Friday, September 19, 2008

TARP Plan Covers All Losses

15 comments :

Darth Toll said...

RTC times 1000 (if this is real and not a red herring.) If so, then the great wealth handoff is about to begin in earnest. Can't see how this does anything positive for the markets, but I'm sure our leaders have our best interests in mind so why worry?

Anonymous said...

How can you not see how this is positive for the markets?
It provides a market for banks to value their assets and in turn be able to more accurately determine how much capital reserves are needed. It allows banks to sell assets for which there is currently no market as everyone is hoarding cash. This will go a long way in freeing up credit. The government will probably end up making a handy little profit as well.

Patient Renter said...

The government will probably end up making a handy little profit as well.

You're delusional. If toxic waste was marketable, then the market would buy it.

Anonymous said...

I don't think I am delusional at all. There have been several sales recently of subprime portfolios. One sold a 65 cents on the dollar and another at around 30 cents. Just because there is no market does not mean they are worthless.
Take for example the auction rate securities that I have my down payment funds stuck in. They are AAA rated and highly collateralized, but I can't sell them. There just is no market unless I wanted to take less than par. Once cash gets freed up, I will get my money back.
Until now, nobody had much of a handle on what mortgage debt was worth or how far the underlying assets will fall. Banks were marking it down way below true value and keeping more cash in reserves to shore up the balance sheet. Now that a couple of investors have started to value the assets, banks can actually market up the price, free up cash and start making new loans. This will help the housing market to recover, which will also help to improve the value of the MBS's.
A large number of people are still making payments on their homes and not walking away. If I had the ability to buy some of this debt at 30 cents on the dollar, I would. Over time the underlying assets will appreciate as well. With the government's unlimited balance sheet, it has the ability to hold onto this debt for the long term without worring about meeting capital ratios. My hunch is in 10-15 years billions will be made on the portfolio, that is, unless you think housing will always go down.

by the way, did you see how much the USA made on AIG in the last two days? I loaded up at $2.04. They will survive and be a profitable company in 5-6 years.

smf said...

"There just is no market unless I wanted to take less than par."

I know exactly how you feel!

I have some beanie babies that I bought at $700 a piece. Unfortunately, their value is missed by others.

Ditto for the bargain I got my Yahoo stock at, which was at $150. Soon, I should be able to recoup my investments and then some. After all, their high was over $200.

::snicker::

Listen, there IS a market. It is below the value that you are willing to part with however.

Just don't make the same mistake as others, and then ride this elevator all the way down.

Darth Toll said...

This provides no market, that isn't the point of it. It is a giant wealth transfer and asset looting operation and will make the average person much, much poorer (via monetizing debt). Think of a huge dumpster where all the pigmen banksters throw their garbage and JSP gets to keep it in his back yard forever. Privatize gains and socialize losses, oldest play in the book. If there happens to be some good asset that accidentally winds up in there, be rest assured the pigmen rats will scavenge it before Joe gets to sell it in a yard sale.

Have you heard of a concept called "crowding out"? Big time recessionary and will cause an interest rate spike - very bad for RE. Keep in mind the government spending is not a plus in this case because it is tied up in supporting fictitious capital losses. Think Japan and recession for 20+ years due to zombification of banking system. They have now slipped into recession YET AGAIN.

http://en.wikipedia.org/wiki/Crowding_out_(economics)

Here's another angle. You want massive inflation with no pay raise, you got it buddy!

http://market-ticker.denninger.net/archives/586-Welcome-To-The-USSA.html

My call is AIG will get gutted and the best pieces sold off to various playas. Uncle Sam will be stuck with the toxic derivatives "portfolio". Let's see who is right. You're not clear on this whole wealth-transfer concept are you? It's best to believe basically nothing that the government says, they lie a lot. That way, if a few things turn out to be true, or work out well by pure happenstance, then you'll be pleasantly surprised! If not, then you won't be shocked or disappointed. JMHO.

Anonymous said...

"Just don't make the same mistake as others, and then ride this elevator all the way down."

SMF, you have no idea what an auction rate security is. It is not going to zero. As I already mentioned, there is a market less than par, but why would I take it when I will be made whole by the end of the year?

They should really hire Darth at the federal reserve. He has a link for everything. Oh by the way, my short it really holding out nicely on the 10 year treasury. I think Darth said this was a stupid play a few days ago, but then spouts crowding out and inflationary talk.

Yeah, inflation is coming in 2-3 years. Will it be that bad? No, I don't think so. Will I make a killing in AIG with zero risk at this point, I think so. I am hedged until Jan 2009 with a 2.50 put at zero cost. We will see in the next few weeks how this market does. Without the ability to short the financials, I am going to ride this wave until the election.

Or maybe I will go hide under a rock since I am never going to see another raise and inflation is going to each my children alive.

Get real darth. That apartment you live in decorated with Star Wars posters and action figures must be a lonely place to come home to every night.

smf said...

What do you think my house is decorated with?

Rich said...

Smurfs?

Darth Toll said...

Read it and weep:

"Shorting the 10-year would be a good thing, but for a different reason than you think."

https://www.blogger.com/comment.g?blogID=28269168&postID=108801567729504598

Shorting the ten year is a good idea and I said so. I have shorts on it myself as do you. See, we do have something in common after all!

Anonymous said...

OK Darth. You do bring up great points now and then. I at times just do not think the end result is as dire as your view sometimes portrays.

Darth Toll said...

Read this bad boy through (you too anon!) If Russ is right, this isn't a bailout at all, but rather a giant tar pit that wounded animals get stuck in and get the tar pit bid (ultra low stinky bid):

http://wallstreetexaminer.com/blogs/winter/?p=1918

"Massive Bailout? Hardly, a Massive Tar Pit Instead

Naturally I need to weigh on what is being called the biggest “bailout in history”. I do not believe that is what is going down at all. Instead the US Government is facilitating the greatest asset grab of securities since Alexander Hamilton’s agents and cronies picked off the Continentals from the Rubes back in 1790. Hamilton’s associates (friends of Hamilton) did not pay anything close to par either, instead these Continentals went for enormous discounts. And Paulson’s new Leviathan hedge fund (the US Treasury) will end up paying deeply distressed prices as well. Therefore it is most important to follow the real bouncing ball on this, and not be fooled...Tucked away in the hyperbole of this story is this key element. These are competitive capitulations, and will hardly result in higher security prices, at least not yet. Initially they will simply reinforce low prices. Because these are government transactions there will be higher public transparency to them for all to see, and I doubt if the early response will be necessarily bullish either, but just more conformation as to how much fictitious capital has already evaporated. The use of the word “request” is poor confusing writing style, as I think the operative word is “offer”.

The Treasury would hold several rounds of buying, first purchasing securities from the banks that request the lowest prices, in order to limit the cost to taxpayers. The plan could be broadened to include securities based on other kinds of loans, such as student loans and commercial real estate.

Instead it suggests that the first rounds of Government bids will be mostly stinky or low ball bids. I am convinced this will be done in tandem with a series of bank closures and seizures accompanied by fresh rounds of panic and crisis. This will have the effect of forcing liquidations into the Tar Pit where the stinky bid awaits. Here are the bullet points of how this plays out."

Patient Renter said...

Noteworthy comment from CR:

Sorry, I am going to repeat myself until folks finally stop thinking that the TARP will be buying mortgages. The TARP will be buying the worst of the worst, which the financial institutions need to get off their balance sheet and their shadow balance sheet. The TARP will be buying derivatives of mortgages, or in TARP speak, "mortgage related assets". The derivatives are the worthless tranches of CDOs, CDO squareds, and CDSes based on mortgage based CDOs. These worthless derivatives will not appreciate in value as time goes by.

Patient Renter said...

While we're subtly debating whether or not we should place any faith or trust in our government, one only needs to consider one line from the draft legislation:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be
reviewed by any court of law or any administrative agency.


They want to blatantly circumvent the Constitution and expect us to trust them while they do it?

Patient Renter said...

One more comment, regarding that line from the draft legislation, this is very close to the economic aspects of Fascism.