Bailed-out banks eye toxic asset buys

[kpete]

Source: Financial Times

Bailed-out banks eye toxic asset buys

By Francesco Guerrera in New York and Krishna Guha in Washington

Published: April 2 2009 23:20 | Last updated: April 2 2009 23:57

US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals under the Treasury’s $1,000bn (£680bn) plan to revive the financial system.

The plans proved controversial, with critics charging that the government’s public-private partnership - which provide generous loans to investors - are intended to help banks sell, rather than acquire, troubled securities and loans.


Spencer Bachus, the top Republican on the House financial services committee, vowed after being told of the plans by the FT to introduce legislation to stop financial institutions ”gaming the system to reap taxpayer-subsidised windfalls”.

Mr Bachus added it would mark ”a new level of absurdity” if financial institutions were ”colluding to swap assets at inflated prices using taxpayers’ dollars.”

Read more: http://www.ft.com/cms/s/0/358e479a-1fbf-11de-a1df-00144...

[marketcrazy1]

1. ”a new level of absurdity”

Mr Bachus added it would mark ”a new level of absurdity” if financial institutions were ”colluding to swap assets at inflated prices using taxpayers’ dollars.” ................ try fraud and robbery!!!!!

[ixion]

2. not just absurd... illegal

it's called fraud, among other things.

[Sultana]

3. ARRRRRRRRRRRRRRRGGGGH

Time for pitch forks, folks

[w4rma]

4. Obama's economic team of Rubinites are a disaster. Everyone sees it. Especially those profiting.(nt)

[Eric J in MN]

5. The $700 billion bailout bill originally had a ban on the banks selling...

...the trash for more than they paid for it.

But the ban was watered down by the time the bill passed.

[Oregone]

6. Gotta love it

Yesterday we allowed banks to set their own prices. Of course they are going to buy their own fucking assets with government funds, FINANCED by the government....holy shit. They are buying their assets at 0% of the cost now, assuming 0% of the liability, and getting almost all the profit. This is funny a bit...at least to those who hailed the Geithner plan.

[No Elephants]

33. The Geithner plan or the Paulson Bernanke plan, or both?

[Oregone]

36. Im talking about the Geithner plan here (Paulson's more liberal plan is history)

His planned sucked, but this sucks much, much, much, infinitely times more. Especially with banks swapping assets, setting their own prices, and using TARP funds for the 15% they have to put up front. SUCKS.

[benld74]

7. WHY? Why buy a pile of shit, other than fertilizer? WHY?

[Oregone]

10. Uh, don't you see. It makes perfect sense

Lets assume 5 farmers own shit.

Fred gave everyone $100 dollars, because he felt sorry for them.

Then, Fred decided to finance 85% of the sale of the shit for whoever bought the shit. Fred also let the 5 farmers set the price on the shit.

Together, the farmers had $500 dollars. They knew they can get Fred to finance the sell for as much as $3333 (Assuming the $500 was 15%). So now they sell each other the shit.

On day one, they had shit. On day 2, they about the same amount of shit, and about $666 dollars a piece (from other farmers and Fred), as well as a loan for 85% of their purchase (which is against the shit, not the money).

All the farmers need to do is default on the loan, give the shit to Fred, and walk away with $666 dollars.

If some of the shit turns out to be super valuable fertilizer, they may keep it and pay off the financing, and walk away with a bigger profit. Anyway you slice it, Fred is a fucking idiot and soon to be proven as full of shit.

[tomm2thumbs]

8. that is just TREASON!!!!!! now it is time to consider charges by the government

n/t

[Oregone]

14. Charges?

This scam is engineer by the government. Its their method of giving handouts without having a mob take them on. Most people aren't going to understand how much they are being robbed here.

[tomm2thumbs]

19. Definition of Treason

- a crime that undermines the offender's government
- disloyalty by virtue of subversive behavior
- treachery: an act of deliberate betrayal

Three out of three

[Oregone]

20. But those are also good definitions for capitalism

Capitalism:

- a crime that undermines the offender's government for a profit
- disloyalty by virtue of subversive behavior, which generates profit
- treachery: an act of deliberate betrayal for the purpose of profit

[Alhena]

9. Great- so hedge funds will game the system instead. We lose regardless

[fascisthunter]

11. good job corporate conservo dems!

[CoffeeCat]

12. Look at this...it's related...and so distressing!!!

Just yesterday, CNBC reported that those who set the US accounting standards "bowed to pressure
from the banks and from Congress" and gave the banks the power to determine the VALUE of
these toxic assets.

The banks decide the value of that junk. Now, it's not worthless. Now they can use the government
bailout money--and purchase these assets from each other--at inflated prices.

Here's yesterday's article--http://www.cnbc.com/id/30009862

These banks----WITH OUR TAXPAYER DOLLARS--will be able to legally enrich each other by purchasing
their "rotten hamburger" for t-bone prices.

And lastly----let us NEVER forget how a toxic asset is made!!!
-----Banks sell vulnerable mortgages to Americans---who default on the mortgage, lose their home and suffer. But the bank makes money.
-----Banks package these toxic mortgages into derivatives and sell them to financial institutions. Banks make MORE money off of this junk.

Fast forward to today-----the banks overvalue of these toxic assets--and they will all buy the toxic assets from each other--at overvalued prices.

NOW--they'll LIE, and say that they're removing the toxic assets from their books. BUT THEY'RE NOT!!! They're just swapping the rotten
hamburger back and forth---while billions and billions of dollars are swapped between the banks.

Bottom line--these banks will still be holding rotten, meaningless toxic assets. Nothing will have changed---EXCEPT their
coffers will be overflowing!!!

The banks will STILL be insolvent!!!!!!!!!!!!!!!!!!!!!

I'm sorry I'm yelling. This is just SUCH a scam of epic proportions. It's just....UNIMAGINABLE!!

[Oregone]

13. Yep, pair the two together and its just a scam

Free money.

Look, we can debate how much the government should get involved in helping the banks become solvent (and whether they should retain ownership by doing so!). BUT, this smoke and mirrors shit sucks. It avoids the discussion in the first place and gives them a straight handout. Thats not accountable government, when it not only avoids answering the "big" question, but it magically hides it from being asked. This plan sucks.

[Marie26]

23. Bottom line

Is the massive transfer of public wealth - from middle-class families, from homeowners, from the U.S. government - to the private bankers. This also consolidates the wealth from the hands of many (taxpayers, homeowners) to a very few (the big 5 banks). And it's the VERY SAME big banks that caused the financial crisis in the first place. So, instead of ending up w/a few bankrupt banks & a strong gov., we'll end up with a bankrupt country, bankrupt people & wealthy banks who can promptly transfer that money to Dubai for safekeeping. People need to wake up; there's no turning back from this. Once the money's gone, it's gone.

[high density]

18. Under PPIP the FDIC is going to determine the toxic asset values

and the FDIC will run the auction process. The idea of PPIP is to reduce these disruptive "fire-sales" that the CNBC article is talking about.

[soothsayer]

22. yup, this is a HUGE problem and a huge scam.

[high density]

15. I hope the PIPP prohibits these companies from participating

They are the ones that should be putting up assets for auction.

[Oregone]

17. They are the ones selling the assets

...to eachother. Its like a game of musical chairs. When he music stops, the tax payers aren't going to have a seat

[high density]

21. It could be

However, the initial names floated as PPIP buyers were firms like PIMCO. Citigroup throwing their name into the ring sounds like a late April Fools joke. If the Treasury and FDIC allow these troubled firms to bid on the PPIP assets then the whole program has no purpose. I will have to wait and see what happens. (I am not going to concern myself with speculation and hypotheticals.)

[Oregone]

24. Even if this wasn't true

The entire plan can still become a fiasco quickly (And probably will). This would just add one more level of absurdity. We should hope not I guess. Time will tell.

[girl gone mad]

27. The FDIC not only indicated they would allow it..

they seem to be encouraging it.

See Bair Is Open to Banks Profiting on Problem Loans (WSJ).

[high density]

30. That seems to be a different issue from what I can tell from that snippet

Bair seems to be talking about the banks that put up toxic assets for auction, not about the purchasers of the assets. The companies buying the assets expect to make a profit or they wouldn't be involved.

[CoffeeCat]

25. And I think everyone should be concerned...

...because, in the long run, these toxic assets will remain on the books at these banks, insurance
companies, pension funds and other financial institutions.

That means the "credit freeze" problem and the "bank insolvency" problems will not be solved.

After all of these bailouts--it will come to light that these toxic assets have made most of the
big banks, hundreds of other banks, pension funds and other businesses--insolvent.

Ok, what happens then? Another bailout will be out of the question.

What does happen when America discovers that a good portion of America's banking system
and other financial institutions are insolvent?????

Sheila Bair has all ready been sounding the alarm bell. She has said multiple times that the FDIC's
resources are "stretched". She said, in plain English--that the FDIC could NOT cover deposits if
there were many more bank failures. Bair asked banks for fees to shore up the FDIC's reserves. The
banks balked at her!!

This needs to be discussed. We MUST protect ourselves and talk what this means.

[Marie26]

16. This used to be called securities fraud

Now it's US policy. Gotta love it.

[TheEuclideanOne]

26. Is this a loophole that nobody saw?

Can this be undone? It is so blatant and obvious that it will have the equivalent uproar as when the crooks got their bonuses for bankrupting the country. This is not a complex situation so the common man will know exactly what is happening and it will not be pretty. It is just madness. I thought that the idea here was to attract private investors. If the banks buy each others toxic assets, it will be the one loophole that will break the whole system again if the banks exploit them. Are they going to let this happen? Can't we just stop them?

This reminds me very much of somebody who is completely bankrupt, gets a debt consolidation loan of, say $100,000, so that they can pay all of their credit card debts down to 0. Problem solved? No, not if the person who got all of their debts paid off, runs up another $100,000 in bills on the credit cards that got paid down to 0. They then have their new bills on top of the original loan of $100K.

[Oregone]

34. No. People saw this coming.

I posted an OP that alluded this may happen (the investors being the actual sellers and just swapping assets). Its plain as day. When policies are put forth, after all the corruption, people need to start looking at them with Banker's eyes and cynicism. This planned was designed as is: easy enough for handout, complicated enough to be confusing.

[Stinky The Clown]

28. Okay, now I think I understand .......

They play hide the salami for a few decades. They make increasingly bizarre bets. They hedge. They overvalue. They misdirect. All the time, they keep inflating their balance sheets.

The salami finally gets found and makes its way through the slicer.

The bets get called.

The house of cards teeters and totters.

We the People Bail Them Out

They buy each others' worthless crap paper and assign it new value based on this new market price based on money given them by We The People.




Crisis Over



Maybe this is why that insane turd, Shithead Jim Cramer, was yelling all over the peacock channels that The Depression Is Over.




How Fucking Dumb Are We?

[CoffeeCat]

31. Yes, but won't the banks still be insolvent?

Those toxic assets will still be on their balance sheets. They are worth nothing and
still part of the bank portfolios.

The banks "buying" each others' toxic assets, is just a way for them to swap the money
around--and make it look like they're doing something productive with the bailout funds.
They've been clamouring, "We need to unfreeze the credit markets and the only way we can
do this is by having someone buy these toxic assets."

So...they kinda have to go through the motions.

But really--isn't the corpse still rotting? Aren't these banks still insolvent?

I mean---if the banks all have rotten hamburger and they buy the rotten hamburger from
each other for t-bone prices--aren't they all still holding onto a bunch of rotten
hamburger that devalues ALL of the banks?

I wanna...pull my hair out.

[Oregone]

35. No. They'll be fine.

They default on the loans of the assets with negative ROI, and the financier gets the asset (the government gets the toxic asset and the bank gets 100% of the price it set for the asset from the government now (15% from TARP and 85% from financing)).

They keep the money from the toxic asset sales, since its revenue from sales and not collateral of the financing from buying.

This whole plan is so susceptible to corruption, and with announcements like this, its becoming more faulty

http://www.democraticunderground.com/discuss/duboard.ph...

[CoffeeCat]

37. Sooooooooo....

...if I'm thinking like a capitalistic pig, maybe investing in these banks isn't such
a bad move? I mean, if they've got this scheme going where they can make billions more, and
then lose money and get more money...and be totally fine--this could be a good buy. Especially
if the banks are dirt cheap right now.

I feel so dirty even asking that question and going down that road.

Just trying to survive the treachery of the new crime syndicate that has taken over our democracy! Us peasants have to survive somehow...

[Oregone]

39. Well, if you had no moral consciousness...

You would of invested in the military industrial complex by now and have plenty more to go around already.

[CoffeeCat]

40. True. So very true. (nt)

[TheEuclideanOne]

41. Sure, if you have no concience

A very good friend of mine bought Haliburton stock when we first went into Iraq, since it was obvious that making Haliburton rich was one of the main incentives. I lost tremendous respect for him. Eventually, after mentioning it a few times in public, he took me aside and asked me to stop publicly announcing that he bought Haliburton stock and that he voted for Bush. Don't misunderstood, I didn't just get up in the middle of the room and say "Hey everybody, Bob voted for bush and bought Haliburton stock!!!". It was simply that I would mention it in conversation and it really made him feel uncomfortable.

I may not become a millionaire because I can see some of these companies that will profit off of the American people for the sleezy things that they do and I refuse to invest in them even if it is clear that I will make a few bucks. I could have invest in oil when the investors were driving the price way up, but I just think that I would feel dirty if I was happy that gas was close to $5/gallon knowing what impact it was actually having.

[ArcticFox]

29. F*** the banks

Why the american people aren't lopping off the heads of these SOBs I can't understand.

[frylock]

32. shhhhhhhhhhh..

i'm tryin to watch american idle.

[CoffeeCat]

38. Omg...

...like me too. I so love Tivo-ing that show. Simon is like so...for cute.

Txt me l8r! We'll go to the mall, and like hang out at Sbarro and then buy gum.

Your bff,
CC