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To Geithner's Disappointment Non-AIG Bidders Emerge For Maiden Lane II Assets, Preventing Another Taxpayer Rout

Tyler Durden's picture




 

When two weeks ago it was disclosed that AIG is willing to pay $15.7 billion for the same toxic securities that two years ago caused AIG to sell 92% of itself to an involuntary taxpayer, and currently make up Maiden Lane II (which is marked on the Fed's books by BlackRock at $15.9 billion) we asked why this process is not open up to broader public auction. After all these are taxpayer assets and should receive an arms-length treatment in recouping best returns for the taxpayer. It seems that other bidders are now starting to appear. The FT reports: "Barclays is among a group of investors weighing a rival bid for a portfolio of mortgage-backed securities that has already drawn a $15.7bn offer from AIG, people familiar with the matter said. AIG, which wants to buy back the assets to reduce its obligations to the government while finding a higher-yielding use for its cash, went public with its bid earlier this month after the New York Fed did not respond to a preliminary offer made in December."

It appears that the Treasury had been hoping to quietly get the deal done where AIG buys the toxic mortgages at a preferential price so that Geithner can than proceed to sell off bits and pieces to bankers at a lowball IPO valuation where the deficit would once again be borne out by US taxpayers.

People familiar with matter said the Treasury had sought to help broker a deal between the insurer and the New York Fed, reasoning that management’s knowledge of the some 800 securities might help squeeze more profits out of them and maximise taxpayers’ returns on their AIG investment. Fed officials remain concerned how a quick deal with AIG might appear to the public, the people said.

At AIG, the plan to buy back the portfolio of mostly subprime mortgage securities has been part of its strategy as it emerges from government ownership.

It is stunning that even the Fed is more concerned about its PR image than Tim Geithner, who has  overstayed his welcome at the US Treasury by over two years. It also goes to show just how greatly Geithner believes he is protected against populist anger by moneyed interests who would do anything to indirectly get their hand on the Maiden Lane II portfolio by purchasing IPO shares in fresh start AIG.

As for how AIG should know MLII better than other - this is debatable. After all, it was this portfolio among many others, that AIG had no idea would send the company into Treasury-mediated receivership.

The insurer has stockpiled about $20bn in cash to purchase the Maiden Lane II assets and similar securities.

“It’s a very different story with or without these securities,” Robert Benmosche, AIG’s chief executive, told the Financial Times. “We can improve yields by 3-4 per cent.”

The increase, Mr Benmosche said, would help AIG reap an additional $500m-$700m in annual income.

Of course, others can do the same math, and reap the same benefit. The only question is at what cost. And here is where the AIG offer is nothing but a stalking horse, even if the Treasury will fight to make sure Benmosche is the winning bidder with his lowball bid. However, as we speculated, others are realizing this could be a potential goldmine, now that the Fed is urgently reflating any and all assets.

Other financial institutions may have reached the same conclusions.

“We have been told that someone else was putting together a bid,” Mr Benmosche said. “I think we can offer a little more, but the price we offered is about it. Until I see a competing bid, I’d have to wait and see.”

Barclays and the New York Fed declined to comment.

On the lookout for more profitable uses of excess capital stockpiled in the wake of the crisis, many banks and investment firms have turned to formerly distressed assets.

Goldman Sachs bought more than $8bn in mortgage-backed securities from State Street in December, people familiar with the matter have said.

It would be very ironic if the general population, especially those who are actively seeking credit, realizes that to the lender banks it is a less risky proposition to acquire toxic mortgage portfolios than to lend out money to those who actually need it at this time (but are delighted to hand it out to those who have no need).

More strategically, it appears this could be the very first appearance of a crack between the tactics of the Fed and the Treasury. Up until now both had operated as a ponzi cabal, in which one buys the other's debt, and remits the interest back in the form of revenue.  Should the implied PR fallout persist, the results could be certainly very amusing and worth following.

 

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Mon, 03/21/2011 - 23:59 | 1084780 The Aviator
The Aviator's picture

Tyler, lets take this viral!!

Crash JP Morgan, Charge Silver!

(With a JP Chase Freedom 0% APR card!)

http://silverdoctors.blogspot.com/2011/03/crash-jp-morgan-charge-silver....

Tue, 03/22/2011 - 00:44 | 1084862 Harlequin001
Harlequin001's picture

So, remind me again how they managed to stockpile $20 billion in cash when all their assets are imploding...

Tue, 03/22/2011 - 00:46 | 1084866 Harmonious_Diss...
Harmonious_Dissonance's picture

drive-thru window @ the FED? I hear you can get frys with that

Tue, 03/22/2011 - 00:51 | 1084877 Michael
Michael's picture

I want to introduce into the minds of men; "The Set of a New Night"; where you can get a restful night's sleep and be assured to wake to a world of peaceful existence. 

Tue, 03/22/2011 - 11:40 | 1085963 Ident 7777 economy
Ident 7777 economy's picture

 

How about peaceful co-existance; peaceful existence could mean becoming a rock or part of the flora ...

Tue, 03/22/2011 - 00:58 | 1084891 zaphod
zaphod's picture

No need to worry, Timmy can sell to anyone he wants and can ignore other offers. Timmy always gets his way!!

Tue, 03/22/2011 - 00:00 | 1084783 The Aviator
The Aviator's picture

Tyler, lets take this viral!!

Crash JP Morgan, Charge Silver!

(With a JP Chase Freedom 0% APR card!)

http://silverdoctors.blogspot.com/2011/03/crash-jp-morgan-charge-silver....

Tue, 03/22/2011 - 08:15 | 1085318 Conrad Murray
Conrad Murray's picture

Just remember, you can't eat silver...and the JewSA zionist fascist police patrolers from BPs arm of the oligarchic Goldman Alumni Association known you have it and will eat your babies to take it.

 

http://www.impeachobamacampaign.com/

Tue, 03/22/2011 - 00:01 | 1084787 scythian empire
scythian empire's picture

that open market thing is just far too capitalist.

Tue, 03/22/2011 - 06:10 | 1085191 chunga
chunga's picture

Wow. Even Joe six-pack will have a hard time swallowing this. Forget switching the pitchforks to full-auto...we need cruise missiles. Obama had better set his priorities to get the NFL back on track. If not, the riots begin in September...

Tue, 03/22/2011 - 07:10 | 1085225 Quaderratic Probing
Quaderratic Probing's picture

Joe 6 pack has not even noticed that he is Joe 3 pack now

Tue, 03/22/2011 - 00:10 | 1084807 Misean
Misean's picture

Didn't Barclays implode with the carry trade last week, until the CB's hit the reset button with the Honda-Accord? I only ask because I am curious how an entity that is so poorly positioned that the Japan event could destroy them could take on $20B in toxic mBS...But I guess that's why I'm among the little people and not the Captains of Kleptocracy.

Tue, 03/22/2011 - 00:53 | 1084882 Harlequin001
Harlequin001's picture

Misean, we live in an environment where nothing need ever be sold, simply revalued higher and pledged as new collateral to a CB in exchange for newly printed cash which is created from thin air which, from the tone of your post, I'm sure you are well aware.

There is no such thing as 'mark to market' when we have no market or that market is false. We simply need an entity that can issue any valuation it chooses despite reality and we have these entities in central banks.

As  long as we can create new money, Barclays et al will always have money, that's the new economy. And if you want to know how much fun that is, just wait until you have to compete for housing with a sovereign wealth fund that creates its investment capital from well, nothing...

$ 20 billion, small change.

Tue, 03/22/2011 - 00:59 | 1084899 Misean
Misean's picture

I'm aware, but probing for those little unoticed things that cause the system to throw its gears. Along the lines of "The target area is only two meters wide. It's a small thermal exhaust port, right below the main port. The shaft leads directly to the reactor system."

More to have a few hours head start out of the concrete jungle to the bunker than anything else. But a profit opp is a profit opp as well.

After all it is a complicated pile of lies, this ponzi they have built.

Tue, 03/22/2011 - 01:08 | 1084908 Xkwisetly Paneful
Xkwisetly Paneful's picture

Please if the banks and AIG were card carrying labor shops like GM- raping, pillaging and looting the treasury would be just fine to the union bots and class warfare nitwits.

Tue, 03/22/2011 - 01:15 | 1084927 Misean
Misean's picture

Wow, that's the best example of a non sequitor wrapped in an ad hominem inside a pile of bull shit I've ever read.

Tue, 03/22/2011 - 01:26 | 1084948 Xkwisetly Paneful
Xkwisetly Paneful's picture

Awesome with the world ending as anyone knows it tomorrow or the day after it won't be topped.

Good thing the ruling class involved in all insurance companies not named AIG are cleaning up with AIG using treasury money to buy business away from them and using same treasury money to offset the zero interest currently being paid on reserves.

 

Isn't competing with the federal and state government wonderful? Good thing they the largest employer, consumer, borrower, lender, real property owner, landlord, tenant and parents to 50million people in the land,

but all that is benign of course-just ask the typical patron at ZH.

Tue, 03/22/2011 - 02:29 | 1085064 American Dissident
American Dissident's picture

Indeed.  I suppose we can take solace in knowing that at-least Bull Shit actually has intrinsic value.  

Tue, 03/22/2011 - 02:24 | 1085061 Andy Lewis
Andy Lewis's picture

Phuque off, scab.

Tue, 03/22/2011 - 01:35 | 1084989 Harlequin001
Harlequin001's picture

Misean, I assume when you say this 'those little unoticed things that cause the system to throw its gears' that you are referring to the inevitability of logic, mathematics, real accountability etc...

None of that here.

Force be with you and all that...

That's the problem with films today, not enough explosions...

Tue, 03/22/2011 - 06:39 | 1085008 Harlequin001
Harlequin001's picture

submitted twice due to connection problems...

Tue, 03/22/2011 - 06:40 | 1085010 Harlequin001
Harlequin001's picture

.

Tue, 03/22/2011 - 01:25 | 1084949 francis_sawyer
francis_sawyer's picture

we live in an environment where nothing need ever be sold, simply revalued higher and pledged as new collateral to a CB in exchange for newly printed cash which is created from thin air which, from the tone of your post, I'm sure you are well aware.

There is no such thing as 'mark to market' when we have no market or that market is false. We simply need an entity that can issue any valuation it chooses despite reality and we have these entities in central banks.

As  long as we can create new money, Barclays et al will always have money, that's the new economy

---

Hmmm... Interesting... I'm pretty much thinking King GEORGE III was thinking the same thing...

Fast forward 2 centuries... (Geroge III = BHO)... Not the SAME, I know... but it sure rhymes...

 

 

Tue, 03/22/2011 - 03:02 | 1085087 Harlequin001
Harlequin001's picture

To be honest I don't think you're too far wide of the mark with that one...

 

Tue, 03/22/2011 - 06:41 | 1084888 Harlequin001
Harlequin001's picture

submitted twice due to connection problems

Tue, 03/22/2011 - 00:13 | 1084813 glenlloyd
glenlloyd's picture

Open it up to bid, what better way to encourage true price discovery. Let them fight over it.

OTOH, if QE3 doesn't appear then won't all this previously toxic crap just become more toxic?

I'd be selling that stuff before the end of QE2

Tue, 03/22/2011 - 00:38 | 1084856 cosmictrainwreck
cosmictrainwreck's picture

price discovery... a rare phenomenon, indeed. they should try it on all the bullshit marked-to-fantasy stuff. BTW, how's it going on that Derivatives bourse they set up? lulz 

Tue, 03/22/2011 - 11:58 | 1086141 RockyRacoon
Tue, 03/22/2011 - 00:19 | 1084821 TheGoodDoctor
TheGoodDoctor's picture

Well, I hope that AIG buys it and then the market goes to shit so they fail. Fuck em. This criminal activity is getting old.

Tue, 03/22/2011 - 00:59 | 1084893 Harlequin001
Harlequin001's picture

yes, and then you can bail them out again, and again, and again...

It needs to be written down if not written off.

Tue, 03/22/2011 - 00:22 | 1084828 francis_sawyer
francis_sawyer's picture

I'll have to check my notes, but didn't BLACKROCK "remove" all rate hike hedge exposure to the Maiden Lane portfolio (to save a few pennies) back in something like May 2009?

Cracks indeed...

 

Tue, 03/22/2011 - 00:36 | 1084852 wisefool
wisefool's picture

It was not dissemiated to timmay and his progammers.

Tue, 03/22/2011 - 00:24 | 1084833 lincolnsteffens
lincolnsteffens's picture

Tyler,

Don't you ever sleep?

Tue, 03/22/2011 - 00:35 | 1084849 reader2010
reader2010's picture

He's outsourced some of posting jobs to India.

Tue, 03/22/2011 - 00:59 | 1084898 cosmictrainwreck
cosmictrainwreck's picture

mutiple personality dissociative disorder.....he's literally "all over the place" 24/7

Tue, 03/22/2011 - 00:38 | 1084855 Seasmoke
Seasmoke's picture

Timmy tax cheat , is sadly mistaken if he thinks he is protected from the populist anger.....my best guess is he will the first person the masses go after

Tue, 03/22/2011 - 00:58 | 1084890 francis_sawyer
francis_sawyer's picture

Correction...

The "frontline" of the assault will be the poor average innocent who makes the mistake of informing the customer that they can only order off the WHAMMY BURGER menu after 11:30AM at Taco Bell...

Our only hope is that if TIMMEH's "Undercover Boss" role is on such a frontline...

Tue, 03/22/2011 - 03:12 | 1085093 Harlequin001
Harlequin001's picture

Nuke'em. I like my burgers well done...

Tue, 03/22/2011 - 00:41 | 1084858 Xkwisetly Paneful
Xkwisetly Paneful's picture

Who's fault is it that this website is almost always insanely slow?

Tue, 03/22/2011 - 00:42 | 1084864 Misean
Misean's picture

Yours.

Tue, 03/22/2011 - 05:55 | 1085182 cranky-old-geezer
cranky-old-geezer's picture

Could it be that 300 baud dialup modem on your Kaypro II?  :)

Tue, 03/22/2011 - 07:52 | 1085265 Tanz der Lemminge
Tanz der Lemminge's picture

Maybe Dell will give you a trade-in cresit for your Timex Sinclair?

Tue, 03/22/2011 - 01:01 | 1084884 Xkwisetly Paneful
Xkwisetly Paneful's picture

No can't be! has to be that ever oppressive  ruling class somehow, or maybe those evil banksters if not maybe one of those US federal insiders from 9/11?

 

Error 503 Service Unavailable

Service Unavailable

Guru Meditation:

XID: 666654285

Varnish Mixed in with a half dozen Wordpress this site unavailables, and nothing new tonight from most other nights-at the slowest times of the day. But since you on a solar powered Commodore Vic 20 I get it.
Tue, 03/22/2011 - 01:02 | 1084901 francis_sawyer
francis_sawyer's picture

I'm thinking it just "feels" slow to you because you're applying your HOOKED ON PHONICS lessons and techniques to reading the threads & comments...

Tue, 03/22/2011 - 01:16 | 1084931 Xkwisetly Paneful
Xkwisetly Paneful's picture

Are you sure it isn't those evil zionistas or some government depressing the speed or maybe the cartel currently manipulating gold? maybe it is just good old fashioned global warming or perhaps my machine caught that dreaded pig flu. I got it! Has to be that Y2K kicking in 10yrs late.

No "feeling" to the server error I posted or the other ones I referenced.  Hooked on phonics? Nah but Rosetta Stone is one of the better buys both product and stock wise out there these days.

Tue, 03/22/2011 - 01:37 | 1084996 francis_sawyer
francis_sawyer's picture

Well if I were you... I'd go with the evil zionists, who were manipulating gold in Y2K because they contracted the pig flu due to global warming...

But that would be too "consonantly/richly paneful" to endure...

So I'll just go with LOCATION, LOCATION, LOCATION... (Must have something to do with Xenon levels - Maybe too many cans of used "Redi-Whip" in the basement)... 

Tue, 03/22/2011 - 01:37 | 1085001 francis_sawyer
francis_sawyer's picture

Well if I were you... I'd go with the evil zionists, who were manipulating gold in Y2K because they contracted the pig flu due to global warming...

But that would be too "consonantly/richly paneful" to endure...

So I'll just go with LOCATION, LOCATION, LOCATION... (Must have something to do with Xenon levels - Maybe too many cans of used "Redi-Whip" in the basement)... 

Tue, 03/22/2011 - 01:43 | 1085009 Xkwisetly Paneful
Xkwisetly Paneful's picture

WOW double post, Harlequin has about five in this thread alone and there is another below here.

 I am sure they have nothing to do with the speed of the site.

Tue, 03/22/2011 - 01:53 | 1085035 francis_sawyer
francis_sawyer's picture

I stand humbled & corrected at the moment (4 posts)...

Must be the empty "Redi Whip" canisters in my basement... LOL

 

Tue, 03/22/2011 - 01:42 | 1085012 francis_sawyer
francis_sawyer's picture

Well if I were you... I'd go with the evil zionists, who were manipulating gold in Y2K because they contracted the pig flu due to global warming...

But that would be too "consonantly/richly paneful" to endure...

So I'll just go with LOCATION, LOCATION, LOCATION... (Must have something to do with Xenon levels - Maybe too many cans of used "Redi-Whip" in the basement)... 

Tue, 03/22/2011 - 01:43 | 1085013 francis_sawyer
francis_sawyer's picture

Well if I were you... I'd go with the evil zionists, who were manipulating gold in Y2K because they contracted the pig flu due to global warming...

But that would be too "consonantly/richly paneful" to endure...

So I'll just go with LOCATION, LOCATION, LOCATION... (Must have something to do with Xenon levels - Maybe too many cans of used "Redi-Whip" in the basement)... 

Tue, 03/22/2011 - 01:47 | 1085030 Xkwisetly Paneful
Xkwisetly Paneful's picture

Quadruple post -impatient much?

 

Nah nothing to do with the site, everyone is hooked on phonics.

Just another case of the incredibly idiotic moron me-getting it while the desperately wanting to be comedic intellectual doesn't.

Tue, 03/22/2011 - 01:53 | 1085038 francis_sawyer
francis_sawyer's picture

read 1:53 above...

I swear I only clicked SAVE once...

 

Tue, 03/22/2011 - 01:06 | 1084906 Widowmaker
Widowmaker's picture

Awesome, Peter, meet Paul.

Together you can loot the treasury whilst pointing at the other and no one will see it coming...

Record bonuses for all.

Tue, 03/22/2011 - 01:17 | 1084929 docj
docj's picture

It's all going according the the script, right Benron?  Right Turbo Timmay?

Sounds like some "undesirables" are trying to barge in to Benron and Tiny Timmy's exclusive club and are being told nobody wants "their kind" around here.  Popcorn at the ready.

Tue, 03/22/2011 - 01:29 | 1084973 Augustus
Augustus's picture

Wait.  Wait.  Wait.

Wasn't the claim being made just a few months ago that EVERYTHING in all of the Maiden Lane entities was absolutely worthless?  Didn't I read something about the same as that from the posts here on ZH?

But now there is accusation of conspiracy theory involved when there is an offer to purchase this worthless paper for greater than $15 billion.  The Fed is not going to be getting fair value at that price seem to be the theory.

 

Tue, 03/22/2011 - 06:22 | 1085200 Freewheelin Franklin
Freewheelin Franklin's picture

As of October 31, 2008, the ML II LLC portfolio of assets had an estimated fair value of $20.5 billion and a par value of approximately $39.3 billion.

http://www.newyorkfed.org/markets/maidenlane.html#maidenlane2

 

$15 billion for $40 billion. 37 cents on the dollar?  Mmmmmmmmmmm, fire sale.

Tue, 03/22/2011 - 06:30 | 1085204 sudzee
sudzee's picture

Will any deal involve taxpayer guarantees for riskless megaprofit.

The FED has another 1/2 trillion in wonderful assets to move to treasury. Unload 124billion and reload.

Tue, 03/22/2011 - 01:31 | 1084982 Augustus
Augustus's picture

Wait.  Wait.  Wait.

Wasn't the claim being made just a few months ago that EVERYTHING in all of the Maiden Lane entities was absolutely worthless?  Didn't I read something about the same as that from the posts here on ZH?

But now there is accusation of conspiracy theory involved when there is an offer to purchase this worthless paper for greater than $15 billion.  The Fed is not going to be getting fair value at that price seem to be the theory.

 

Tue, 03/22/2011 - 01:49 | 1085033 CD
CD's picture

For a guy who thoroughly mistrusts and ridicules the contents on ZH, and generally pipes up only to disparage them, you come back often.

You appear to have missed the premise, in that a) having a recorded sale at a given price CREATES the (illusory or not) market value of the portfolio, and b) the fact that the portfolio is floated/implicitly backed by the Fed and the lack of honest and/or transparent accounting. Hell, Barclays is practically buying insurance by acquiring the portfolio and becoming even bigger TF.

Tue, 03/22/2011 - 02:25 | 1085063 taraxias
taraxias's picture

Why did you waste so many words? I would have just told him he's a fucktard.

Tue, 03/22/2011 - 02:43 | 1085080 CD
CD's picture

You have a point, but was trying to get a response. He's a pretty sharp fellow, despite being a condescending, contrarian-for-the-hell-of-it SOB...

Tue, 03/22/2011 - 01:36 | 1084992 wisefool
wisefool's picture

The #1 revenuer in the whole United States of america used Turbotax to file his taxes. And a bunch of senators were afraid of him, so they let it pass.

 

None of you can question the Timmay.

Tue, 03/22/2011 - 02:01 | 1085040 CD
CD's picture

OT, but we can all enjoy the NYFRB's new blog:

http://libertystreeteconomics.newyorkfed.org/

"Liberty Street Economics will also publish your comments and our responses in the hope of generating valuable dialogues. Like most bloggers, we will place some restrictions on the comments that we publish (see the Comment Guidelinesin the left column), and because each comment will be reviewed by our staff, we will impose a twenty-four-hour deadline for the submission of comments on each post. The author(s) of the post will then provide a response to the posted comments within an additional twenty-four hours. We think that these parameters will allow for meaningful interactions, and we will review these policies as we gain more experience."

I would encourage more economically erudite readers to engage (politely), just to see what may happen...

Their inaugural post ask the question:

Have Consumers Been Deleveraging?

(h/t Felix Salmon)

Tue, 03/22/2011 - 02:16 | 1085052 francis_sawyer
francis_sawyer's picture

"Have consumers Been Deleveraging?"

Yeah... We've been closing out our bank accounts and buying silver rounds with the FRN cash...

Does that answer your question you morons?

 

Tue, 03/22/2011 - 02:18 | 1085055 Catullus
Catullus's picture

I suppose if you're going to drive in a round about, you might as well let British bank Barclays do it for you.  These "assets" linked to nothing are going to go through this round tripping excercise up until the very last days of the ponzi, even if that's 60 years from now. The bookkeeping excercise is fun though. 

Tue, 03/22/2011 - 03:05 | 1085089 tony bonn
tony bonn's picture

there will be no pr fallout....all of this is theatircs for the stupified public and doubters that frb, treaury, and wallstreet are incestuous whores dancing around a used condom....

aig should be dismantled and sold off in bits and pieces....

this is a clear signal that qe3 cometh...

Tue, 03/22/2011 - 03:13 | 1085092 Ahmeexnal
Ahmeexnal's picture

silver breakout in the next days, check out turd's blog.

Watch out for those Z-backscatter vans, they're all over the place looking for your PMs!

Tue, 03/22/2011 - 04:11 | 1085134 yxhlhq
yxhlhq's picture

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Tue, 03/22/2011 - 05:09 | 1085163 jmc8888
jmc8888's picture

Fast forward to the next crash....and the gov't will 'bailout' the same entities, buying the same toxic crap again, that oh yeah is worthless to begin with.  See MERS.

I just knew at some point they were going to want it back, because it generates cash flow.  As long as the bailouts keep flowing, and the assets are propped up, even completely worthless shit will bring in money.  In pretend-o land this is the epitomy of efficient markets.

Glass-Steagall...or we'll be bailing out the same worthless shit over, and over, and over again until all the Cesium is out of the Japanese sushi supply.....and Popeye's spinach.

 

Tue, 03/22/2011 - 06:57 | 1085217 zhandax
zhandax's picture

Put two and two together people... although considered a septic pile of wookie-doo for the last couple of years, here lies a big stinking pile of marginally-encumbered real estate.  Put this with Leo's latest article about the Swedish SWF wanting to put money into real estate to compensate inflation, and watch out.  There may be gold in them there dung piles.  I smell the taxpayer is about to be sold out yet again.  Bear the risk during the siege and then sell cheap....involuntarily.

Dare I say it? There may be some on the global stage more concerned with inflation than we are?

Tue, 03/22/2011 - 08:00 | 1085287 paddy0761
paddy0761's picture

It is a world gone mad. Each day I see the low volume Zombie Stomp of the equity markets as Bernankenstein's Monster lurches forward toward its ultimate demise; a grotesque parody of a free market. This hideous paper-mache monstrosity, held together with gaffer tape, will explode the moment the robot algorithms are tripped; and all the people will be left with, is confetti.

 

Tue, 03/22/2011 - 08:36 | 1085365 jkruffin
jkruffin's picture

So, how does Timmy plan on selling his toxic assets that are over-inflated on price, when there is no mark to market rules? All that will essentially be done is the Trsy will be allowing Goldman and JPM to start shorting these MBS again because they are not priced correctly, and then viola you have the next meltdown.

Is the FASB even paying attention to what is about to happen? I guess not.

I mean really, no one wanted to buy what Benny and Timmy were forced to buy, and now all of a sudden they want to buy it?  HA, I don't see it.  Anyone who buys these toxic assets are going to end up with massive losses as GS/JPM bet against them again to fail.

Tue, 03/22/2011 - 08:51 | 1085405 Downtoolong
Downtoolong's picture

When the bid gets to $16 billion Goldman Sachs will probably short it. Now that the government is their biggest client, they might as well front run it like they do all the rest of their clients. Come to think of it, that's what they've been doing already in every Fed POMO, right?

Tue, 03/22/2011 - 09:18 | 1085494 RockyRacoon
RockyRacoon's picture

Looks like the cycle is not yet complete -- the parallel to the Great Depression that is.

Some years left yet to duplicate the sorrow and the lost fortunes.

A little taste from Frederick J. Sheehan.  See link to the whole article below the quote:

"Current theories and books written about the Depression do not dwell on the 1920s real estate boom. Real estate lending in the 1920s might rival the recent debacle, in form, if not degree. There was a flight to the suburbs. Inflated civic conceit hired construction crews to build houses, roads, sewers, schools, skyscrapers, and highways that crossed the country for the first time. When Treasury "Secretary Mellon endeavored to cut back federal spending, state and local governments stepped up spending at a rate that more than offset the Mellon program...."

I will continue with some more quotes - my point being that it is not necessary to talk about the past two decades to understand why municipal finance is in disarray. The town librarian could have gathered previously documented warnings. In those locales where the library has been closed for lack of funds - and there are many - a moderate level of common sense would have noted the city elders had lost control, and possibly, their minds.

In March, 1933, Professor Herbert D. Simpson gave a lecture at the 45th annual meeting of the American Economic Association:

"Throughout this period - [he was speaking of the 1920s] - there was another form of real estate speculation, not commonly classified as such, but one that has had disastrous consequences. This is the real estate "speculation" carried on by municipal governments, in the sense of basing approximately 80 per cent of their revenues upon real estate and then proceeding to erect a structure of public expenditure and public debt whose security depended largely on a continuance on the rate of profits and appreciation that had characterized the period from 1922-29."

Per Hillhouse, Simpson tried to steer municipal financing from its dependence on house building and price appreciation:

"The financial difficulties of local governments in consequence of both the inflation and deflation of real estate values demonstrates strikingly the unwisdom of a revenue system concentrated so heavily upon real estate..."

This elicits a truism that was ignored in equal parts during our twenty-first century mortgage and municipal bubbles: When asset prices fall, the collateral falls, but borrowed money, linked to the original asset price, still needs to be paid back.

Simpson recounted the credulity with which the citizenry accepted heavier property taxes in the 1920s. Similar to our recent splurge, the Jazz-Age home dweller did not mind that property tax revenues, municipal borrowing and municipal spending were all inflating - at unsustainable rates. The forgotten professor went on:

"During this period of prosperity, real estate taxes were paid with little complaint.... [U]nder these conditions, public expenditures expanded and taxes were increased without protest; and public officials exploited the real estate groups as systematically and thoroughly as the real estate groups had exploited the rest of the public. The result has been a structure of public expenditure which has been difficult to curtail, and a volume of indebtedness whose solvency is now jeopardized on a large scale."

Morgan partner Dwight Morrow was not a fan of his New Era - the 1920s New Era. He knew the asset inflation would come to a bad end. Morrow wrote: "It is the social effect which is so dangerous. It transfers the habit of spending from those who have long experience of spending to those who have no experience.""

Ignorance and Opportunity

 

Tue, 03/22/2011 - 09:51 | 1085611 Augustus
Augustus's picture

Wait.  Wait.  Wait.

Wasn't the claim being made just a few months ago that EVERYTHING in all of the Maiden Lane entities was absolutely worthless?  Didn't I read something about the same as that from the posts here on ZH?

But now there is accusation of conspiracy theory involved when there is an offer to purchase this worthless paper for greater than $15 billion.  The Fed is not going to be getting fair value at that price seem to be the theory.

 

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