via NYT
>
Source:
U.S. Expands Plan to Buy Banks’ Troubled Assets
EDMUND L. ANDREWS and ERIC DASH
NYT, March 23, 2009
http://www.nytimes.com/2009/03/24/business/economy/24bailout.html
In any great organization it is far, far safer to be wrong with the majority than to be right alone. —John Kenneth Galbraith
Asian currencies continue to sell off vs the $ on the heels of the news yesterday that South Korea said they will look into hot money inflows stemming from the $ carry trade and the Bank of Indonesia said they are looking into the foreign buying of bills. This follows the news a few weeks ago that Taiwan was limiting foreign deposit holdings and Brazil was taxing foreign inflow transactions. As I mentioned yesterday, we may have reached a short term pain threshold in terms of $ weakness and foreign countries are fighting back as they certainly won't wait for...
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March 24th, 2009 at 5:41 am
Some analysts and fund managers were surprised that the Treasury was offering to lend up to $6 for every $1 of investors’ own money. Several said that those terms appeared more generous than what Merrill Lynch had offered when it sold a portfolio of mortgage securities to Lone Star Funds last July. In that deal, Lone Star bought Merrill’s assets for only 22 cents on the dollar and Merrill lent Lone Star only $3 for every $1 the investor put up.
“This is a better deal than Lone Star got,” said Barry Ritholtz, chief executive of FusionIQ, an investment research firm.
March 24th, 2009 at 8:27 am
sounds like a win/win- for the investor. Taxpayers- maybe not so much.
March 24th, 2009 at 8:37 am
Barry – i think it’s important to clarify that the FDIC isn’t lending the money – the SELLER of the assets is providing the financing, which will be guaranteed by the FDIC.
now, this irks me greatly. First off, obviously, if the seller provides the financing, they don’t receive the sales price, so the beneficial effect of capital inflow (ie, fresh funds to be re-lent) is greatly diminished. The positive effect for the selling banks is that they no longer have to worry about valuation on these questionable assets, or hold reserves against them.
you hit the nail on the head when you brought up the MER-LoneStar trade: if the banks think the assets they have been refusing to sell are worth so much, then why didn’t they just provide financing to buyers to take them off their books? why did we need the FDIC (read: TAXPAYER) to guarantee the financing? absurd.
March 24th, 2009 at 8:48 am
This is a win,win, lose. The private money is set up as the Treasury’s stalking horse to overpay for risky assets being able to pocket most of the gains on their winning bets and being able to dump the losing bets on the US. Banks win, vultures win and taxpayers lose, we’ll be paying for generations.
March 24th, 2009 at 8:49 am
Mr. Ritholtz:
What do you think the definition of “loan goes bad” will be for the investor in the case of purchasing risky home loans? (I wonder how easy it will be to walk away.)
If a loan is “crammed down” will the investor be allowed to walk away?
If the loan goes through an adjustment program, would the investor be allowed to walk away?
Many thanks!
Gene
March 24th, 2009 at 8:59 am
Could it be the banks know the true value, (not much), and that, that value is becoming less and less, in this historical market downturn? The downturn that they feed on the upside while receiving record level wages? Where is the real outrage here? Why are there no Ken Lays being brought to justice?
March 24th, 2009 at 9:00 am
I wonder if anyone knows >what< the so-called “toxic assets” are ?
I mean, we all know that they basically are overly risky CDOs that were unjustifiably rated AAA, right ?
But there is no readily available information for J6P like me out there as to how we got here.
Us, the taxpayer, will maybe, just maybe, help resolve this crisis with a sleight of the financial hand, and also by putting our communal ass on the line. I think the public, that foots this bill has the right to know;
Well, WHO packaged the debts, WHO sold the CDOs first, WHO rated them. I want fucking NAMES damit, and if “everybody did it” then I want STATS ! Who sold the most. Who rated worst etc etc…
Fucking OTC bullshit……it means it’s NOT regulated, it never was. WHY are we on the hook in the first place ? So that the greedy on Wall street can attempt a revival of the status quo ?
I don’t want the same thing. I don’t want a return to “normal”. Working your ass off all your life to barely secure the right to feed and shelter yourself and maybe one or two of your family is NOT NORMAL.
My kids having to BORROW to secure an education ? WTF. This is an outrage.
Ask yourself when you look at the ever present Downtown Financial Centre, no matter what City……
Where did the money to build these towers come from ? From what LABOUR ?
Dow 3000, or less for Pete’s sake. The sooner the better. And bring on the locusts and the sackcloth too already, I’m tired of this crap. We got it coming.
I shouldn’t post this early in the morning, apologies for the language and for being grumpy.
March 24th, 2009 at 9:04 am
and simpler if I get it:
the BIG BANK SELLER moves the POOL OF HOME LOANS by taking a 8% down payment and collects interest at _% until a re-move happens and if the BUYER (smartly a Corp) doesn’t like his prize defaults and will be guaranteed by the FDIC
all this transpiring in a land where China is its primary home furnishings manufacturing facitity … and the internet and war and the home building boom was used to disguise that for a decade or two
March 24th, 2009 at 9:28 am
Bottom line is that the taxpayers debt is going up because the taxpayer decided he didn’t need to keep adding debt. So if we would just get out there and spend and add more personal debt, this would all be solved.
March 24th, 2009 at 11:24 am
Let’s say I have $100 Billion of crap. Worth say 20cents on the dollar.
Let us also say that I decide to induce a subsidiary/partner/friend to bid 60 cents and get 80% federal money.
He only has to put up 20% or 12 cents.
Thus, I get 60 cents, or 60 billion on the sale of my crap.
I can give 15 cents to my friend. He makes a profit.
and I get 45 cents. More than double the actual value.
Is this possible with the plan as announced? I have not studied it.
But it appears that being able to play with government money opens up all kinds of possibilities to scam the gov.
cjc
March 24th, 2009 at 12:34 pm
Was there any wonder why the FDIC is getting a $500B backstop? And here I thought it was to handle the upcoming back failures.
What is the FDIC (keywords: Deposit Insurance) doing guaranteeing equity deals? Couldn’t find another bagman? I guess it’s just easier to get the money for the FDIC, presumably to “protect Americans bank accounts”?
Pretty nice scam – problems won’t be apparent for a few years down the road.. by then it’s too late, and we’ll have another “hoocoodanode?” moment..
April 2nd, 2009 at 8:47 pm
You know why Paulsen didn’t buy the damn stuff? Cause it was just easier to give them money. I actually respected him for doing it that way if they were gonna get the money regardless. Give Bill Gross the stuff and a few trillion for expenses.