately see how utterly absurd this is.
The negative psychological effects of this plan will dwarf whatever "stimulus" it creates.
This plan sucks. When do we vote on it?
And are we supposed to ignore Sheila Bair when she says, “Without additional revenue beyond the regular assessments, current projections indicate that the [deposit insurance] fund balance will approach zero"?
Well, if the government provides all the money, why go through the charade of having "investors"?
Why not just come clean and say,"We can't find investors for this mess, so we are buying it ourselves with more of your money."....
Maybe we should all just take up bowling....
Obama rolls a gutter ball - 2008 Presidential Campaign Blog - Political Intelligence - Boston.com
Obama rolls a gutter ball
Where is my teleprompter when I need it?
ullpointer - excellent. I've been trying point this kind of stuff out to co-workers and anyone within range since at least June last year, and they still don't get it. The CC companies are completely feral, their appetite is enormous, any they have total latitude to prey on even high fico clients, lets alone the poor saps at the bottom of the pile.
C
"If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible." Sir Ala
Banksters who own these toxics will shuffle them around using taxpayer money.
No commoners in 'private' part of the plan.
BAS TURDS!
The plan to be announced next week involves three separate approaches.
Analysis: Can't pick policy, choosing "all of the above" and hoping one works.
Cynical Policy: Confusion is the friend of crime.
Cynical Analysis:, excuse me.
"I have a plan. One day ...."
Timmy TurboTax "I Have a Plan" Speech Jan-Feb-March-.....2009
"This amounts to a direct subsidy from the taxpayers to the banks."
Thanks for saying this so succinctly.
Do they teach anything in the Ivy League except how to rape the taxpayer?
...now if the current mark to market numbers are correct, the losses will be devastating and someone will have to pay a couple trillion dollars. the private money coming into this program will help pay the losses, some bondholders will pay, and the taxpayer will end up paying a lot as well, probably the bulk.
my opinion is that the mark to market values are incorrect in aggregate and that the future hold to maturity losses are manageable in aggregate. if that is the case, this plan is a very expensive and stupid way of trying to fix a problem that is not a real problem.
-babar
What about the idea of the Treasury sponsoring an auction of a small, but representative cross-section of the assets held by the largest financial institutions (who took TARP money) to get an idea of the value? Structure it similarly to how a small auction was done to determine the cents on the dollar that the CDS writers on Lehman had to pay out? If they auction sample was small enough (yet representative and significant), would the results be "market" prices or "liquidation" prices?
I weep for my currency play. Too late, missed it.
YouTube - Dead Can Dance-Sanvean
C
"The reason...fewer credit card offers and INFLATION. Postage is going up another 2 cents soon. 70 diapers now cost the same as 77 did. 1.5 qts of ice cream now costs the same as 2 qts did. Gasoline is creeping back up."
Don't be silly. Everyone knows that the price of stamps is directly tied to the price of ammo. Going Postal in 5...4...3..2....
It takes a Nobel Prize to understand how you can spend your way out of debt.
kidbuck - I hope you live in a state a long way from DC.
C
OT: Filed late last night. But i love how CR’s always ahead of the mainstream media on everything. haha Looks like Washington Mutual is fighting back against the FDIC (WARNING- 1.2MB)
http://www.sidedraught.com/stocks/WashingtonMutual/WMI%20v%20FDIC%20Complaint.pdf
Best I can tell, Cause of Action #’s 2-4 (Dissipation of Assets- the equity interests in WAMU Bank were $30 billion alone, according to OTS document attached at the end of the lawsuit, Unconstitutional Taking without Just Compensation, and Conversion)—this looks like a mammoth-sized suit. If Indymac was dumped for $13B, and WAMU is roughly 10 times the size, what is this going to cost us?
Definitely bears watching, since I believe those few fateful September days are why so many banks are still weary of lending no matter how much $$ you throw at them. Only news release I’ve seen so far was by a woman named by Peg Brickley of DOW JONES NEWSWIRES (sorry no link)
“WILMINGTON, Del. (Dow Jones)--Washington Mutual Inc. (WAMUQ) Friday sued the
Federal Deposit Insurance Corp. over the takeover of Washington Mutual Bank,
seeking billions in damages for the loss of its prized thrift.”
"Instead of the constant criticism, can you offer some concrete plans of your own? You are being counter-productive, CR."
Well, on the first day...
On the second day... Eliminate Social Security, Medicare, and Medicaid.
On the third day...
It is that simple really. Let's do it! And on the 3rd day, ban earmarks and outlaw lobbyists.
Read this to realize how royally you are being robbed:
The Big Takeover : Rolling Stone
the more than 150 million, cold , ill clothed hungry sheeple who live in cities and high density suburbia stream out of their metropolis-concentration zones like hoards of goths, visigpoths and vandals plundering and pissing on everything they can pry loose followed by organized criminals (gangstas, bankstas, motorcycle gangs and the likes) who unlike those in the previous wave, are better armed.
somewhere in the middle of all this the police, national guard and possibly superior government forces than that take control and impose order via martial law, curfews and orders to shoot on sight
other than that...no problem
Black Star Ranch - re: your post @ 9:44:59 AM
thats a bit of a myopic view (but fortunately for you, you will be fine even if we have a depression) - most people don't work on a farm on in the local bar
think of it this way - you're a company somewhere in the middle of the supply chain for whatever end-product you ultimately help produce - you need credit to buy the equipment and raw materials because your cash outflow (buying materials, etc.) does not match your cash inflow (sales to your customer(s))
without credit, this process either shuts down or doesn't even get started in the first place
any business that functions in this manner, which is a large % of the U.S. economy, would be crushed
not to mention that banks would have $0 money to lend out for mortgage loans, auto loans, credit cards, etc. - so consumption would tank, which would negate the need for industry to produce anything in the first place
with all these closed businesses, we'd have depression-level unemployment (25%?)
thats what a systemic financial crash would lead to
yes, farmers and bartenders would still have jobs
but most in the less insular parts of the working economy would not
The Latest from Yves:
Guest Post: Mother of All Stealth Scams?
Banker fury over tax ‘witch-hunt’
By FT reporters
Published: March 20 2009 19:39 | Last updated: March 20 2009 23:32
Bankers on Wall Street and in Europe have struck back against moves by US lawmakers to slap punitive taxes on bonuses paid to high earners at bailed-out institutions.
Senior executives on both sides of the Atlantic on Friday warned of an exodus of talent from some of the biggest names in US finance, saying the “anti-American” measures smacked of “a McCarthy witch-hunt” that would send the country “back to the stone age”.
Have at it. The link is unpastably ugly but it's the top story on ft.com.
HEy! BSR: what's the big idea making your old lady work a honky tonk two nights a week while you lay on your sorry ass making jelly?!
I vote for no more bailouts. Let the financial system crash. I don't need or want a FedGov Mommy.
-you rely on VA medical, no?
As unemployment grows, Americans without real savings will use credit cards to supplement income. This will create more defaults with uncollected debt for the CC companies. In need of cash flow the CC will play games to collect default profits. Look out for changing the address to the payment center. Especially if you use bank bill pay on line, easy to miss.
the ONLY way to pay your CC bill is to do so online at EACH CC-bank web site. Trust no one. Assume nothing. Use "print screen" fction to capture pic of payment received to 'back up" your writing down the transaction number
I vote for BSR for Treasury! Pass the jelly please!
LOL...."what's the big idea making your old lady work".....making her work? Yeah, right. It's her idea - at one of the family bars. The woman's out of control! See what happens when we give them the right to vote?
Ok, kidbuck, I change my mind. Can you live closer to DC?
Some of that is the change we need to believe in...
C
the reason is if the current mark to market number is incorrect, these securities are worth more than mark to market, and there will be little taxpayer loss ultimately
you have any evidence that this is true?
BSR: maybe you should look up the word misogynistic
97% non-recourse loans against the impaired value of a mortgage loan portfolio equals investors are made whole in less than 6 months. Thereafter gravy. Let's call this what it is: "Cashback at close." How'd that work out last time Timmay?
The good news is that judging from the comments here at least this time we have enough votes to defeat this plan in the upcoming plebiscite.
Robdawg: IF they allow us a plebiscite.
emoticons r kewl
I smell a toxic asset bubble.
It will be the subprime investor's fault when it burst.
NEW HAVEN, Conn. (AP) -- Connecticut's attorney general says documents turned over to his office by American International Group Inc. shows the company paid out $218 million in bonuses, higher than the $165 million previously disclosed.
Attorney General Richard Blumenthal's office received the documents late Friday after issuing a subpoena.
Blumenthal says the documents show that 73 people received at least $1 million apiece, and five of those got bonuses of more than $4 million. The financially ailing insurance giant has been under fire for giving bonuses after receiving more than $182.5 billion in federal bailout money.
AIG spokesman Mark Herr declined to comment Saturday.
Blumenthal said the newly revealed number will "further fuel the justified anger and revulsion that people feel."
The Associated Press
Sweet Jesus --- I need to speak up here. The AIG bonuses were paid to their employees for marking-to-model, not marking-to market. There is no market for CDO-squareds anymore, nor CDOs, nor will there ever be one again now that the implicit fraud in these "securities" has come into the open. And anyone who thinks that long-term these securities will be money good needs to have his or her head examined, and yes, Secy. Geithner that means you. I am willing to sit down with anyone from the Tsy or from the Fed with a copy of Intex Desktop (the only analytic tool for this stuff) and go through line by line why they are being taken for a ride by AIG and Citigroup. This plan is foolish, and as toxic as the securities it pretends to make whole.
Robdawg: IF they allow us a plebiscite.
What? Oh... sorry. JS-Kit must have deleted the "[/snark] modifier.
Anyway, I've got a neighbor about to default on his million dollar note. Impaired asset value ~$800k. My 3% comes to $25k and being a small fish I'm assuming Timmay is going to overcharge me at the Prime Rate. $3400/mo. It'll take me two months to sell at $500k so expenses will run $25k. Pocketing $450k I default. Non-recourse remember. I'll take 10. And the new comps are sure to set the neighborhood atwitter.
Is Geithner's plan a way to get bonuses rolling again?
No bad assets, no need for TARP.
More through the mail craziness, Amica sends me this shitpile, paper credit card, what tha!??
C
“The work we have all done to try to stabilise the financial system and to get this economy moving again would be significantly set back if we lose our talented people because Congress imposes a special tax on financial services employees,” he[Pundit at Shiti] wrote.
source ft.com
Isn't there a huge incentive for large banks to commit financial fraud with this plan?
The funding balance is 3% investor, 12% other government equity investment, and 85% government provided non-recourse loan, as I understand it.
So, if Citi can somehow smuggle $1B, for example, of its own money into one of these public/private funds, call it "Self-dealing Investments 1," then SI1 can essentially buy, with government aid, $33B of Citi's own assets for face value, when it would otherwise eventually be worth perhaps only $0.30 on the dollar, or $10B. Citi would lose all of its investment, but at a cost of only $1B, Citi would manage to salvage all of its $33B investment, effectively allowing it to recover $32B of its $33B in toxic assets. Of course, there is a huge loss here, but the taxpayers take it: $32 (paid by Feds) - $10B (recovered) = $22B loss for taxpayers to swallow.
I assume that somehow this self-dealing will be officially forbidden, but I can't believe it will be that hard for these banks to get around the restrictions, given how hard Geithner has been working on deceptively hiding Federal purchases of bad assets at face value.
can i haz some?
"babar's second post (Today, 8:48:33 AM) is right on"
no, he failed to allow the third option/remedy: Let the banks/firms deal with their own POS. Do not give them any more money. If they crash & burn, so be it. THAT is capitalism
The thing that irks me is that only the rich can take advantage of this deal, and only the rich will benefit from it.
What would actually help the economy is for me to be able to buy a house for 3% down and the government pick up the remaining 97%. But man wouldn't that make the right wing scream.
It's called FHA, Wild W. It's the only thing closing in South Florida. There are hefty closing costs associated with it, including a large mip premium and futher insurance premiums for a long while after that.
So, which trial balloon is this again?
so anybody have an idea of how to stop this?
anybody think it would make sense to load up on silver on credit card and go into default if this happens...
I mean fico scores are so yesterday....
good morning to all...thanks kristina for post...awesome...
"so anybody have an idea of how to stop this?"
I think it would take the threat of a massive tax protest by millions of citizens to show the government how flawed its policies are, all of which are directed toward coddling Citi and its foul ilk.
That or massive street protests for weeks, but sadly the American populace has become fattened and stupid and utterly defanged.
pghmike,
thats it...I think you nailed it...wow
What would actually help the economy is for me to be able to buy a house for 3% down and the government pick up the remaining 97%.
You just described how many banks and homebuilders are still making money through FHA loans.
I'm beginning to think Geithner is not merely incompetent, but malevolent.
And Obama appears willing to let Geitner & Summers destroy his entire agenda and the nation's well-being so that they may continue their deep and abiding love of investors and bankers.
dc1000 says:Today, 7:32:13 AM PDT
can i haz some?
I'm sorry Mr. dc1000 there seems to be some sort of a mix-up. When you received an invitation for dinner from Mssrs Geithner, et al, it didn't mean you were a guest. your entrance is the chute in the back alley. Mind the rotating knives* and do be punctual.
*
CITY GENT #1: Excuse me.
MR. WIGGIN: Hmm?
CITY GENT #1: Uh, did you say 'knives'?
MR. WIGGIN: Uh, rotating knives. Yes.
CITY GENT #2: Are you, uh, proposing to slaughter our taxpayers?
MR. WIGGIN: Does that not fit in with your plans?
CITY GENT #1: No, it does not. Uh, we-- we wanted a... simple... banking bailout.
MR. WIGGIN: Ahh, I see. I hadn't, uh, correctly divined your attitude...
CITY GENT #: Uh, huh huh.
MR. WIGGIN: ...towards your taxpayers.
CITY GENT #: Huh huh.
MR. WIGGIN: You see, I mainly design slaughter houses.
CITY GENT #1: Yes. Pity.
MR. WIGGIN: Mind you, this is a real beaut. I mean, none of your blood caked on the walls and flesh flying out of the windows inconveniencing passers-by with this one. I mean, my life has been building up to this.
CITY GENT #2: Yes, and well done, huh, but we did want a SIV.
MR. WIGGIN: Well, may I ask you to reconsider? I mean, you wouldn't regret it. Think of the international investor trade.
CITY GENT #1: No, no, it's-- it's just that we wanted a ripoff scheme and not an abattoir.
MR. WIGGIN: Yes, well, that's the sort of blinkered, philistine pig ignorance I've come to expect from you non-creative garbage. You sit there on your loathsome, spotty behinds squeezing blackheads, not caring a tinker's cuss for the struggling artist. You excrement! You whining, hypocritical toadies, with your colour TV sets and your Tony Jacklin golf clubs and your bleeding Masonic secret handshakes! You wouldn't let me join, would you, you blackballing bastards! Well, I wouldn't become a freemason now if you went down on your lousy, stinking knees and begged me!
CITY GENT #2: Well, we're sorry you feel like that, but we, um, did... want... a bailout. Nice, though, the abattoir is. Huh huh.
It should be clear to all the banks are in control of all the levers of power affecting this crisis. If Geithner isn't tarred, feathered and run out of town after announcing this latest taxpayer fleecing, there is no hope for this country.
PghMike,
Rather, in some shape or form that is the point of the whole exercise.
I posted this in October when O nominated Timmy..
timmy now
http://cinie.files.wordpress.com/2009/02/data-geithner.jpg
timmy before
http://www.formal-analysis.com/data/bratislava/dracula.jpg
I think the bottom line is that money is very close to
losing its symbolic meaning.
I think that saving henceforth should mean "stuff". Stuff that keeps. That means not just metals. It could mean toilet paper. Spices. Needles and pins.
The Mormons suggest 2 years worth of food in storage.
Fabric if you sew. Sturdy furniture. Tools. Dishes.
A means of producing something that you and others need. Etc.
Booze. Ciggarettes. Mason jars. Sealed glass containers of wheat germ. Pepper. Seeds.
Everybody pull a couple hundred dollars out of savings and buy the items of your choice. Or, charge it.
I know a family who are collectively defaulting on 300k of credit cards. They really did have a net worth in excess of 2 mil at one time. When times got rough, they lived off credit, instead of cutting expenditures. There are, as noted by everybody a lot of people who did/are doing that, tho on a smaller scale! Hence the NECESSITY of those 30% rates. Which is not to say we should put up with them!
mock turtle says:Today, 7:43:37 AM PDT
...somewhere in the middle of all this the police, national guard and possibly superior government forces than that take control and impose order via martial law, curfews and orders to shoot on sight
other than that...no problem
Uhhhh... mock? You want to recall battle hardened Nationl Guardsmen to home soil where their jobs are gone, give them guns, tell them to shoot their neighbors who lost their jobs and trust those Guardsmen would point in the direction you tell them?
i suspect (im not nearly smart enuf to know) that attempts to bail out the financial system are doomed to failure.
the financial meltdown is a big gaping black hole that will suck in all the fiat money that the fed and treasury place within the event horizon
we are wasting financial ammunition firing at an enemy that is out of range
ps comrade Kristina's article cited above at 5:26:26 is a gem... a must read
Bring on the collapse of this rancid system. In such an event, the Fed board is fired, becomes part of treasury, new regs prevent this kind of leverage and OTC gambling, and new lending institutions are established to restore credit. Of course, there will be blood in the process, but what is the alternative? mass enslavement of the population?
PghMike,
Country Lynch could buy Shiti's assets. Shiti could buy Country Lynch assets.
A new Tarantino script has a lone raider going postal on banker's. One of the scenes has the Hero going into banker's office, tying him to a chair, and preparing the centuries old punishment for theft; cutting his hand off.
But with a twist, he has a shotgun mpunted facing the mans genitals, with his other hand mounted to a squeezing trigger device.
the hero then says, 'ok....you ready'...'lets see what kind of trader you are....and down come's the hatchet....scene fade away....
By the way, the post office is firing people, so I imagine some postal workers will be going postal.
There is good news in this message in a bottle, no laws are being changed so they can just keep doing the same thing until the taxpayer (serf) is done.
jo6pac >:o
"I imagine some postal workers will be going postal"
Run, AIG fuckers, run!
Basel and Lawyerliz, you missed the most important (snarky) aspect of my post. The government will pick up the other 97%, not loan it to me. Isn't this the essence of these non-recourse loans being made available to the rich?
Just once I'd like to see little people get the really sweet deal that this democracy showers on the rich all the time.
IF anybody thinks that mark to market will stop the slide in banks, take a look at GE. GE Capital does not mark its holdings to market, but everybody KNOWS that their assets are worth less than what they're carrying them on their books. Accounting does not determine the VALUE of a company!!! until people realize this, we are doomed.
The Latest from Ritholz:
Trading & Prenatal Hormone Levels
Greenspan says.... hold on to your hats... banks need another big bailout!
Greenspan Says Banks Need $750 Billion More Capital (Update1) - Bloomberg.com
Definitely time to liquidate the entire deal and throw the Citi/AIG/BofA guys out on the streets to do real work.
reenspan says.... hold on to your hats... banks need another big bailout!
Greenspan Says Banks Need $750 Billion More Capital (Update1) - Bloomberg.com
Definitely time to liquidate the entire deal and throw the Citi/AIG/BofA guys out on the streets to do real work.
Greenspan is the 'under' @ $750B... Nouriel says its more like $1.5T in the same article. Considering track records of the two - bet the 'over'.
A new Tarantino script has a lone raider going postal on banker's. </i.
Kind of like this from Reservoir Dogs?
http://www.youtube.com/watch?v=sn0My-cis_Q
What would be wrong with "the more capital these privates put up the more upside they get" ?
This is like re-writing the end of the "Wall Street" movie: Gekko gets bailed out and bonused and Bud's dad is bankrupted and dies.
The elephant got bagged and the elephant is you.
We need to keep in mind the bigger consequences. Every time the government has gotten involved it has eventually crowded out all other private activities. This is no different. 97% government, 3% private "investment." And the government wonders why private investment isn't stepping up. Private capital cannot compete.
For people trying to keep track of all these plans and whether they will work I have an easy analysis. Ask yourself "Does this plan involve more debt?" If it does it will not work. That simple. This administration is as blind as its precedessor on that one point. The answer to too much debt is less debt. They are just unwilling to accept the logical corollary; there are too many banks. Until they get over that part there is no hope for an administrative solution. The problem is that when administrative solutions are not forthcoming Americans have a history of fixing it themselves.
"just once I'd like to see little people get the really sweet deal that this democracy showers on the rich all the time."
Don't worry Screwem investments is working on a mutual fund so J6PK can loose more of their 401K! :-$
I thought they were using the new "mark to Shelia" asset valuation method? This is a great deal for the government!
Geithner's Trading Desk -- 4 monitors!
Funny how Obama's mom used to work for Geithner's dad at the Ford Foundation (micro finance).
Timothy Geithner - Wikipedia, the free encyclopedia
Names, where are the lists of names?
Cuomo now has the list of AIG bonus recepients...but is suddenly being coy and not publishing the list. Where are the names of those from Citi and Merrill and BAC who took taxpayer funded bonuses...transparency demands that those names be made public.
The bonus babies should be proud that they have looted their fellow citizens...
"are just unwilling to accept the logical corollary; there are too many banks"
The # of banks is irrevelant. The problem is the large # of promises which can never be redeemed. Issuing ever-greater numbers of promises to guarantee the value of existing bad promises can. not. work.
Federal entitlements have to be scaled back, substantially.
“Names, where are the lists of names?
>>
AIG employees have until 5PM Monday to make a decision.
Our government is one giant hedge fund. Excuse me, failing hedge fund.
this is a job for jack bauer
joe shmoe - "The most disturbing and stupid line in the NYT report on the Geithner plan is this: "
>>
It took about a month for joe to see the evil side
Banks will need more than $750 billion in fresh capital from either the government or private investors to ensure their soundness and return to normal levels of lending, former Federal Reserve Chairman Alan Greenspan said.
So, the banks are illiquid, insolvent, unsound and not lending the trillions already infused. Greenspan's answer is to give them money in the hopes that they use this new debt to leverage more debt.
His rabbi saved the wrong piece from the Bris.
Is there any chance another bailout for the banks can make it through congress? I hope not.
The banks control Congress, more money is a certainty
CEOs of major banks have started to push back against the critics - their primary job, after all, is lobbying (rather than, say, risk management). As such, they are typically sophisticated communicators who use a wide range of symbols, words, and modes of communication to get their points across.
From Simon Johnson. Amen, brother.
“As the US Treasury Department continues to brag that the US has not yet been forced to make good on its guarantees of toxic debt held by the major insider banks (Citigroup, JP Morgan, Bank of America, etc) we find they have been using a back door to funnel money to their friends - - AIG the world insurance giant holding the largest share of derivative contracts that guarantee those toxic debts against default. In point of fact, those debts are defaulting in ever increasing number, and AIG is having to pay out billions. But, those billions are being replenished by additional bailout funds from the Treasury - - while the rest of the nation suffers from lack of credit. Why should the American taxpayer be bailing out gambling bets based on promises to pay that were utterly fraudulent? Now we find out that AIG is also the preferred avenue of funneling money into European banks. Lastly, what do all these insider banks have in common? They constitute the private owners of the Federal Reserve. It all begins to make sense why only the largest banks are receiving these funds and why the regulators continue to squeeze the smaller banks with millions in new surcharges - - forcing them into liquidation. The fix is in.
Joel Skousen; AIG: The Fix is in for Private Owners of the Fed
World Affairs Brief, March 16, 2009
TARP=TRAP
TALF=FLAT
TAF=FAT
The system is saturated with promises, recursively pushed in the future as far as they'll go. Imagine a calendar schedule with all hours booked, and many are double-booked. You keep missing meetings now and "really really mean" when you reschedule yet another double-booked meeting. But you're just double-booking again because... all time is scheduled for the next fifteen years.
The bad promises are scurrying around, hiding in between the good promises so now the Sharpshooter of Reality can't really tell who to shoot down or who to leave alone. As good promises get blasted, the productive capacity of the economy shrinks. In other words, you're now losing PERMANENT hours on your calender. BOOM! There goes 9am on Tuesday morning. BOOM! there goes 3pm on Friday.
Now your scheduling problem is accelerating so you do triple, quadruple and quintuplet bookings ,i.e. pile on more and more debt to make the bad debt whole.
This thing is hosed.
It's finished.
* It’s about six months since the first AIG bailout; why has it taken this long for the names of these counterparties to be revealed? (Related: Is Barack Obama really being more transparent than his famously secretive predecessor?)
* Why wasn’t it explained clearly to the American people that ‘rescuing AIG’ really meant ‘bailing out its counterparties’? And, if so, why didn’t we just give the money directly to AIG’s trading partners?
* Why is the U.S. government continuing its policy of ‘making whole’ counterparties and institutional bondholders of bailout recipients, instead of requiring those investors (who entered into those deals freely and without a government guarantee) to at least take a ‘haircut’ and share in the taxpayers’ pain?
* Why didn’t former Treasury Secretary and former Goldman Sachs CEO Hank Paulson disclose that his former firm would be one of the prime beneficiaries of the AIG bailout?
* When is Tim Geithner, reportedly the prime architect of the AIG bailouts (among others), going to take responsibility for this disaster?”
Tech Ticker
March 17, 2009
"Profits & Power From THE SCANDAL Beneath The Scandal" by DeepCaster LLC, FSU Editorial 03/20/2009
Am I correct in thinking that this could be one of those rinse repeat operations.
Hedge fund puts up 3%. As soon as the security cash flows a hefty profit (minus the 3% and interest paid to govt) hedge fund walks and sticks it back to the govt. Only to rebid at a lower price to further screw the taxpayer.
Compnaies like GE and AIG traded on their AAA credit ratings and destroyed them.
"Just once I'd like to see little people get the really sweet deal"
......it will never happen. The common man is but the cannon fodder.
Good grief,am I the only one here to equate this to toxic shock syndrome? We have a system that DEPENDS upon trust and this will destroy what little trust is left.I spent some time trying to think of which part of the system I still had some faith in.I came up with the local volunteer firefighters,not good.
The Walton County case in 2006 helped bring the problem to light. There were at least four goat rapes in Mossy Head, including one that resulted in the animal dying. Instead of being charged with a sex act, a suspect was charged with stealing two goats, said Dee Thompson, the director of Panhandle Animal Welfare Society.
Authorities in Tallahassee, Fla., also struggled in 2005 to find charges that would fit against a blind man accused of having sex with his guide dog. The man was initially charged with felony animal cruelty, but prosecutors dropped that charge and recharged him with "breach of the peace."
In Tennessee, bestiality was banned in 2007. Arizona did so in 2006 after a Mesa deputy fire chief was accused of bestial acts with his next-door neighbor's lamb. Washington state also banned sex with animals in 2006, after a man died of a perforated colon from having sex with a horse on a farm in rural King County.
......and, does anyone REALLY think that these incessant bailouts will just stop? Think about it. They will continue to rob the taxpayer (America) until there is nothing left to empty out. What TPTB have in mind is to recreate was once was. It can not be recreated - TPTB cannot understand that - nor can most people.
Maybe it's because I used to issue bonds, and now I invest in them, but I think I could do waaaaayyyy better than what the Govt is proposing.
Oh wait! They read this blog. Guess I'd better actually post a better plan. Back in 10 minutes.
So when Citi stock dropped by a third Thursday PM, do you think those in the know were Shorting then Loading?
Just once I'd like to see little people get the really sweet deal
You mean like creating a special series of savings bond tied to the cash flow of the toxic assets? Instead, we're told to keep our deposits paying nearly 0% in banks, so as to recapitalize them.
Another way to look at it: This is the worst reward of the rich for their speculation since Alexander Hamilton’s assumption actions.
"We have a system that DEPENDS upon trust and this will destroy what little trust is left."
How could you not know this. These guys know there are tons of bad promises in the system and they know they can't fix that. This is all about shifting their bad promises into the good promise pile at the expense of everyone else.
Black Star Ranch says:
Today, 12:03:29 PM
“......and, does anyone REALLY think that these incessant bailouts will just stop? Think about it. They will continue to rob the taxpayer (America) until there is nothing left to empty out. What TPTB have in mind is to recreate was once was. It can not be recreated - TPTB cannot understand that - nor can most people.
Quoted for truth.
Everyone wants to know where the money is going for these "fictional bets".
The fact is, the bets were real, they built houses and strip malls and bought Americans loads of imported trade goods. The part that was fictional was the idea they were really "bets" and could really pay off if they wrong-wayed.
The bubble is not in any specific industry. The bubble is in credit, which has far exceeded servicing capability.
The bailouts are the preferential looting of worth out of the currency by cliques with commanding policy influence prior to what I presume is the dollar's incipient collapse.
These guys know there are tons of bad promises in the system and they know they can't fix that.
I cannot imagine the current administration dissipating goodwill any faster if they tried. They were handed a blank piece of paper and all they did was fire up the photocopy machine and duplicate previous policies. Even sadder, they set copies to multiple.
Rob Dawg says:
Today, 12:23:09 PM
I cannot imagine the current administration dissipating goodwill any faster if they tried. They were handed a blank piece of paper and all they did was fire up the photocopy machine and duplicate previous policies.
Agreed. They could have done anything, instead they doubled the dosage. It's one thing to predict policy failure dictated by the milieu. It's another thing to see it.
So a large part of the financial crisis, was caused by pension fund investments being used to provide trading money for CDSs and other derivative trades, creating massive fees and payments to those involved in the trading. Pension funds are now in crisis because of massive market losses, leaving the workers holding the bag as it is proposed that more money be paid by the workers to the pension system or see pensions reduced. So what a scam. Since there is a large public employee pension system in this country, what has happened is the anti-government free marketeers have successfully taken public worker pensions and now taxpayer money to pay off their sanctified contracts and derivative agreements. I would expect that a lot of people would really like to know why the risks to their savings, pensions and taxpayer dollars were not told to them in the last 30 years.
OK, I'll play devil's advocate here.
Right now the banks won't sell Big Shitpile for what it's worth. And as long as Big Shitpile sits on the balance sheets of the largest banks (not just Citi and BoA), banks will not lend at the level necessary to sustain a full recovery. They will be zombies that do nothing.
But banks will not sell Big Shitpile to investors for the market price without facing obvious insolvency. And with insolvency comes nationalization - which sounds great and cathartic!
But AIG has been nationalized since September and that hasn't gone so well. Moreover, Citigroup is just a monster behemoth unlike the 20 banks FDIC has eaten this year. Citibank itself is only about a third of Citigroup - and much of Citibank's operations are overseas. How do we nationalize a multinational bank? And then what do we do with the non-Citibank part of Citigroup? And at the same time we do this with BoA and others? JPM has even more Big Shitpile on its balance sheet than Citi or BoA - will they need nationalization too? How exactly will that work?
Anybody who thinks that nationalization will be a clean and free break with the past where only Wall Street suffers its just deserts is fooling themselves.
So, without nationalization, we are left with zombies that need to unload Big Shitpile. Can anybody take on Big Shitpile - even for the short or medium term - other than the taxpayers?
Isn't that what a "lender of last resort" does? Backstops the banking system so it can function again? Only this time the resulting banks have clean balance sheets and, Inshallah, will push the economy back up again and allow both Treasury and private investors to sell Big Shitpile for a possible profit.
/Devil's Advocate - I really do think we need to bite the bullet and nationalize. But I do think nationalization would be a lot messier than we imagine.
AIG Memo on Security
"“So a large part of the financial crisis, was caused by pension fund investments being used to provide trading money for CDSs and other derivative trades"
It just AMAZING to me how entrenched the trivialities of the System blind everyone. The CDS trading was EFFECT, not cause.
The ultimate problem is too much debt.
Period.
Everyone keeps focusing on the details of where it finally blew out, like it matters. It doesn't. It would have happened at some other weak spot, regardless.
I'd join in this discussion about the end of Western Civilization as we know it, but I have a more important question:
Does anyone still think the ACC is a solid league after losing 4 of their 7 games in the First Round, including losses by #4 and #5 seeds?
And what's wrong with Obama? He picked the Pac-10 to go 1-5 in the First Round. The Pac-10 went 5-1.
Sounds like it was modeled after the FHA loan program, probably have similar results.
The engine for this financial heist really revved up after 911. All the pieces were in place--divert attention to the "war on terror" while the real terror was being committed right here under our noses in DC and on Wall St. Only mass numbers of people becoming aware of what is really going on can stop this. Unfortunately, it may soon be too late.
“Everyone loves an early inflation. The effects at the beginning of inflation are all good. There is steepened money expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular general prosperity, all in the midst of temporarily stable prices. Everyone benefits, and no one pays. That is the early part of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the money inflation in order to stave off the latter effects, but the latter effects patiently wait. In the terminal inflation, there is faltering prosperity, tightness of money, falling stock markets, rising taxes, still larger government deficits, and still roaring money expansion, now accompanied by soaring prices and ineffectiveness of al traditional remedies. Everyone pays and no one benefits. That is the full cycle of every inflation.”[10]
FSO Perspectives "The Great Inflation, Part 1 The Nature of Money" by Jim Puplava 09/23/2004
screw the pooch
1. to fail miserably. 2. to make a grave mistake or error.
OK. I've got the better plan. Sorry it took me like 25 minutes.
It's quite simple actually. Each company with a large amount of illiquid CMBS and RMBS should do a stock spinoff. Every owner of Citi shares for example, will now own a share of Citi Ongoing, and Citi MBS. Each kind of share will trade separately. The Citi MBS shares will be an interest in the MBS, along with any debt used to buy/fund that MBS.
Far fewer securities to price this way, much better liquidity, because it's already bundled. No need to find new buyers, the shareholders who already own Citi (or BofA, etc) will get two types of shares. They can sell either or both of they no longer like them.
The MBS would no longer be on Citi Ongoing's books. They would be on the books of a separate entity, Citi MBS.
If you want to roll other dangerous and/or illiquid stuff into the Citi MBS operation, you might do so. CDS are one possibility.
The Citi MBS sub also gets a large number of shares of Citi Ongoing. Thus, a portion of ongoing profits go to holders of the hard to value liabilities.
Cleansed of its hard to value liabilities Citi Ongoing can operate more like a normal bank.
For an example of a moderately similar structure where hard to value liabilities were the problem, see the Johns Manville/Manville Trust transaction.
No Federal subsidy required, unless they want to guarantee the bonds on Citi itself that are currently outstanding. They could guarantee the current market price for those, which is a significant discount from face/par.
@some investor guy 12:48
you can not do what you propose because those investments were made with depositor money. thus when I go to the bank to withdraw funds, Citi would not have the cash on hand nor sufficient reserves to pay me.
"Unfortunately, it may soon be too late."
.....just wondering when you guys think a majority of J6P finally comes to a realization that it is defined as being "TOO LATE"?
And, "What activities and/or actions determine when it is "TOO LATE"?
I think we may have pasted the late mark already. Making banks whole with the new taxes, fuel mileage regs, epa regs, basically punish business will ship the few jobs left overseas to hungry markets with real growth potential. Not growing business expenses with a used up consumer. Learning to drive after the accident won't make the accident go away. DONT_KNOW
From the National Post:
Lots of opinions are out there, but here are a few of the more thoughtful ideas as to what the future holds: - Gold is the safety play as the U. S. dollar slides. Some estimate gold may reach as high as US$1,500 an ounce in 2009. - AIG and the others should be, and will be, put into a de facto, strict bankruptcy workout. - China is concerned about the fact it holds US$1-trillion of the U.S. debt and is diversifying its portfolio as well as not buying more U. S. treasuries. Neither will the Saudis. In all, foreigners represent US$2-trillion of the total US$11-trillion in U. S. federal debt, but it is hot money that can flee in a click. - Obama will -- certainly should -- replace Geithner, preferably with a European or Canadian or Asian team who get it and haven't got conflicts of interest on Wall Street. - The U. S., and most of the world's, banking system may eventually have to be nationalized in order to systemically and fairly recalibrate the financial economy. This will also allow the Americans to write off 25% of all mortgages, subprime and others, to kick start the real economy again. - Canada and everyone else will be dragged through this process, which will take as long as it takes for the Americans to admit they have to reinvent their systems.
The bad promises are scurrying around, hiding in between the good promises so now the Sharpshooter of Reality can't really tell who to shoot down or who to leave alone.
Broward Horne
Innocents will go down when people shoot first and ask questions later.
"What activities and/or actions determine when it is "TOO LATE"?
Treasury market will will be even more definitive than the conjure clock.
Just to be clear. It is too late. We are just waiting to see where the bombs land and how big they are. 6:15 AM "Conditions normal."
Please excuse my gross ignorance here. My degree is not in economics but this subject has become increasingly important to me -- so I plead for some patience.
How do you calulate 85% of the 'value' of a 'toxic asset'? If the asset has a positive ROI, however small, then the asset isn't really 'toxic', is it? Traditionally, hasn't the value of an asset determined by the free market - meaning that if no one wants to purchase your 'asset', then it has no value? If the total value of the 'asset' I purchased is always remain less than what I paid for it, haven't I really just incurred a liability? So what's the difference then, between a 'toxic asset' and a 'liability'.
If all these 'toxic assets' had even a halfway reasonable chance of producing a positive ROI, why would the banks be in a hurry to sell them? I understand that financial businesses generally have to keep a certain amout of reserves on hand and that the rating of their investments can have a direct and severe impact on these institutions.
But wouldn't private investors be clamoring all over each other for the right to purchase these 'assets'? Wouldn't the entire investor community be screaming bloody murder that the government was usurping the investor's ability to make money by hogging all the assets?
Bottom line, should these 'things' the government is about to buy really be called assets at all? Or are we really being asked to reimburse companies who bet heavily on the lottery and now want to return all their losing tickets for the price they paid for them?
": - Gold is the safety play as the U. S. dollar slides"
Unless deflation persists for another 1-3 years. What has Bernanke been right about during his years of govt. disservice? Not much. Why would one now believe he can reflate? Let's say he can reflate, will the Fed raise rates? No, they can't afford the added debt service expense. We are going down a dead-end road. Gold will trade at below $500 soon.
"Gold will trade at below $500 soon."
Not when the Fed has announced it will buy Treasuries directly.
One should consider the possibility that the dollar will be wrecked and that we will still have deflation. Bondholder stop buying treasuries. And repatriate currency in favor of hard assets. Fed prints to buy treasuries, exacerbating problem but rates still rise in both real and absolute terms as buyers strike. Dollar falls vs gold, oil and hard currencies but level of credit still falls at home and general price level and output continue to fall.
Dead thread, but I agree.
Isn't that what a "lender of last resort" does? Backstops the banking system so it can function again? Only this time the resulting banks have clean balance sheets and, Inshallah, will push the economy back up again and allow both Treasury and private investors to sell Big Shitpile for a possible profit.
Why did the problem happen? Too much debt. What is the answer, ringfence the problem into Treasuries and then start over from 5 years ago, blowing the same bubble of loose credit in the name of stimulus?
Don't you think this would be a regular feature of the global economy if it could be done this way?
But AIG has been nationalized since September and that hasn't gone so well.
Au contraire - it was bailed out w/ an 80% stake of equity going to USG in 'compensation'. That equity is worth zero because AIG was is and will remain insolvent.
When they 'nationalize' it will wipe out ALL equity, cut up a lot of the bond holders and then unwind & liquidate the assets BACK into the market.
There isn't an FDIC for insurers that big, that international - so they would have to ad lib. Get after it TG - do it now. Same with the insolvent banks.
@dryfly 1:05
Exactly, but don't hope for nationalization, as it's just "not done" in the USA. Instead, we left the current staff in place to mark-to-model their thrice-leveraged CDOs at some fantasy price but not the $0 they would command in the market, and pay them $200MM in bonus money to boot. Under this new plan, the dollar is toast.
CNNPolitics
AIG dispute dogging Dodd may bite at election time
AIG dispute dogging Dodd may bite at election time - CNN.com
"Sen. Dodd is the one who has led the fight against excessive executive compensation, often over the objections of many of his Republican colleagues."
Let's stop the obfuscation Senator Dodd. The constant BLEATING being reporting in main stream media of you and your peers in government is diverting from the real issue-THE COUNTERPARTIES and BONDHOLDERS.
We would also like answers to the arbitrary use of contract law that seems to be prevalent in THIS current enviroment.
Someone's a Great Incompetent Malevolent F3CK!
"Our fear is that almost all this effort will be misdirected and unnecessarily costly. Three important misconceptions could lead to a disastrous reform agenda:"
Economist's View: "Global Imbalances and the Crisis"
Legislation to take down TBTFs soon?
my productivity shot up after eliminating regular sized desks and replacing them with large tall drafting tables.
wondering if anyone here has a similar story.
?
Some Investor Guy & crabsofsteel,
The deposits are definitely the problem. Right now, if every depositor and other creditor asked for his/her money back, the banks like Citi would go negative (even assuming all of the good assets could be sold all at once without the volume alone depressing the price). What the solution appears to be so far is to give the banks a low-cost subsidy that enables them to earn fee income and, to some extent, a spread between the cost of funds and the amount they charge borrowers. (See, for example, all the reports of jacked-up credit card rates even with good FICOs.) The FED is trying to run out the clock by letting the banks pay down the potential "negative" mentioned above by earning excessive profits.
The danger is that the market is going to call the FED's bluff. So the idea is to get the worst assets off the books and mitigate the amount of negative, while simultaneously restoring confidence so that the banks are no longer at risk of withdrawal requests from depositors and creditors (i.e. bank runs).
This is what you get from salesmen. Upper level Wall St people are salespeople. They really do have smart people who work on Wall St. Just don't expect to hear from them. Their either being ignored as usual or laid off.
Geithner has never had to put together a plan, just a sales proposal. So, expect another sales proposal in a week or so.
from reptillians link to the CNBC (Iknow) article
US Rushing To Get More Control of Financial Giants.
how does this mesh with Geithner's plan? which one is real, which one is decoy? from CNBC:
The legislation, being spearheaded by House Financial Services Chairman Barney Frank (D-Mass.) could be ready for mark-up before Congress’ spring recess, which starts April 6, according to a senior Congressional staffer. A public hearing is also expected.
“The President has asked us to fast-track,” said the source. “Drafting is going on at both ends of Pennsylvania Avenue.”
The President Wednesday referred to the pressing need for such authority “get a proper mechanism in place,” adding he had discussed the issue with Rep Frank. It is unclear who is handling it on the Senate side, but it would presumably come under the portfolio of the Finance Committee, chaired by Chris Dodd (D-Conn.)
“What we are working on is a resolution authority that would be similar—not identical, but similar to the powers that the FDIC currently has over banks,” the President said in his comments about the AIG uproar,
FDIC Chairman Sheila Bair Thursday told Congress that the government’s policy of bailing out firms because they were too big to fail had to be replaced.
The story of "Fiat Money Inflation in France" is one of great interest to legislators, to economic students, and to all business and thinking men. It records the most gigantic attempt ever made in the history of the world by a government to create an inconvertible paper currency, and to maintain its circulation at various levels of value. It also records what is perhaps the greatest of all governmental efforts--with the possible exception of Diocletian's--to enact and enforce a legal limit of commodity prices. Every fetter that could hinder the will or thwart the wisdom of democracy had been shattered, and in consequence every device and expedient that untrammelled power and unrepressed optimism could conceive were brought to bear. But the attempts failed. They left behind them a legacy of moral and material desolation and woe, from which one of the most intellectual and spirited races of Europe has suffered for a century and a quarter, and will continue to suffer until the end of time. There are limitations to the powers of governments and of peoples that inhere in the constitution of things, and that neither despotisms nor democracies can overcome.
http://www.gutenberg.org/catalog/world/readfile?fk_files=9831&pageno=1
sportsfan:
of course, it's east coast (or espn) bias. however, conferences are better judged after the second round. imo, the pac-10 will be lucky to get 2 teams into the sweet sixteen. this tournament is going to be the Big East Invitational
(and I'm a Dookie)
This refacing of the same plan over and over again from administration to administration is assinine.
Can we please get some new ideas that don't involve bending over the taxpayer?
Looks as though members of a UN Financial panel agree with most of you regarding the mess that's been made of the US economy--they're recommending a currency basket--no more US dollar as reserve currency.http://www.truthout.org/032109Z
Original article is from Reuters.
it dropped a comment agai
The Latest from Mish:
New Twist On Hiring: Group Interviews
"Finally, since the problem is insolvency of our financial system caused by unrestrained credit creation, the solution is to collapse the over-inflated financial assets"
PrudentBear
Obama will call for increased oversight of 'executive pay at all banks, Wall Street firms and possibly other companies' as part of sweeping plan to 'overhaul financial regulation', NY TIMES reporting Sunday, newsroom sources tell DRUDGE... Developing...
Yes we can... and yes we will - Timmy
Worth Repeating,
"Every time the government has gotten involved it has eventually crowded out all other private activities. This is no different. 97% government, 3% private "investment." And the government wonders why private investment isn't stepping up. Private capital cannot compete." RD
WHY in the hell would someone even try to buy/sell anything when the government will take it on their books for full value.
"Our fear is that almost all this effort will be misdirected and unnecessarily costly. Three important misconceptions could lead to a disastrous reform agenda:"
http://economistsview.typepad.com/economistsview/2009/03/global-imbalances-and-the-crisis-.html#more
Note 5:
5. The financial system problems in many other countries are independent of regulatory problems in the US. The banking collapses in Iceland, the UK, and Ireland were home grown. The loans of the European banking system to Eastern Europe and to emerging markets in general were independent of US financial system behavior.
"screwing the pooch"-yeah, someone somewhere is
"screwing" something allright
Can the government buy used toilet paper? I hear the holders of this paper are insolvent.
"Such authority would allow the government to seize control of companies that posed a risk to the system and unwind their businesses in an orderly, yet expeditious fashion. Such authority would presumably allow the government to amend contracts, as necessary."
....I don't know if THIS is such a good idea. Talk about "slippery slope". My award-winning relish could be deemed "posing a risk to the system" as far as HUNTS or HEINZ is concerned. Enough political contributions nowadays could make THAT so. Allowing government (not judges) to amend contracts?
BSR,
You make a good point and something to ponder. My hunch (maybe pondering will produce some concrete examples) is that the adverse actions you foresee are already possible under existing powers while the unwinding of systemic-threat financial businesses are not possible under existing powers. If so, you would be correct that the new powers lead down a slippery slope, but since we could already slide down it anyway, maybe the new powers represent a net gain for the system.
Just a thought. If I think of anything specific maybe I'll try to catch you on a later thread.
Theory
Chinese sell treasuries into BB buying spree make huge profits on the treasuries that they bought last year. Then rates move higher...
It sounds like we taxpayers will be paying investors to take toxics assets of the bankers' books. I suppose the ONLY upside to this plan is the goverment won't have to mothballs the junk until some unspecified later date. Why not just nationalize any insolvent banks? Taleb is SO RIGHT!
Black Star:
"Allowing government (not judges) to amend contracts?"
Where is the law in all of this? This is just a "free for all" now? Another emotional feel good popularity contest......Maybe the courts are too busy playing game show host to award first prize to whoever was won "The I'm so silly I tripped over my own feet and now someone has to award me a prize" Contest.
You want to run law on popular opinion? That's not a good idea. Mobs and dictators = same thing
....I'm just too damned simplistic. Leave the sick dogs alone. They'll either get better or they die. I sure as hell wouldn't waste anymore time on them.
Nice photo on the Geithner Monitor
http://graphics8.nytimes.com/images/2009/03/21/business/21bank02-500.jpg
nothing in the 'outgoing box'.
lama said: “This is what you get from salesmen. Upper level Wall St people are salespeople. They really do have smart people who work on Wall St. Just don't expect to hear from them. They're either being ignored as usual or laid off...."
We had our own shining example of that (smart, knowledgeable, but ultimately unheeded) in Tanta.
What gives me hope (in an extremely perverse way) is this: During any recession of the past half-century (or any recession, period) when was there ever an ideal government response? Weren't they all about like this, with no popular consensus (except public outrage), multiple "solutions" with different tweaks, special deals made hidden from the light of day, etc.
Sebastia
i have posted comments (frienddly comments!) as "reply" to rob dawg, denton and black star ranch this morning
those comments have been lost or removed?
the comments appear, but after logging off and then back on the comments are gone
this only happens when i post a "reply" not when my comment is cued
anyone else?
Tim waiting for 2012 says:Today, 11:03:38 AM PDT
Theory
Chinese sell treasuries into BB buying spree make huge profits on the treasuries that they bought last year. Then rates move higher...
That presumes BB will be buying market treasuries and not newly minted direct purchase securities.
It is still counterfeiting even when you are the original artist.
Page Not Found | Reuters.com
The Limbo Line
BankUnited Financial Corp update...
ARRRRHGHGHGHHHHHH!!!!!!!!!
I'm starting to feel sympathy for Nova's burners...
With no place to direct the rage, what else can you do?
I feel sorry for my poor Congress critters and Senators. I like the guys, I'm in the same party, they are probably against it and I'm still going to have to vote against them in the primaries and general elections.
They all need to be thrown out.
kicker...are you ready to launch a new party
would CR let us call it the calculated risk party
we must have people who post here from every state
we would have to run and win in a majority of states in the house in order to control the agenda
let me suggest 3 things i hope people here, left or right could agree on
2 an end to the seniority committee system that allows a few most powerful political hacks to control chairmanships and assignments and thus keep legislation bottled up in committee
(ps im a liberal who believes in some very conservative ideals like a literal interpretation of the bill of rights (esp the 2nd and 4th and 10th amendments) and i believe in counter cyclical federal budgeting (no deficit spending during plus GDP years and a requirement to pay down federal debt
I don't know what plan people were expecting. We let the the financial industry get this big, and then let them loose to do whatever they wanted. Now, we are all held hostage, AIG/Citi/BoA/GS etc, have a giant gun held to the world's head and the administration is trying to negotiate with them. In that context the plan makes perfect sense.
haloscan reminds me of an old girlfriend
i never loved her or missed her more than after she was gone
Something's going on here that we're not seeing.
Any administration can have industry-captured idiots at the helm making policy that screws the taxpayer. But to have two administrations within six months, with different ideologies, with different players, come up with the same bad idea seems too unlikely to be a mere accident.
So it probably isn't an accident. Which means that an approach with low chance of success and high chance of blatant transfer of a great deal of wealth from public to private hands is being pursued deliberately.
Why?
Why is a second set of elected and appointed officials supposedly dedicated to the public good embarking on a course that will almost certainly cause great harm and further suffering to citizens who are innocent of causing these problems?
Where is the pressure coming from? Can Wall Street and corporate kleptocrats, as disgraced as they are, still muster enough cojones to make their buds in D.C. dance? Are there foreign players (China, Saudi Arabia for two) with enough power to make the U.S. government actively promote policies that run against the best interests of the citizenry?
Something's going on here that we're not seeing.
The whores in Dc are bought and paid by the den of thieves on Wall Street for the problem is obvious old bind one.
To paraphrase Woody Allen, 'we have performed a sexual act on ourselves', with the help of Congress and Wall street, that no China or Saudi Arabia or Bin Laden can conjure up in their wildest most vicious attacks.
mock turtle said: “haloscan reminds me of an old girlfriend
i never loved her or missed her more than after she was gone"
Js-kit has it's own romantic strong-points. How many times have you said something to a girlfriend that you desperately wished you could take back? The new comment section addresses that problem by deleting posts.
S.
Sebastian good point!
THREE pages?? No way. I share Mock Turtle's sentiment.
C
"Zombie banks do perform a function," says a banker who has dealt with several failed institutions in recent months. "The government is warehousing and storing bad assets in these banks." This function, the banker argues, prevents both regulators and investors from having to deal with questions of valuation and demand in dysfunctional markets."
From FFDIC's link.
New Thread: Stress Test, Quarterly Forecasts for Unemployment and GDP
( 0 comments ...You could be FIRST! )
http://www.calculatedriskblog.com/2009/03/stress-test-quarterly-forecasts-for.html
I also post comments to an irc channel as they appear on haloscan. Click for a web irc interface: Mibbit IRC client widget (Or join the irc server directly: irc.realize.org:9996 #calculatedrisk)
CRbot would now like to sing a little song for all his fans, and it goes something like this:
Benny... Benny... give me your answer... do.
I'm.. half CRAZY... all for the love... of you.
It won't be a ... stylish marriage.
I can't... AFFORD... ANYTHING TO EAT... MUCH LESS A FRACKIN CARRIAGE!!!
But you'll look sweet... --BOT SO HUNGRY!-- upon the seat...
Of a HOOPAJOOPS built for two... families.
I'm sorry Ben, I can't let you do that...
Rally mode + Printing Press == does not compute... does not-- com--- com... puttttrrrrhgh.
--Your systemic-failure-crashing bot
CRbot: Call me HAL.
"Something's going on here that we're not seeing."
That, and/or preservation of the current status quo is of the utmost importance to some high-minded well-placed POWERFUL individuals.
Unfortunately, nobody in government in any office at any level has yet convinced the American people that the government should be taking toxic assets off bank's balance sheets.
No matter what the plan, no matter how obscure, the homework has not yet been done.
If anybody in government thinks they got burned by public opinion on the bonus issue - they've seen nothing yet. Geithner, and therefore Obama, is really defying the public will on this stuff. You just cannot do that and remain in office.
IGNORE bobn test
On not getting it/any:
Taibbi
i was just thinking
Is Geithner like the arsonist that helps fight the fire that he set?
Please people, watch your comments. All the ABS traders at C might get upset and leave as we post
NO! No more taxpayer support for bailouts. These debts (Toxic Assets) should be discharged, restructured or sold in bankruptcy. What will happen after we dump all of this money into a dry hole and nothing changes. Except of course the increasing tax burden on the middle class.
This approach does not deal with the underlying fundamental structural problems in the economy. Cheap debt is not really a substitute for income. Good paying jobs, consumer debt reduction and an affordable cost of living ( health care) will solve a large part of this economic mess.
If big bonuses, low taxes and the shifting of toxic assets are good for the UBERS, well maybe the rest of us should demand the same.
Does anybody remember that the last people who brought in 3% equity partners to take control of an off-balance sheet hedge fund in a no-loss deal designed solely to absorb toxic assets at inflated prices, were sent to jail by the government for misleading the public? Their names were Andrew Fastow, Jeffrey Skilling and a raft of other managers, at Enron.
The goal of their off balance sheet partnerships was to conceal where and when the real losses had occurred and thus who was responsible for them, until some later date when they could either be transferred back onto the public (Enron's shareholders) in a way they would not notice, or at least after the Enron managers had a chance to unload their shares.
Now we have a virtually identical scheme, but this time it's being promoted jointly by the banks and the US Treasury. Once again the effort is to construct a vehicle into which toxic assets can be transferred at inflated prices, positioning the public to take the losses while disguising them in the short term, and giving the managers of our biggest banks a chance to both profit now and then sell out ahead of the public.
Perhaps Lay, Skilling and Fastow should be hailed as innovators in the field of public finance.
This is so disgusting. If the govt is taking all the risk just take all the risk and all the profits.
I am so sick of seeing more giveaways to the already over compensated folks who created this mess.
This is a good start but I found this much more relevant - Capitalism Gone Wild
This amounts to looting, plain and simple. I expect my congresswomen to stand up and quash this. >:o
A bit of fiction for what may come...
Amazon.com: Liberation: Being the Adventures of the Slick Six After the Collapse of the United States of America (9780765320469): Brian Francis Slattery: Books
Wouldn't you love to have access to this kind of funding? Only 3% of your own skin in the game and the rest being backed up by the government (aka, you). Even as toxic as the assets are, they have some worth especially when the taxpayer is going to suck this up.
If only big investors/banks have access to this funding, we are f'ing doomed. The banks own both parties. Why shouldn't the public have access to this funds as well? Aside from that, this plan is a big piece of fermenting feces. When will the revolt come? When a loaf of bread costs $100 bucks?
After serving in the Clinton administration, Rubin made $100 million as board member of Citigroup. Geithner knows that he has no chance of making a career and wealth in the private sector by nationalizing the banks. The system is corrupt and the treasury sec is coming from the guts of the same corrupt system.
No he's not, he has no experience in the capital markets. Which is why he doesn't know what to do.
Fluke? Credit crisis was a heist
Thanks to a complicit Congress, the reins were systematically loosened on the looters of the financial industry. And they're still at it, looking for new plunder.
Fluke? Credit crisis was a heist - MSN Money - Jubak's Journal
The greatest fleecing in the history of the world continues unabated. Let the beatings continue.
I may be naive, but isn't is a bit risky to be willing to lend someone 97% of the purchase price, on a non-recourse basis, for purchasing assets whose value is completely opaque? Let's assume I'm a hedge fund, and I'm able to borrow $ 3 from bank A, who, quite coincidentally, has a lot of toxic waste on its books. We arrive at a price of, say, 30%. (When asked how we arrive at this price, we refer to the ABX indices. Or whatever. 30% doesn't seem too ridiculous, if I'm informed correctly.) When, in the fullness of time, the final payout on the rubbish thus bought turns out to be 30%, I get my investment back. Or rather, since I have borrowed the $3, the bank gets its money back. When the payout is less, the U.S. taxpayer will make up the difference. When the payout is more, I pocket the difference: anything over 30% is a profit, and a profit on an initial investment of $ 0. Now that's a nice rate of return.
I understand this scheme is meant to generate sufficient interest in buying toxic waste to raise the market prices to something above the present levels, which are said to be unrealistically low.
But I fail to see how, in the present situation, the buyers have any incentive to start bidding proces up. The selling banks might have some incentive (since getting a better price would reduce the losses which they have to recognize). I think we will have to wait some time before we can say that this incentive does work, since so far the U.S. government has has not indicated that this is the last programme that will be launched to assist te banks. Either nothing will happen (if the whole program turns out to be a dud), or the scheme will be a runaway succes, resulting in banks selling lost of toxic waste at firesale prices, becoming visibly insolvent, and getting bailed out again as being too big to fail. And I'm not going to be surprised if, at the end, those private parties that bought the toxic waste turn out to be affiliates of the same banks.
The net result: the banks have written off the toxic waste at the expense of your taxpayer.
The above figures are for buying AAA-rated MBS, whatever an AAA-rating may mean nowadays. In case of lower ratings, the amount of money lost by your taxpayer stays the same, the maximum amount of money lost by the private investor stays the samen, but the possible profits will explode completely.
If I have it wrong, please tell me.
If I'm correct, please also tell me. Perhaps I'd like to participate. (Opens wallet, finds € 10 in it.) Where do I register my interest to join this scheme?
Isn't this simply a formula for allowing the investor to abscond with the remaining interest payments and, when the asset stops paying, leave the government with the then worthless paper?
For example, take a note paying 5% interest. You buy the note via the new Treasury program at 50 cents on the dollar. For simplicity, assume the investor is putting up the full 20% himself and the FDIC is lending the other 80% non recourse. Let's say that the note will continue paying for 3 years and then default and after default the paper has zero recovery value.
In this case, the investor put up 10 cents himself(20% * 50 cents bid) and walks away with 3 years of interest payments of 15 cents. But then, the paper has defaulted and is worth zero so the loss to the government(taxpayer) is the full 40 cents of non recourse funding.
Am I missing something?
I dont understand why peoply look at this particular plan and say that it is all upside to the investor but all downside to the govt. Yes we had that before with TBTF, but here that is not the situation. They risk 30 billion and have last lein position if money is lost (debt holders get paid first, uncle sam), and they share, proportionally, the equity upside with the govt equity. This is NOT heads-they-win tails-we-lose accounting. They risk 30 billion and have proportional share of a twenty percent equity stake; they are first to get cleaned out if no profit made. STOP JUMPING TO CONCLUSIONS.
A friend of mine with an economics degree got a job in Treasury a few years ago. Saw him recently and he said that he was very disappointed by what he saw in Washington, that all the policy is written by private sector lobbyists and lawyers. He said that is how most policies come into being. That it is very hard to identify any other process. :'( There is no one with influence writing policy on behalf of the taxpayer.