Sunday, April 19, 2009

Obama's Slush Fund

"The Obama administration insists it wants to 'partner' with private investors for its new toxic-asset purchase plan. But the more details that emerge, the more it seems Treasury wants to work with only a select few companies. This is no way to conduct a bank clean-up. The investment community was already suspicious last week when Secretary Timothy Geithner unveiled his plan, announcing that Treasury would select four or five companies as 'fund managers' to purchase toxic securities. Given that the whole idea is to create a liquid market for these assets, we'd have thought Treasury would encourage as many players as possible. ... Treasury rules also say the $10 billion limit must be comprised of commercial and residential mortgage-backed securities that as 'secured directly by the actual mortgage loans, leases or other assets and not other securities.' ... While dozens of banks and insurance companies today hold more that $10 billion in toxic securities, the vast majority are trying to get these assets off their books--not lining up to buy more. ... 'This is ugly,' says Joshua Rosner, ther managing director of Graham, Fisher & Co., an independent research firm. 'As long as they are experienced, there is no rational reason for creating limitations on who becomes a bidder and manager of assets. It doesn't serve the public good, though it may serve those few large firms that appear to have a privileged relationship with Treasury.' ... If this program is a roaring success, Treasury is guaranteeing that a select group of hand-picked firms are set to reap enormous profits, via a program that was largely underwritten by taxpayers", my emphasis, Editorial at the WSJ, 1 April 2009.

This is excellent. SecTreas Geithner can polish his resume while on the public payroll. Of course it is a "way to conduct a bank clean-up". The selected parties will do just that.

3 comments:

Anonymous said...

Uhmmm...

I started to think that the 4-5 chosen funds have incentive to bid high on the toxic assets cause they probably have a bunch of them also...

So, in essence, PIMCO/Blackrock et al become market makers with taxpayer leverage...and can mark their own books up... it's a brilliantly conceived deal from their perspective...

And will SecTreas G force the 19 banks to sell their toxins? Probably because he controls both ends of the game now... and has endless taxpayer leverage to do what he wants...

Independent Accountant said...

Anonymous:
Over 30 years ago, there was the King Resources (KR) fraud, involving $82 million, say $600 million today. In it, KR sold a small piece of oil bearing land and based on that sale, wrote up the remainder. To the best of my recollection, John March of Arthur Andersen said something to the effect there was a lot of maneuvering of asset values based on very little cash involved. Sound familiar?

Anonymous said...

IA...

Imagine whole markets moving around like that every tick...

Tick, tick, tick... like currency, CDS, fixed income, thinly traded equities...

Dark markets... yup!