Everyone knows what the problem is. Banks and Tim Geithner think toxic waste is worth more than the anyone is currently willing to pay. Hedge funds, vulture funds, even new funds small investors might be able to buy into, all of them think the prices will go lower. This is a standard practice: if someone is headed for bankruptcy, wait until they file to buy their assets. Of course, you might have to bid against other people, but in this case, there are so many assets that you don’t really have to worry about that. How many of these vultures are AIG counterparties who have already been paid off by the Treasury?
Just how greedy are these people? Consider John Paulson. Last year he made huge returns, 36% after fees in one of his hedge funds, mostly from shorting Fannie Mae and Freddie Mac, Lehman Bros. and other financial institutions early in 2008. What is he doing now?
The biggest opportunity Mr. Paulson sees this year is in buying distressed debt, and the firm has targeted about half the Advantage Fund’s assets to that strategy. …
Paulson estimates that the total size of the distressed debt market at close to $10tn, counting mortgage, corporate, financials and even sovereign debt. This includes about $2.2tn in mortgages. Paulson thinks he knows about a bunch of CDO pools because he shorted them over the last few years, and to do that, he developed proprietary techniques for valuing pools of mortgages by examining their performance. His target price would provide a return of 28% in the best case, 24% in a medium case, and 15% worst case. Of course, Paulson will use leverage to acquire these pools, and it isn’t clear if that is taken into account in his figures.
Dalton Investments, led by Steve Persky, is also interested in this junk. Persky thinks there is about $1tn in toxic mortgages out there. He and his team have software to analyze the performance of pools of mortgages, and have developed models to govern their acquisitions. The fund is averaging 22% return so far.
The Paulson/Geithner plan was to overpay banks for toxic waste, thus recapitalizing them without acknowledging it, and getting nothing for taxpayer money. The new plan is to let private interests use public money to profit from toxic waste. To mollify taxpayers, maybe we get out money back plus a bit of interest, but if the private people overpay, we eat the loss on the loan .
Making it crystal clear, Paul Krugman explains
…the plan’s latest incarnation: a proposal to make low-interest loans to private investors willing to buy up troubled assets. This would certainly drive up the price of toxic waste because it would offer a heads-you-win, tails-we-lose proposition. As described, the plan would let investors profit if asset prices went up but just walk away if prices fell substantially.
The WaPo tells us
The government is seeking to attract private investors to manage and put their own money into these funds by offering to cap their losses and share in the risk of buying the troubled assets.
These investors would likely include hedge funds, private-equity firms and other wealthy Wall Street financiers, according to market analysts and industry executives.
The administration is worried that there might be political fallout over this plan, and I have to admit this plan makes me feel pretty hostile. But that’s not the only reason this is wrong.
Taxpayers are pouring money into the shadow financial system day after day through AIG. The money we poured into save AIG is flowing right back out into the bank accounts of counterparties. We have a short list, but that information is being leaked to serve AIG’s purposes. One of those purposes is to show that if we let AIG fail, there would be world-wide consequences to the financial system.
The short list doesn’t answer important questions like:
1. How many of those counterparties are going to be making mountains of money out of the toxic waste pool?
2. How many of them are going to insist on ludicrous rewards without risk using even more of our money?
3. Why is the US Government such a patsy?
Maybe Jon Stewart could ask?
It’s well past time Congress demanded some answers. Please sign the petition: No More Dough Till We Know Where It Goes.
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And of course, per the WaPo0, AIG is still paying millions in bonuses to “keep the best and brightest talent…”
gee after the last thread, I can just imagine who some of these counterparties are.
We have every right to know who they are.
.
I sure wish we’d get answers to your short list of questions
but I’m not holding my breath.
thanks masaccio.
Reduce leverage from $30 for every $1 of assets to $10 for every $1 of assets
Also where are they getting this leverage from the banks?
You all should have a field day with this new Goggle video that came out March 12th.
The Obama Deception:
http://video.google.com/videop…..95&ei
Krugman’s essay reminds me of an offer I got from my broker to tie up my funds for a year with a guarantee of proportional DOW 30 returns and NO downside LOSS if the DOW performed negatively. It sounded pretty crooked to both of us when he explained it to me, and he backed off. Soon after I bought gold instead.
If it walks like a scam, talks like a scam and even the broker can’t explain it to you – it’s probably a scam.
Thanks masaccio
digg is open
Congress and Obama will look pretty silly if the banks used tax payer dollars to pay the people who will end up making bids as other companies, banks go bankrupt.
Especially when the new owners move the jobs overseas.
We are bailing out the biggest, riskiest, stupidest, richest speculators and in so doing punishing everyone who works for a living.
this is all criminal — it would be, if these firms weren’t the owners of the whole administration — and Congress.
Bloomberg –
Initial interest rates on the Fed’s three-year loans will vary from about 1 percent to 3 percent, also depending on the collateral. Investor returns will stem from the pricing of the securities.
…
The Managed Funds Association, the main trade group for hedge funds, circulated a “fact sheet” on March 11 outlining 15 concerns of its members with a customer agreement provided by primary dealers, the 16 brokers who trade with the New York Fed’s markets desk and help the central bank implement monetary policy.
Signed Off
Attorneys for the dealers revised the contract, though many investors hadn’t signed off on the terms, one participant said on condition of anonymity.
The primary dealers include securities units of Goldman Sachs Group Inc., Morgan Stanley and UBS AG.
Each round of debt offerings after the first will be due to the Fed on the first Tuesday of every month through December, the current end of the program’s authorization by the Fed’s Board of Governors.
The April round will add further types of securities, including ABS backed by vehicle-fleet leases and loans for business, construction and farm equipment. …
— http://www.bloomberg.com/apps/…..er=economy
FWIW, I could not get the Dalton Investments link to work. I’m not sure this link is the one you wanted.
These speculators who want to buy after everyone is bankrupt are missing the bigger picture. Wealth does not mean much if society is unstable. Stalin took Russian nobles property away. Hitler took Jewish property right or left governments need enemies with fat pockets when the economy is bad.
All those Sarah Pallin rally nuts saying Obama Ossama are losing their jobs.
And they are wondering which Pallin kid to mug to get school clothes for their kids.
The GOP thinks yes they hate Black people! The GOP don’t seem to realize that they also like money and the GOP has money.
OT, but I wanted to point out an excellent article at the National Journal throwing some light on the earmarks process, showing it’s not some crazy free for all.
Hat tip Daniel Larison’s blog
It the title to the post a rhetorical question?
These is no way that we can get paid back our tax dollars with interest above the rate of inflation.
Really there is nothing we can do. Our intellectual and financial betters have decided what is going to happen.
We have been screwed. We are screwed. We will be screwed.
That’s the long and the short of it.
The 40-something son of one of my cleaning customers is the acting president of a well-known company in Vermont. Once his time is up with the company, he and a couple of his venture capitalist buddies are planning on forming a company where they buy up these foreclosed homes and then sell them back to the owners at a much lower rate. He was raving about it one day and I said to him, “Isn’t this what got part of the financial sector in trouble, because even at a lower rate the price of the house is so inflated that the homeowner still can’t afford the payment and will most likely cause another toxic mortgage in the end and you’ll end up screwed too?”.
He blinked.
I blinked.
i can’t believe ANYONE would trust any of these “to big to fail” monstrosities for one second or one dollar EVAH AGAIN! i know i won’t, but then i never trusted them anyway. i sit in full comfort around all those friends and family who have always reacted in alarm when they found out i didn’t have a retirement account or own land or have a 401K or any of that.
They’re all so very upset at their losses, OF WHICH I HAVE NONE.
not meaning to gloat, it’s horrific what’s happened to all the people who played that game in good faith because they believed it was the right thing to do, the RESPONSIBLE thing.
i just never played it cause i never trusted it.
thanks masaccio. i have loved reading your work here at the Lake.
and
DUGG!
AIG pays bonuses.
Scary music as the backdrop was useful with a George Bush as a backdrop because it was based on FACTS. See the difference? The Wienies of America so badly want President Obama to be worse than George Bush, but if you read the previous thread before this one, you will find that will never be the case.
Nice try though!
You are one tough cookie. I love the way you confront your customers — and make them think.
Yes.
f*ckers
Not being tough. Just asking a reasonable question with a direct statement to fact. LOL That hurts the wingers tremendously! Bill is a winger with money and sometimes his brain gets clouded with the idea of making fast money. He’s not unusual. Jim Cramer is a liberal who has the same kind of mindset!
Those are fabulous numbers: can I get some?
Interesting idea. Find someone who is upside down on their mortgage cause they paid 600k for a house that’s now worth 300k. Encourage em to walk with the proviso that you’ll buy it from the bank and sell it back to them at say $350. Everyone wins but the bank eh?
Sure, I have 2 hours to watch Larry Johnson pleasure himself with this agitprop nightmare.
What a load.
What I really don’t understand is why the US is such a patsy. I confess I thought Paulson’s competitive juices would prevent him from acting like a wuss, but no. And the new guy is no different.
Maybe we could ask nicely?
This is the biggest heist in history.
hey… master thieves are very much in demand and command top dollar for their services. The very best thieves are kinda comparable to steroid-enhanced baseball stars or alcoholic rockers or stoned talk radio jocks. Priceless.
Honestly, I don’t see anyone winning in that situation unless the bank wants to redo the mortgage at a lower amount to sell to my customer’s son, so he can resell it to the homeowner at a lower rate to make a buck.
I’ll stick to cleaning houses. LOL What these guys want to do sounds very scary to me and unstable.
$5.1 billion
$114 million
You musta missed my #1 :})
Yeah, I did. What’s your beverage of choice? I’m drinking a French cabernet.
At the end of last year, AIG paid out $400 million to the 400 employees who defaulted the company because of their CDS schemes. Yep, they got $1,000,000 a piece as “retention bonuses”.
Hey, the wingers believe if they rename things Americans won’t notice that they’re doing the same thing.
Just finished a glass of cranberry juice with my dinner
Can offer local apple cider as a nonalcoholic beverage.
Needless to say, in the current circumstances, I do not like these comments and find it distasteful and difficult to recommend to you that we must proceed with them.
New post—>>
Obviously, I am having a bizarre nightmare.
Someone please wake me up.
Or put me out of my misery.
Forget services….just huge bonuses….
I’m reading this month’s Harpers and they are talking about unlimited interest rates that are being charged and the money people are making off of things like payday loans. They are also talking about how the need to have crazy returns on investments is what drove all the creations of these “instruments” (aka scams or crapshoots) that sucked all the money out of manufacturing in the US.
It’s really sick but not surprising. If the number one goal is to increase return to shareholders and there are not limits you will do whatever looks like it works. What always cracked me up (in a sick way) was the way that the “high-net worth individuals” were the targets. They were supposed to have enough money to be able to lose it. Of course when they REALLY lost it then well it’s a different story.
It would be interesting to hear the stories of some rich people who aren’t whining. “Yep, I knew it was a risk, I profited for a long time, I stopped paying off, I lost the money, but hey, I signed the document that said I know what I was doing. No need to cry over lost money.”
That would be refreshing.
It makes sense. You wan
The Cabernet might do the trick on that misery thing.
That is the part that made me shake my head too. On what other planet would you get a bonus for helping to blow up the world financial system.
I would love to hear those stories too. One of my cleaning customers is the president of a large food distributor here in Maine while his wife owns a high-end furniture/design store a few towns away. For years under George Bush they were very careful with their money and were so thankful for the ‘working poor’, but now that President Obama is at the helm and their hedgefund they invested in isn’t doing so hot and they’re realizing the scheme before them (they’re not blaming Obama…they’re just now realizing how fake their wealth was for years!)….suddenly!….they’re spending money like raving maniacs. I’m serious. It’s like they know they’re losing money, so to make themselves feel better, they’re spending money so no one knows they’re losing money. I just want to say to them, “Please stop for MY job security”. LOL
It’s kind of sad.
This is my concern as well. The government is handing out money to hedge funds through AIG and various Fed programs that will be used by them to buy up crap assets subsidized and backed by the government. So that we are screwed coming and going.
I have an incredible sinking feeling about this Geithner plan. It could be the biggest looting we have yet seen in all this.
I should also say that if we could look into hedge funds right now and do real accounting of them we would probably see that they are essentially bankrupt too.
All of this involves pushing around a lot of fake financial instruments and exchanging things of real value, like money and physical assets for them.
I wonder if we need a bank holiday, to include financials of all types.
New post: From the Department of STFU Already
At least if the hedge funds are broke, we won’t bail them out. Will we…..
No truth, even less consequences for the looters
Paulson’s plan is a Wall Street/Treasury Dept. three card monte where fatal systemic insolvency is passed off as temporary mega financial firm lack of liquidity. It protects those who have looted the system now by socializing their past losses and allowing them to walk away without prison or restitution.
Simply put, this is fraud.
The ship has struck the iceberg. Radio messages are received stating that there’s been serious structural damage …. the captain & his top officers are piloting the ship to safe harbor …. where dry dock repairs can be completed. Your prayers and patience are needed …. for everyone to get through the crisis …. because we’re all in this boat together. When the ship is repaired & declared seaworthy again …. it will be smooth cruising with room for everyone on board.
Those glued to their radios don’t know that they are listening to a 21st century version of H.G. Wells’ War of the Worlds.
The messages are not being broadcast from the bridge, which along with the rest of the ship, is already on the sea floor under 15,000 feet of water at 6,500+ psi, and has been at least since the great unravelling was exposed in mid-2007.
AIG’s counterparty derivative insurance losses and as yet unrealized liabilities must be kept out of bankruptcy court where everyone involved would be under oath and subject to penalty of perjury. I suspect that none of the CEO’s at the heart of this week’s rally would be testifying about rosy profit pictures this year or next because their obscenely leveraged bets, won or lost or insured against loss, aren’t secured by anything, and therefore, are uncollectible.
The Fed borrowed nearly $180B on the backs of taxpayers and “purchased” 80% of AIG. No one will put a figure on the total liabilities assumed in this manifestly bad deal for the real economy, which will eventually become known for what it is — the second half of George W. Bush’s Mission Accomplished. This illusion cannot be maintained if AIG’s solvent, profitable units are separated from its trillions in unregulated businesses, with taxpayers holding the solvent assets and the counterparty losses left to fend for themselves.
The “Paulson Doesn’t Work Here Anymore” line pushed by Geithner is just the opposite. All of the good assets will be purchased at the fire sale with Wall Street hedge fund bonuses, and taxpayers left to raise a ship that’s already sunk under three tons of debt per square inch.
Leonhardt’s history of looting has the excruciating details:
http://www.nytimes.com/2009/03…..hardt.html
Some of this outrage kind of misses the point: This is the American Way in practice. As Nouriel Roubini notes, our system is one where capital gains are privatized and losses socialized. Or as Gore Vidal put it, America is uniquely about socialism for the rich and capitalism for everybody else. So we already know who these counterparties are — rich people!