Home Precious Metals

So what exactly is the new Treasury plan to get toxic assets off bank books?

bidaskbidask Posts: 14,016 ✭✭✭✭✭


BOTTOM LINE: The Treasury released more details on its programs to buy various forms of legacy assets. There are two separate parts to the program: (1) a “legacy loans” program that will buy loans off of bank balance sheets and (2) a “legacy securities” program that will finance purchases of securitized assets, through an expansion of TALF and a separate public-private investment fund. The government appears to be an equal partner in the equity components of both new programs (but not TALF).

KEY POINTS:
1. The program consists of two parts: a "legacy loans" program to provide financing and capital to purchase loans off of banks' books; and a securities program that features two separate sub-components: an expansion of the existing Term Asset Backed Securities Lending Facility (TALF) to purchase a broader set of assets, and a a public-private investment fund (PPIF) that would be managed by the private sector, with financing and some capital provided by the government.

2. The two programs use leverage to increase the purchase price of assets purchased from banks. The loan program would provide up to 6:1 leverage, and the PPIF would use up to 1:1 leverage. Loan program leverage would come in the form of FDIC backed debt, while securities program leverage would come from the Treasury. An alternative in the securities loan program involves using an expanded TALF; leverage in that expanded program presumably would be similar to the existing program, but haircuts have not yet been determined. There is also the potential for interaction between programs; for instance, PPIF funds may be eligible to participate in TALF, which implies that investors could receive leverage from Treasury through the PPIF program and then leverage that investment further under the TALF framework.

3. The two new programs have no direct implications for the Fed's balance sheet. While the expanded TALF program would likely be financed through additional balance sheet expansion, the new PPIF and FDIC programs would have no direct relationship to the Fed, though the PPIF would require additional Treasury issuance to provide leverage.

4. Treasury would coinvest with the private sector. The PPIF for securities and the FDIC loan program would provide Treasury capital in a 1:1 match against private capital, so that the Treasury participates in the upside. However, in both cases the investment would be managed by the private participant. A similar structure was used in certain trusts created by the Resolution Trust Corporation.

5. The TALF would be expanded in two ways: first, non-agency residential and commercial MBS would become eligible. The Fed has hinted at non-agency RMBS previously, and the Treasury had already signalled in last months announcement that CMBS would be allowed. The second change is that non-AAA securities would be allowed as TALF collateral, as long they were originally issued as AAA. This would apply only to non-agency RMBS collateral, and would add toxic asset disposal to the TALF's mission, rather than its current sole focus of restarting the securitization market.

6. Importantly, none of the programs announced this morning appears to require legislation. However, the issuance of Treasury securities to fund PPIF investments could eventually run up against the debt ceiling, which would require Congressional action. At least some parts of the program may be affected by the original requirements of TARP regarding issuance of warrants and potentially executive compensation. Moreover, the scale of these proposals appears limited by the availability of TARP funds, with only $75-$100bn of TARP money allocated. As the program gets underway and hopefully succeeds, the Treasury is likely to approach Congress for more funding, as suggested by the "placeholder" in the president's 2010 budget.

7. Implementation seems likely to be at least a few months off, given the time required to start other such programs (like the original TALF); the Treasury has requested applications for the legacy securities program by April 10, with a May 1 target date for notification of eligibility.
I manage money. I earn money. I save money .
I give away money. I collect money.
I don’t love money . I do love the Lord God.




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Comments

  • Just putting more money in to circulation that is all they can do at this point, and just hope for the best. There was a 60 min with Ben from the federal reserve and he sounded very good but the situation is just so bad that they can just hope at this point.
    image
  • storm888storm888 Posts: 11,701 ✭✭✭
    >>>"5. The TALF would be expanded in two ways: first, non-agency residential and commercial MBS would become eligible. The Fed has hinted at non-agency RMBS previously, and the Treasury had already signalled in last months announcement that CMBS would be allowed. The second change is that non-AAA securities would be allowed as TALF collateral, as long they were originally issued as AAA. This would apply only to non-agency RMBS collateral, and would add toxic asset disposal to the TALF's mission, rather than its current sole focus of restarting the securitization market. .."

    ///////////////////

    It may be a bit of a challenge to get the "stronger" outfits
    to sell their MBS.

    MOST mortgages are still spitting out CASH everyday.

    I would not sell the few that I have left, at today's prices.
    They are cash machines.
    Folks Who Bite Get Bitten. Folks Who Don't Bite Get Eaten.
  • 57loaded57loaded Posts: 4,967 ✭✭✭


    << <i>

    I would not sell the few that I have left, at today's prices.
    They are cash machines. >>



    very true
  • roadrunnerroadrunner Posts: 28,303 ✭✭✭✭✭
    Doesn't this just boil down to the same mumbo-jumbo we've been getting? The quantity (and lack of quality) of these assets is beyond comprehension and is the one part of the story the FED/Treasury doesn't want to let out. Short of dissolving all derivative OTC contracts, I don't see what more alphabet soup lending facilities can do to help the situation.

    If you have toxic investments (ie worthless stocks, bonds, notes, etc) how would you as J6P get them "off your books?" The answer should be the same for both situations. The Treasury is just peddling another story about how these formerly toxic assets can be our "friends" if we just take the time to "get to know them" (ie by plunking down our money to participate and allowing the banks to determine what should be worth). Maybe they'll even supply a USTreasury certificate of authenticity plus a 10 year expected profitability chart to hang on your wall. Rather than Toxic Assets why not call them Benign Opportunities (BO).

    roadrunner
    Barbarous Relic No More, LSCC -GoldSeek--shadow stats--SafeHaven--321gold
  • RedTigerRedTiger Posts: 5,608
    I must say the entire situation is very confusing, even to me and I follow this kind of stuff closely.

    One analogy I heard is that it is like when car companies offer 0% financing. The Treasury is offering low interest loans to anyone willing to put up a little bit of their own money and also buy some of the assets at auction. The Treasury becomes a partner and gets a share of the profits and losses, as does the firm taking out the loan. By doing it with this sleight of hand, it doesn't add to the official government deficit figure, even though in reality it is a balance sheet item.

    The stock market obviously did like the plan, or the appearance of the plan, at least for this one day. By loaning money and pricing the assets at auction, they get around any number of hurdles and pitfalls.
  • storm888storm888 Posts: 11,701 ✭✭✭
    The banks are in a bad place.

    Mark-To-Market - for FDIC and reg purposes - requires
    the banks to value the paper at almost nothing.

    The notion that a fully performing note is worth ZERO
    is nonsense.

    The FACT is that most folks are paying the mortgages
    that comprise the RMBS and CMBS.

    If the banks become too eager to participate in the new
    scheme, we will know that the paper is much worse
    than I think it is.

    I know how to value mortgages and mortgage pools,
    from a buyer's and seller's perspective.

    What I don't know is if the real-estate market is close
    to a bottom. If it continues to fall - by say another 30% -
    the taxpayers will likely be on the hook pretty bad; and, the
    individual investors who "buy" the paper will lose most/all
    of their investment.

    The potential prime beneficiaries of the scheme:

    1. The banks, if they sell the junk and hold the good stuff.

    2. The outfits that sell the ETFs that will be built around the
    new paper.

    3. The taxpayers and private investors, if the real estate
    market can at least go about flat from here.

    /////////

    I am still pretty sure there will be substantial resistance
    from the banks to "fire sale" prices.

    Sadly, that could mean that the first auctions will be priced
    way too high. Maybe the smart play is to watch and only
    buy into one of the ETFs after they have taken a hit or two.

    OTOH, if RE stops tanking, the ETFs could be a good up trade.



    Folks Who Bite Get Bitten. Folks Who Don't Bite Get Eaten.
  • roadrunnerroadrunner Posts: 28,303 ✭✭✭✭✭
    Valuing Mortgages might be something that makes sense to many of us. But how about valuing $50 TRILL notional in credit default swaps or $350 TRILLION notional in interest rate swaps? Is it fairly easy to look at one of these contracts and decide what's it worth? What's it worth if the entity is insolvent or bankrupt and hence no one to help pay it off....other than the US taxpayer? When Lehman went down they averaged a return of approx 8-12 cents on the dollar for their derivatives. That's close enough to zero imo if we're making estimates on large quantities of money. It's not like it was 90 cents on the dollar.

    roadrunner
    Barbarous Relic No More, LSCC -GoldSeek--shadow stats--SafeHaven--321gold
  • cohodkcohodk Posts: 19,071 ✭✭✭✭✭
    It is much easier for the public to digest a plan like this than to just give the banks another trillion. Now instead of saying we got nothing for our money, we can say we got something worth nothing.
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • PlacidPlacid Posts: 11,299 ✭✭✭
    Is this the same thing as the Barf - Bank asset relief fund?
  • storm888storm888 Posts: 11,701 ✭✭✭
    "...Now instead of saying we got nothing for our money, we can say we got something worth nothing. .."

    /////////////

    It is really only worth "nothing," if everybody stops paying.

    A good clue was tossed at us last week, when BAC said,
    "Thank God we bought CFC."

    The "profit" that BAC is about to start reporting comes in
    large part from the CFC paper.

    People ARE paying their mortgages. Notwithstanding the
    nonsense that the media continues to spout.

    Folks Who Bite Get Bitten. Folks Who Don't Bite Get Eaten.
  • SanctionIISanctionII Posts: 12,090 ✭✭✭✭✭
    At a very basic level here is probably what will happen (it happened in the S&L Crisis in the late 1980's and early 1990's with the Resolution Trust Co).

    Failed lending institutions will be taken over by the FDIC or some other Receivership agency. It will be charged with liquidating assets of the failed lender. The "toxic" loans of the failed lender will be sold by the FDIC on the cheap to investors (people with money and connections will form investment groups to buy the loans at cents on the dollar). The investors who purchase the loans will then work to recover on the loans. Some will have to be written off. However many will pay off when a property is sold or refinanced. The loan may pay off at 50 cents on the dollar to an investor who paid 8 cents on the dollar to buy the loan. The investor makes a profit and life goes on.

    To the extent a lender does not fail but has its "toxic" loans purchased from it by UNCLE SAM or an agency formed by the government for that purpose, the same thing will happen.

    My 2 cents worth.
  • storm888storm888 Posts: 11,701 ✭✭✭
    "...The loan may pay off at 50 cents on the dollar to an investor who paid 8 cents on the dollar to buy the loan..."

    //////////////////////


    If the current proposed scheme relied on "8-cent" prices,
    there would be NO sellers.

    Folks are going to be shocked at how high the prices are.

    GREAT weight is going to be given to cash-flow elements,
    and worst-case scenarios will NOT be used to set prices.

    Folks Who Bite Get Bitten. Folks Who Don't Bite Get Eaten.
  • SanctionIISanctionII Posts: 12,090 ✭✭✭✭✭
    The initial price tags on the "toxic" loans being sold will probably be high [got to look good in the public eye, for PR and Image reasons]. However, when no one steps up to buy at high prices, the seller will eventually cave in and reduce prices.

    Those with money and connections will see opporutnity for "obscene profits" and will use their talents, connections and influence to "buy low" while either looking like a white night doing so; or staying in the background and out of the glare of the public spotlight.

    Later on, with ownership of the toxic loans in hand (with a low acquistion cost) further sales or financing transactions for the properties encumbered by the toxic loans will happen (as part of getting our economy moving) and the loans will be paid off at far less than the amount owed. However even with a low payoff on the loans, the investor who purchases same on the cheap will still make "obscene profits" on the deal.

    Eventually all of the toxic loans will be disposed of and paid off at discounted amount. Memories will fade. Losses will be taken and written off. Demand will increase for housing and mortgage money will become more available as lenders loosen up lending standards. Prices and home values will go up. The cycle will repeat itself as new persons enter the real estate market.

    Life will go on and America will see the sun come up tomorrow.
  • BearBear Posts: 18,953 ✭✭✭
    I propose to bury toxic assets in an

    abandoned salt mine at least 1000

    feet deep.
    There once was a place called
    Camelotimage
  • RWBRWB Posts: 8,082
    GAAP requires “mark-to-market” of bonds, notes, securities. This makes balance sheets very volatile. By removing the worst assets from banks, it permits them to stabilize asset and loan loss reserves with high grade assets. The extra funds become available for loans to businesses. It also provides speculators and high-risk investors a way to profit handsomely from recovery of the bad loans.
  • streeterstreeter Posts: 4,312 ✭✭✭✭✭
    A few questions come to mind.
    Just who can buy the as$ets? I would like to see a transparent transaction but that will happen when pigs fly.
    Can the sellers of these as$ets also be the buyers of similar packages? Wouldn't that be cute--sell toxic A then buy toxic B from another seller.
    If the leverage involved is reportedly 90%, where is the money coming from? Don't tell me, I already know.






    via con dios, Mr. Ron Silver
    Have a nice day
  • jmski52jmski52 Posts: 22,800 ✭✭✭✭✭
    If the large banks had been forced out of business, the resulting mess should have motivated the more intelligent congresspeople to put in place a system that avoided the same thing happening again, while also avoiding rewarding those who made it happen.

    Sadly, that's not the case.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • storm888storm888 Posts: 11,701 ✭✭✭


    << <i>GAAP requires “mark-to-market” of bonds, notes, securities. This makes balance sheets very volatile. By removing the worst assets from banks, it permits them to stabilize asset and loan loss reserves with high grade assets. The extra funds become available for loans to businesses. It also provides speculators and high-risk investors a way to profit handsomely from recovery of the bad loans. >>



    //////////////////////

    M2M is great for assuring that investors know the
    true market value of a note/asset held by a bank.

    The problem came because the regulations that govern
    capital requirements are too strict. M2M - when there is
    NO market for a note - means that banks essentially
    zero-out FULLY performing assets AND must replace
    them with CASH to meet the regulators' demands.

    IF the banks now were forced to sell the money-good
    notes - just because there is no "market" for them - they
    would take tremendous losses. A few years from now,
    the market for the WRONGLY labeled "toxic paper" will
    return to using normal/traditional discount formulas.

    There is NOTHING "toxic" in the cash-flow analysis of
    MOST of the paper.

    Folks who expect the banks to go along with this scheme
    in a big way are likely going to be VERY surprised.

    ...........

    If one has a CD that pays X% as agreed for the term of
    the obligation, the immediate "market value" of the CD
    has NO bearing on the performance value of the CD;
    unless the CD holder is FORCED to sell it.

    The regulators are trying to force fire-sale liquidations
    in the name of "maintaing adequate reserves." I see
    absolutely NO chance that the banks will go for giving
    their stuff away.

    They should simply hunker down and tell the govt to
    butt out. If the govt wants to be "a bank," they can
    do so and lend all of the money they wish to loan. The
    shareholders of banks should not - will NOT - be crucified
    so that a FILTHY govt can say "we restored the ability of
    scummy deadbeats to borrow money that will never be
    repaid."

    EVEN IF the banks are forced to dump their money-good
    paper, they will NOT turn the proceeds over in the form
    of loans to biznez and consumers. They will hoard it; just
    like they have hoarded the first rounds of bailouts.


    Folks Who Bite Get Bitten. Folks Who Don't Bite Get Eaten.
  • SanctionIISanctionII Posts: 12,090 ✭✭✭✭✭
    For real estate loans, the key to everything is the fact that repayment of the debt is secured by a specific piece of real property. If the loan is not paid, the lender that owns the loan has a specific piece of property that it can collect the debt from. The real estate given to secure the debt will not go away. The home on the land may burn down, but the land remains. It will have value, as will any improvements. Thus even non performing loans have value keyed into the value of the collateral given to secure the loan.

    The above said, it is also true that real estate loans which go bad do not result in month checks being received by the lender. The lender's income goes down as a result. The expenses to the lender for a defaulted real estate loan do not stop, and in fact they go up (collection costs). Further, if the property is sold to the lender at a foreclosure sale, the loan ceases to exist and the lender becomes a property owner. As property owner it is required to pay the expenses of ownership, including taxes, insurance, maintenance and cost of repair/improvement. These expenses are not cheap. Again though, the property does have value. The value of the property goes up and down according to market conditions. The fact that the value is in the dumper today does not mean it will not double in value in 3 years. When a property is sold, the sales proceeds will them be paid to the lender (as a loan payoff if it is sold before a foreclosure sale of the property to the lender). If it has already been foreclosed upon and the lender resells the property, the sales proceeds will be paid to the lender as the owner/seller.

    The "toxic" label conjures images of a loan never being paid back. That is not true in most cases where the loan is a first priority loan on the property. Value is there and the value can be recovered when the property is sold. In the mean time the defaulted loan is not performing, payments are not being received by the lender and the lender is under stress to liquidate the loan. This liquidation can take place without government intervention (the lender sells a block of loans for 50% of loan amount simply to raise money) or with government intervention (the lender fails, is placed into Receivership and the receiver sells the lender's loan portfolio to investors who "buy low" and then make a long term or short term profit when the property is resold later.

    Whoever sells at a discount will take a "loss" on the loan, will write the loan loss off in a particular tax year and then will continue on with new business.

    The borrower who does not pay the loan will move on and as a result of any foreclosure sale or "short sale" will no longer owe the monies due under the loan. The foreclosure sale or a short sale or a deed in lieu of foreclosure will, in most cases, have the effect of satisfiying and discharging the obligation of the borrower to repay the loan.
  • storm888storm888 Posts: 11,701 ✭✭✭
    It is important to note that the contemplated scheme
    involves virtually NO defaulted loans. In fact, "legacy"
    paper may end up NOT even being much of the mix.
    Relatively recent paper will make up the majority of
    the "products."

    As time passes, some will go bad, MOST will not.

    A simple relaxation of M2M on the "reserve requirement"
    issue would obviate the need for the ENTIRE scheme.
    Folks Who Bite Get Bitten. Folks Who Don't Bite Get Eaten.
  • cohodkcohodk Posts: 19,071 ✭✭✭✭✭


    << <i>It is important to note that the contemplated scheme
    involves virtually NO defaulted loans. In fact, "legacy"
    paper may end up NOT even being much of the mix.
    Relatively recent paper will make up the majority of
    the "products."

    As time passes, some will go bad, MOST will not.

    A simple relaxation of M2M on the "reserve requirement"
    issue would obviate the need for the ENTIRE scheme. >>



    So where do the defaulted loans go? The banks just hold them and sell the good stuff? No way would any bank ever go for that.
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • BearBear Posts: 18,953 ✭✭✭
    You have it just reversed. The banks will hold the

    good stuff and sell the bad stuff.
    There once was a place called
    Camelotimage
  • cohodkcohodk Posts: 19,071 ✭✭✭✭✭


    << <i>You have it just reversed. The banks will hold the

    good stuff and sell the bad stuff. >>



    Yes, of course, but that isnt the way I read storm888's post.
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • Boys, it is so simple.

    It is a giant circle jerk.

    The new buyers are the same guys who sold the tranch of Mortgages once before for at $1.05 on the dollar to the chump banks now holding this crap.

    In a couple of key strokes, the very same tranch of Mortgages are now re-sold at 25 cents on the dollar, back to the original bundlers who will now inturn, rebundle it all to re-sell it for 50 cents on the dollar to the chump banks. Only difference is instead of AIG being the counterparty insurer, you and I become AIG.

    If this sounds confusing, *BINGO*, you understand the plan! image
  • roadrunnerroadrunner Posts: 28,303 ✭✭✭✭✭
    The bad loans are called "bad" for a reason. It's not that they are misunderstood but that they are essentially worthless. This is what will eventually be found out. The majority of the bad assets will be buried where possible, left on the FED's balance sheet, or pawned off on J6P. The recovery rate of the mortgage securities will probably be much better than that of the credit default and interest rate swaps. Still, there's far more here than can ever be absorbed or resolved. The banksters will make out with the 13-1 leverage while J6P will take losses. Same game different name.

    roadrunner
    Barbarous Relic No More, LSCC -GoldSeek--shadow stats--SafeHaven--321gold
  • storm888storm888 Posts: 11,701 ✭✭✭


    << <i>

    << <i>You have it just reversed. The banks will hold the

    good stuff and sell the bad stuff. >>



    Yes, of course, but that isnt the way I read storm888's post. >>




    //////////////////////////

    You all read the post CORRECTLY.


    Having read many pages on the likely mechanics of the scheme,
    and having spoken to a contemplated auction participant, I can
    report as follows:

    At the date of the first auction, NONE of the offered packages
    will contain non-performing loans. NONE.

    No investor - and NOT the govt - is buying dead paper with
    the idea that they will become "debt collectors" and "foreclosure
    vultures." The certs to be offered - and used to form the ETFs - all
    represent performing paper, discounted based on rated risk.

    The FDIC, as a primary guarantor, has some confidence that the
    paper will be largely just fine, and will generate a profit for all of
    the participants. (I have no idea if they are right/wrong, I only
    know what paper WILL be in the first offerings and what will NOT.)

    The CFC servicing platform - now owned by BAC - and other
    servicers will collect/disburse payments, just like any servicer
    does.

    Pimco and other bond-underwriters/packagers will act as primary
    aggregators in the first rounds of auctions. They will disburse the
    certs to ETF-packagers (Barclays), and they will service some of
    the underlying paper and/or contract for servicing.

    The initial distribution of the certs will likely be via Dutch auction.

    It is possible that some individuals - through a designated pool - will
    be able to bid. Such paper would be subject to whatever servicing
    protocols are prescribed.

    At this moment, the mechanics of the entire scheme are being
    formulated.

    The ONE thing that is NOT being formulated is the inclusion of
    dead paper in ANY initial auctions.

    ALL simply FACTS that I know to be true.


    .............


    rr:


    The thing that makes the paper "bad," is NOT its failure to
    be currently serviced; it is NOW cranking cash as agreed.

    The "bad" is a theotetical notion based on the likelihood that
    certain categories of loans will default, SIMPLY because past
    percentages of defaults on likekind/similar paper have been
    unacceptably high.

    Remember: The banks do NOT want to sell the paper. They
    believe it is money good. The regulators are forcing the sale
    to satisfy archaic reserve requirements.





    Folks Who Bite Get Bitten. Folks Who Don't Bite Get Eaten.
  • I don't need details, I know that once again the taxpayer gets to bend over and grab thier ankles for the Goldman Sachs of Wall Street.
  • BearBear Posts: 18,953 ✭✭✭
    OK, well then.....NEVER MIND!image
    There once was a place called
    Camelotimage
  • cohodkcohodk Posts: 19,071 ✭✭✭✭✭
    The banks will only unload the crap they know is worthless. No way will they firesale the good stuff, if there is any.

    So in the end, the banks will own whatever is good and you will own the rest.
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • roadrunnerroadrunner Posts: 28,303 ✭✭✭✭✭
    The banksters have sold the public a pig in the poke since the repeal of Glass-Steagal in 1999. Why would we think that starting today, they are going to be selling only the good stuff for fair market value?

    The thing that makes the paper "bad," is NOT its failure to
    be currently serviced; it is NOW cranking cash as agreed.

    The "bad" is a theotetical notion based on the likelihood that
    certain categories of loans will default, SIMPLY because past
    percentages of defaults on likekind/similar paper have been
    unacceptably high.

    Remember: The banks do NOT want to sell the paper. They
    believe it is money good. The regulators are forcing the sale
    to satisfy archaic reserve requirements.


    Regardless of your confidence in this latest Treasury scheme, I will side with the opinion of Sinclair on this one since he has had an insider's front row seat to all these shenanigans for the past 10 years. His opinion is 100% different from what you have stated above. A different shade of lipstick on the pig doesn't change the fact that you still have a pig. No doubt there is some good paper in that $683 TRILLION trash heap. It could be that offering some honest assets to keep the crap hidden or improperly valued is the goal. I'm with Cohodk on this one. We're still at the mercy of the banksters, Treasury, FED and regulators who had their hands in the pie who still don't want to let us in on the full extent of the fraud. So when they tell us that the assets are mostly good, or only performing assets will be auctioned, I'm not convinced. It's time to go with their history of being honest and accurate. And unfortunately, it's not a very enviable track record.

    The banks don't want to sell the stuff unless they can get it levered up once again with J6P holding most of the bag if it fails. If J6P is not there for a fall guy, then I can understand why the owners of this stuff want to bring it out into the open and assume all the risk of it's marked down to squat.

    roadrunner


    Barbarous Relic No More, LSCC -GoldSeek--shadow stats--SafeHaven--321gold
  • storm888storm888 Posts: 11,701 ✭✭✭
    "...His (Sinclair) opinion is 100% different from what you have stated above..."

    /////////////////////////////


    No. It isn't.

    If it was, I would say he has NO clue what he was talking about.

    IF he says the banks may/will try to slip useless stuff into the pot,
    he may be right.

    IF he says the FDIC is going to knowingly package useless stuff in
    the first rounds he is TOTALLY misinformed.

    Such a fraud would be discovered in the first 30/90 days of the
    transfer of the paper.

    People are buying DISCOUNTED CASH FLOW.

    Dead paper does NOT spit cash.

    ........

    Sinclair may well have a different opinion as to if/when the paper
    will become non-performing. His guesswork is no better than that
    of the FDIC, me, or you.

    The speculated/guessed risk of default is going to be factored into
    the disount rate.

    Today, the FDIC again made it clear that NONE of the paper being
    packaged will be dead paper. If Sinclair "knows" different, he better
    get his info to the media real quick.

    Folks Who Bite Get Bitten. Folks Who Don't Bite Get Eaten.
  • roadrunnerroadrunner Posts: 28,303 ✭✭✭✭✭
    If you read Sinclair you would already know he has said nothing about stuffing the PPIP with toxic assets. He has always talked to only the general non-performance of such assets. And based on Lehman's experience with an average of 8 cents on the dollar, that's pretty close to non-performance. Until we come up with a better track record on the disposal of such assets, 8% recovery will have to do. Over the past 7 years, JS's "guesswork" has been far better than FED, Treasury, FDIC, SEC, CFTC, BLS, BEA, and about anyone else speaking or posting for a govt. entity. For now, I'll take a leap of faith and continue listening to JS on where this is heading. Heck, even the Gold and Economic Thread has had a better track record on the trends over any of those govt experts.

    Here's Reggie Middleton's breakdown of the PPIP and he has pointed out some situations where the taxpayers loses big time while the banks profit. While he concurs that SIV's shouldn't make it into these, he doesn't preclude it happening.

    Reggie on the PPIP

    roadrunner
    Barbarous Relic No More, LSCC -GoldSeek--shadow stats--SafeHaven--321gold
  • roadrunnerroadrunner Posts: 28,303 ✭✭✭✭✭
    Rather than paraphase from JS, here is Sinclair's latest missive on the current detox plans.

    Professor James Galbraith was interviewed early this morning on the Geithner plan for the purchase of toxic assets. This interview focused on the very subject that constitutes my most serious concerns. It was on Bloomberg TV, but I see no review of it on their website.

    His analysis would confirm what I have been told concerning the condition of the paper held by many financial institutions.

    His review confirms my belief that there is no alternative but to bail out every financial institution in amounts that can't now, due to the opaque nature of the miscreant paper, be evaluated. What you can be sure of is that the number is enormous. Yes, larger than anything we have seen yet.

    This financial situation is totally out of control. Government financial leaders are flailing in the wind, trying every remedy ever heard of while inventing new measures, all of it in total futility.

    Major Banks will be nationalized. Smaller institutions will be rolled into nationalized banks.

    The Dollar does not have a future. Gold is your only refuge asset.
    To allow yourself to be run out of anything gold by the COMEX manipulators is to sacrifice your financial lifeline. It is just that bad.

    The price of gold will attain Alf Field's objectives. There is no question about this conclusion as this problem cannot remain hidden. The unavoidable financial consequences are already raising their ugly heads and the curtain is coming up on the degree of this total disaster.

    New financial oversight regulations of hedge funds and the OTC derivative market are so late all they really will amount to are meaningless public relations. The damage is done and cannot be undone by spin.

    Galbraith this morning voiced his concern that the paper held in the banking system is "permanently impaired." That means this paper is to a large degree the left over partial contracts of the creation of the securitized OTC derivative paper sold everywhere to everyone without offset and is therefore valueless. Galbraith alluded to a fractional reserve approach towards mortgage securitization by intent of error whereby the same mortgages were securitized more than one time.

    Galbraith spoke of obscuration in terms of a planned cover-up of details of the asset's condition. He also discussed the need for clean audits that will only be available on the true valuation of that which is worthless and those with partial valuation. He indicated the conditions are so dire that only nationalization will permit clean audits.

    Your future depends on gold as there is no piece of paper or SDR package of various paper that can protect you. Gold is no longer investment, it is your lifeline. It is that serious. About that there is no question.


    roadrunner
    Barbarous Relic No More, LSCC -GoldSeek--shadow stats--SafeHaven--321gold
  • rpwrpw Posts: 235 ✭✭
    imageimage Small Size National Bank Note Type Set $5-$100
  • storm888storm888 Posts: 11,701 ✭✭✭


    << <i> Geithner's latest bailout plan explained very clearly. >>




    ////////////////////


    Very good stuff.

    The FDIC claims there will be "safeguards" to prevent the self-dealing scenario.

    The use of "Dutch Auctions" will also make such a ploy a little more difficult.

    ...........


    FTR....... The guy is absolutely correct, in my view, the banks should have
    been wiped out and reacapitalized/nationalized.

    New and smaller banks would have sprung up and the cycle could have
    been restarted.

    Folks Who Bite Get Bitten. Folks Who Don't Bite Get Eaten.
  • mhammermanmhammerman Posts: 3,769 ✭✭✭
    Chapter I

    "Dead paper does NOT spit cash."


    Nice turn of a phrase.
  • storm888storm888 Posts: 11,701 ✭✭✭
    This is turning into a gangsta deal.


    Looks Pretty Grim



    If the paper is much better than the professors speculate,
    the taxpayers may be OK; otherwise only a few individuals
    and possibly the credit-markets seem poised to benefit.


    If M2M is relaxed today, the banks might as well just keep
    the paper. But, it's starting to look like the banks will not get
    to make the decision.


    ............


    The pending BK-filing by Thornburg - widely believed to have
    some of the "best" paper - does not bode well for the lifespan
    of the prospective packages.


    Folks Who Bite Get Bitten. Folks Who Don't Bite Get Eaten.
  • jmski52jmski52 Posts: 22,800 ✭✭✭✭✭
    It's a quark.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • GemineyeGemineye Posts: 5,374


    << <i> Geithner's latest bailout plan explained very clearly. >>


    .........He makes Bernie Madoff look like his hero....image
    ......Larry........image
  • orevilleoreville Posts: 11,950 ✭✭✭✭✭
    The accounting rules for marked to market for losses has been revised by the Financial Accounting Standards Board (FASB)

    The proposals were rammed though giving the public only 14 days to comment.

    This is unprecedented.

    As a CPA, I did not have the time to comment. The worst part of my tax season. I am questioning whether the time element given by the FASB was proper or even permissable.

    Now the toxic assets are suddenly no longer toxic!!!!!!!!
    A Collectors Universe poster since 1997!
  • RedTigerRedTiger Posts: 5,608


    << <i>The accounting rules for marked to market for losses has been revised by the Financial Accounting Standards Board (FASB)

    The proposals were rammed though giving the public only 14 days to comment.

    This is unprecedented.

    As a CPA, I did not have the time to comment. The worst part of my tax season. I am questioning whether the time element given by the FASB was proper or even permissable.

    Now the toxic assets are suddenly no longer toxic!!!!!!!! >>



    Ironic that the "solution" to the problems caused by "no-doc" mortgages, is "no-doc" lenders. The humor is cutting. How long will it be before abuse of these "make-up-any-price-you-want" provisions cause new unintended consequences? This seems like it is going to be world wide. Welcome to a "no-doc" world. And people wonder why I say that in the long, long run, all unbacked paper money approaches zero value.



  • orevilleoreville Posts: 11,950 ✭✭✭✭✭
    Red Tiger:

    You said:



    << <i>Ironic that the "solution" to the problems caused by "no-doc" mortgages, is "no-doc" lenders. The humor is cutting. How long will it be before abuse of these "make-up-any-price-you-want" provisions cause new unintended consequences? This seems like it is going to be world wide. Welcome to a "no-doc" world. And people wonder why I say that in the long, long run, all unbacked paper money approaches zero value. >>



    That statement of yours needs to be published. It is awesome and worthy of inclusion in every newspaper and every blog on the internet.
    I am telling all of my friends of your statement. They are sitting up and taking notice for the very first time.

    It needs to be sent to every bank and every governmental official.

    Good work.
    A Collectors Universe poster since 1997!
  • roadrunnerroadrunner Posts: 28,303 ✭✭✭✭✭
    Ironic that the "solution" to the problems caused by "no-doc" mortgages, is "no-doc" lenders. The humor is cutting. How long will it be before abuse of these "make-up-any-price-you-want" provisions cause new unintended consequences? This seems like it is going to be world wide. Welcome to a "no-doc" world. And people wonder why I say that in the long, long run, all unbacked paper money approaches zero value.

    What about "no-doc" corporations? How can one legitimately determine the value of a company's stock in order to buy or sell it on a major exchange? Isn't just another game of roulette? It would seem that businesses that have no history of participating in such shenanigans would fair the best.

    roadrunner
    Barbarous Relic No More, LSCC -GoldSeek--shadow stats--SafeHaven--321gold
  • cohodkcohodk Posts: 19,071 ✭✭✭✭✭
    I just marked to market my mortgage. I am telling my bank tomorrow my mortgage balance is now 0. Whoohoo!!!
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • storm888storm888 Posts: 11,701 ✭✭✭
    One of my bankers says that he has been told that the FASB relaxation
    involves a simple reversion to discounted cash flow valuations.

    The marks have to be made at least monthly, and in some cases
    weekly. Also, some categories of paper are NOT eligible to be
    moved into the new scheme.

    He says the regulators will now be off the backs of some banks,
    but that lending is not likely to be substantially increased.

    Folks Who Bite Get Bitten. Folks Who Don't Bite Get Eaten.
  • I wondered about that, if they have my mortgage valued at 30 cents on the buck, will they take 35 cents cash as a payoff. The mark to market rule is dumb, but so is mark to model. Why not just mark to current value. Current loans are at face and delinquent ones get reduced.

    Hows this for an idea, lets have the treasury print money to buy T Bills. This will create inflation and then the housing values will exceed the mortgages. Then the deliquent ones can sell and payoff and move back into the apartments where they should have lived all along.

    Is there an opening for me at Treasury? The drive might be a little far especially at $12 bucks a gallon. But Ill be able to afford the $26 happy meal at MickeyDs.
  • storm888storm888 Posts: 11,701 ✭✭✭
    "...Current loans are at face and delinquent ones get reduced..."

    //////////

    That is pretty much what happens, if they look at current cash flows
    discounted by the same methods that have been used forever.



    Folks Who Bite Get Bitten. Folks Who Don't Bite Get Eaten.
  • roadrunnerroadrunner Posts: 28,303 ✭✭✭✭✭
    One of my bankers says that he has been told that the FASB relaxation involves a simple reversion to discounted cash flow valuations.

    I expect the bankers to underplay this just as the Dr. Dooms of the world will overplay it. However to date, the banker's view has been the furthest off...and by a mile. Remember, these are the same bankers who felt derivatives were the best thing ever and reduced risk throughout the system for everyone. When the big banks or the FED/Treasury finally give us an answer that turns out to correctly state or even overstate the remaining problems, then maybe we can start having confidence in the words they say.

    He says the regulators will now be off the backs of some banks,
    but that lending is not likely to be substantially increased.


    25 banks carry 99.78% of the derivative's problem. The top 5 carry
    over 98%. Clearly, the problem is not with "the banks" but with the top 5-25 banks. The regulators should not stray far from these top 25 banks at any time in the near future. It's not Mortgage Backed Securities that has lead the financial system to near ruin, but to the mass quantities of credit default and interest rate swaps that make up 95-98% of all derivatives.

    roadrunner
    Barbarous Relic No More, LSCC -GoldSeek--shadow stats--SafeHaven--321gold
  • jmski52jmski52 Posts: 22,800 ✭✭✭✭✭
    Reggie Middleton has some great insights:

    M2M

    I like his summary which pretty much describes the whole deal in a nutshell:

    Hey, if you catch HIV, and then call all of you political friends, and coerce, threaten or make love to the members of the Medical Boards to change the nomenclature of virus to that of a dermal rash, it does absolutely nothing to extend your lifespan or alter your medical condition. The most it will do is allow you to fool yourself or make it easier for you to pass the disease along to others as you tell them it's just a rash (while still remaining within the confines of technical veracity) as you infect them and put their lives in danger. Just keep that in mind when evaluating the financials under the M2M rules.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • storm888storm888 Posts: 11,701 ✭✭✭
    This very short video addresses the TRILLIONS in derivatives.

    It also mentions that US troops are dying as a result of the
    actions of the same hedgies that created those derivatives.


    video
    Folks Who Bite Get Bitten. Folks Who Don't Bite Get Eaten.
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