How’s that TARP working?
From the NY Post:
As Treasury Secretary Tim Geithner orchestrated a plan to help the nation's largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post.
Both Citi and BofA each have received $45 billion in federal rescue cash meant to help prop up the economy and jumpstart the housing market.
But the banks' purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.
Alt-A - know about that financial cluster fuck that’s imploding?
Here’s 60 minutes it:
http://www.youtube.com/...
So...............Instead of lending money, they have used taxpayers largess to buy up the crap that caused the government to bail them out in the first place. At a big discount and no doubt at prices far, far below what they value similar toxic assets they currently hold on their own balance sheets.
We have propped up these avaricious financial predators with enough cash to own them outright by means of nationalization. But if the bogus blathering of promoting a ‘public/private partnership’ continues this is the type of looting that will continue.
And with no moral hazard, and the knowledge they will be bailed out in the future with the super sweet cash for trash Obama/Geithner bailout they can:
One Wall Street trader told The Post that what's been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.
Recently, securities rated AAA have changed hands for roughly 30 cents on the dollar, and most of the buyers have been hedge funds acting opportunistically on a bet that prices will rise over time. However, sources said Citi and BofA have trumped those bids.
Why should the financial oligarchs worry about buying these toxic assets when the banks are leading by Tiny Tim around by the nose? Pay above market price – hell yes!
The best this is this legalized looting can accomplish is just throwing good billions of dollars after bad billions of dollars and not lending to customers who can use money to increase business activity.
And the worse case here – lets speculate a bit. These financial oligarchs can buy this crap at maybe 30 or 50 cents on the dollar with our dollars and then offer them up in the Obama/Geithner bailout at or a price comfortably north of that and other hedge fund investors can buy them up mostly using taxpayer dollars! Will that happen? I don’t know but I wouldn’t bet against it.
And what might happen after that? I had a comment on it a couple of days ago. It was on TALF, but it could apply to this Obama/Geithner bailout:
But it looks like the TALF could easily be scammed, resulting in huge losses for the taxpayer.
Zero Hedge explains the process.
- First the hedge fund buys an asset with a face value of $100 for $80. The hedge fund puts up $2.40, while the Fed contributes the rest, $77.60. Huge leverage.
- The next day, the hedge fund re-runs the model and realizes that they overpaid the bank. Turns out, it was only worth $20 -- which was where the market had been, sans-government leverage.
- The hedge fund loses it entire $2.40, and the taxpayer loses its entire $77.60.
- BUT! The bank buys the asset back from the hedge fund at $20, while paying it a $5 million fee for its trouble.
As Arianna Huffington noted a couple of days ago in Take the Steering Wheel out of Geithner's Hands:
A month ago... when Tim Geithner gambled the administration's political capital, putting his money -- actually our money -- on the behavior of bankers and CEOs who continue to operate as if it is business as usual.
Business as usual for them is legalized oligarch theft to me. When this plays out the financial oligarchs will have further wealth and power, and we will be enslaved with further debt.
Do you really support the Obama/Geithner bank bailout?
Link to the NY Post article:
http://www.nypost.com/...