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Biz Booming at Geithner's Private Bank
Tim Geithner hit the ground running in January when he took over as
Treas. Sec. He had a lot on his plate. One of his smaller
responsibilities was the Federal Financing Bank (FFB). Mr. Geithner has
knocked the cover off with this one. So far this year the FFB has
increased its portfolio by 50%. By asset size, FFB would have ranked
35th in the USA at the end of 2008. Today it would be ranked about
25th. Clearly a job well done.
The FFB is a child of the 70’s.
It appears to have been a doghouse lender for years. The following
looks at the FFB loan book. The numbers involved are peanuts compared
to the big numbers that are being tossed around D.C. However there is a
window into the thinking of Treasury in their lending activity.
The
FFB business model is simple. They borrow money from Treasury and lend
it to government Agencies. They take a small spread on the loans to
cover administrative costs. Because all these loans are to ‘family’
members there is supposed to be no credit risk. On this
issue FFB says:
The Bank has not incurred and does not expect to incur any credit-related losses on its loans.
Well,
that sounds good. It is not clear to me that this is the case. The following is a description/discussion of the loan book at the end of
July. You tell me if all this is money good.
-The
$18+ billion outstanding to the National Credit Union Association jumps
out. NCUA is the FDIC for America’s Credit Unions. They provide the
insurance guarantee (up to $250,000) on the deposits of these entities.
There are a total of 9,369 CUs. They have assets in excess of $600
billion. So this is a big deal.
The CUs bought big into
“investment” grade MBS and got killed. Several of the big CUs have
folded this year. An interesting discussion on this mess comes from a
5/15/09 statement to Congress, “The Credit Union Share Insurance Stabilization Act’.
This from the report:
"Both
external and internal analyses have consistently shown that the
projected MBS credit losses in the corporate system are real, highly
likely, and relatively large."
That does not sound so good. The NCUA is a bailout to be. To assume that there is no potential for losses here is wrong.
Note:
This may be a blueprint for a fix of the FDIC. Sheila Bair has said the
problem with her Agency is “liquidity” not “solvency”. She could make
use of the cheap money from FFB, as does NCUA. Note that there is
already a line open on the report for the FDIC. Call this a blank check.
-I
am reasonably sure that the Post Office will make good on its $6.5
billion of loans outstanding. The PO is an Agency of the US Government,
but Uncle Sam does not guarantee their debts. This would appear to be
outside of the scope of FFB. I assume there is a ‘carve out’ to allow
this advance.
The folks at the PO must drive a hard bargain. Look at the rates that were set in July. Sweet deal!
-The
FFB has a total of $20 billion outstanding to rural utilities. I am not
sure that all of these borrowers are money good. The following is a
description of the July 09 activity. Note that loans are being made for
32 years in a number of cases. The lending rates are at a fraction
above Treasury’s cost to issue debt for similar maturities. This looks
like cheap Preferred Stock pricing, not debt. This is a subsidy.
-The
$492mm of HOPE bonds that the FFB purchased are being held at cost.
That might be because very little of this money has been spent. The WSJ
wrote on this recently. The HOPE money from Treasury was supposed to be
used to help troubled borrowers restructure underwater mortgages. This
is the grist for debt relief. When it is spent (it will be) it will be
lost. The FFB is fooling itself and us by keeping this ‘investment’ on
the books at par. Check out the reset rates. 18BP for three-month
money. Thank Bernanke for that.
-The
$2 billion to the GSA, the $600mm for Financing for Foreign Military
Sales and the $600 mm of HUD notes are just a mystery. This is off
balance sheet financing. That makes the FFB a SPIV for the government.
-The
FFB will not lose money on its loan book, but future taxpayers will be
obligated to fund the Agencies who are the borrowers so those loans can
be repaid. Cheap money with no payback plan just creates bad borrowers.
We have seen that. At a minimum, the FFB should revise its loan terms.
Borrowers should be obligated to repay in a reasonable period of time.
There should be a source of repayment defined in advance. The interest
rates on these loans should be at market rates. The intent of this
would be to make it more difficult for Government Agencys to finance
themselves outside of budgets they are allotted. Exactly the opposite
of the way it is has always been done.
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Great look at the bizarre piece of the government.
Weird seeing FDIC at 0.
Also strange seeing that rate on Post Office. Just more ways to hide problems by sticking it on national debt.
There are 4 boxes to use in the defense of liberty: soap, ballot, jury, ammo. If we don't use some of the third, we may have to skip directly to number 4.
MSM does not care. It only wants its ratings up and that will happen only when a rosy picture is painted for the "hed-in-the-sand" America...
this article should also be published in the wsj, nyt, wapo.
great job Bruce and I mean it.
Thank you.
Agreed, this is pretty important stuff, hopefully the MSM will pick up on it.
anyone have any information about Virginia Credit Union? I am a member and need to know. Thanks!
I know nothing specific to them, but check into or google the sites below; among them one could probably dig into recent quarterly information.
Most stresses in that industry are generating from the Corporate network, moreso than the individual retail CU. The retail CU's still avg high capital ratios, at least on a nationwide average.
NCUA: national credit union admin
NAFCU: national assn of federal CU
Most states also have a CU 'league'...ie Virginia CU league or something similar.
I wonder why Southern Iowa Electric gets stung 4.414% on 500 thousand while Central Power Elec. only has to pay 0.254% on 15 million?
Unless Central Electric provides the free 110kV feed to Geithner's 100 acre underground pot plantation. That would explain it.
One has a 3-month maturity, and the other has a 400 month maturity. drink more coffee
We really need to turn the culture of debt creation and debt accumulation on it head society wise.
What better place to start than the U.S. Treasury.
when you read where Goldman apparently privately acknowledged that the MBS they were peddling was crap but nevertheless dumped it on unsuspecting smaller financial institutions wrapped in nice AAA approval "packaging" from complicit ratings agencies, and now these same financial institutions are allowed to fail by the same government that bails out the too big to fail perpetrators, it makes one (me at least) wonder whether this was part of a broader conspiracy.
this is a perversion of justice to say the least.
change we can believe in? what a complete farce Obama is.
as a follower/member of credit unions, I can help on a part of your argument here: the distinction is that Corporate CUs (wholesale institutions, not retail) invested in MBS & other securities (Agency, corporates) and 2 of the largest institutions were folded by NCUA in mid-March 2009. Up to this point (to my knowledge anywho), no federal money has been used in the aid of the CU industry. Every step has passed & is currently sourced from the natural person CU themselves, and remains a fluid situation.
*Natural person credit unions are entities like Navy Federal or State Employee North Carolina, 2 of the larger ones around. These were basically not allowed to purchase any security for investment much crazier than an agency-issued MBS/CMO.
The CLF, if I recall correctly was typically intended as a tertiary funding source when liquidity became dire. I reserve the right to be wrong or mis-stating on the CLF though.
With a cumulative trade deficit of $10 T, $13 T in up
to 80% monetized Treasury Debt, $100 T in unfunded
government alphabet agency mandate liabilities and
$600 T in imploding derivatives, with a
Ponzi scheme Wall Street Corporate Government,
these may be interesting times indeed,
perhaps more so than from 1930 on...
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