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PPIP May Have INCREASED the Amount of Some Toxic Assets
In March, I pointed out that:
PPIP [the Public-Private Investment Program] is a massive wealth transfer from taxpayers to investors and banks, and that Treasury funds are being used to sidestep Congress and their constituents - the American people...
Citigroup, Bank of America and other players are already gaming the program (and see this), which will create unintended consequences.
In April, I noted that the former head of structured products at UBS said that game theory exposes PPIP as fraudulent.
Also in April, I predicted that the PPIP will not substantially reduce the amount of toxic assets in the system.
It's turned out to be even worse ...
PPIP has actually increased the amount of some toxic assets.
As Bloomberg notes this morning, some of the nation's largest banks have actually bought more risky home loans instead of getting them off their balance sheets.
As Huffington Post puts it:
In other words, the program that was supposed to help banks dispose of these toxic assets instead made those assets so marketable that banks bought more -- which has pushed Wall Street's titans to even greater exposure to the stalled housing market. The banks apparently decided that the government's entry into the mortgage security market was simply a guaranteed money-making opportunity.
Bloomberg has some choice quotes:
It’s “absolutely ridiculous” that banks, which were expected to reduce their holding of such volatile mortgage securities, bought them before the government program was running and may now profit, said Michael Schlachter, managing director of Wilshire Associates, the Santa Monica, California- based investment-consulting firm. “Some of them created this mess, and they are making a killing undoing it” ...
“Any time the government says, ‘We’re going to buy something in the securities market,’ they’re putting out a sign that says, ‘Free money, come and get it’,” he said.
Well yes . . . isn't that what looting is all about?
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PIPP was always a rigged game from the get go. If Timmy wanted to dump toxic trash from the bank holdings he would have done PIPP as an open auction. Hedge funds, REITs etc. But, no, only special banks and companies like PiMCO were considered and the risk to reward ratio for the taxpayer was absurd. 80% of the risk held by taxpayers for 20% profits. It's BS- a total nobrainer for the special A listers.
Now to boot these banks have been sucking in more risk mortgages preceding the program.
Zombie banks like Citi and BAC are toast. So are most of the community banks.
Eventually the inventory of toxic residential and commerical mortgages sitting both on and off their balance sheets will obliterate what little capital they actually have managed to raise. By repaying TARP these banks have sealed their eventual demise.
The public relations campaign to demonize these banks and their management has now commenced in earnest. You might almost feel sorry for them if they weren't all such cocksuckers. No bailouts will be forthcoming in the next round of deleveraging.
The PPIP has not yet truly started. By the time the program is finished in excess of $1 Trillion will be needed to fund the program.
The real vultures like WL Ross, Soros, et. al. are chomping at the bit waiting for the all clear. This NWO bankers club will buy up bank assets for pennies on the dollar with profits to be guaranteed on the taxpayers' dime.
Jefferson,
I like your posts. Did you see this comment to one of your previous posts? PR
by Wayne Jetton Mon, 01/04/2010 - 13:42
#182166
Jefferson, thank you for your well stated report. For some time I have attempted to spread understanding of the activities of the dominant elite, especially regarding their aggressive assault on the American middle class during the past ten years. You may read my commentary at www.classicalcapital.com Please contact me there if you are willing to communicate.
The Bloomberg article doesn't make much sense but since it blasts the large banks which we all have contempt for (including me), GW and everyone who has commented in this thread thus far goes along with it. Bloomberg points to the increase in the value of bank holdings of mortgage backed securities from the end of Q2 to the end of Q3. Q3 balances are higher so the Bloomberg article asserts these banks "added to holdings" during the quarter. But as the article also states, the value of most mortgage backed securities, particularly senior ones, have appreciated substantially since the March lows. How can Bloomberg tell what part of the difference in MBS on the books of the banks at the end of Q3 versus Q2 is appreciation in existing holdings versus new purchases? They can't.
There are also a lot of references to PPIP. GW asserts, with no evidence other than the faulty Bloomberg article, that PPIP has increased the amount of some toxic assets. PPIP is not issuing new MBS so it cannot increase the supply of them. And as the Bloomberg article points out, PPIP participants weren't even selected until July, then they went about raising money. Some raised enough money, some didn't. TCW was disqualified after a management change in its fixed income group. There have been no indications about how much money has been spent on MBS purchases by the firms participating in PPIP, but it is unlikely that it is a substantial amount relative to the size of the market.
The fact that an article confirms preexisting biases is not a reason to set aside critical thinking facilities and blindly accept it. Unfortunately, confirmation bias is a powerful thing. It is too easy to get out the pitchforks and rant and rave, facts be damned if necessary. The facts of this financial crisis are bad enough without exaggerating them.
You can't really blame the banks for doing what any sane person knew damn well they'd do if given the opportunity, but my contempt for our government plumbs new depths on a daily basis.
Thanks, George Washington, for shining light on the rat's nest of PPIP.
I am hopeful there will be prosecutions. The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) Neil Barofsky's Oct 2009 Quarterly Report to Congress (page 6) states:
"SIGTARP’s Investigations Division has developed into a sophisticated white- collar investigative agency. Through September 30, 2009, SIGTARP has opened 61 and has 54 ongoing criminal and civil investigations. These investigations include complex issues concerning suspected TARP fraud, accounting fraud, securities fraud, insider trading, bank fraud, mortgage fraud, mortgage servicer misconduct, fraudulent advance-fee schemes, public corruption, false statements, obstruction of justice, money laundering, and tax-related investigations."
PPIP is one of the TARP programs that SIGTARP monitors and investigates. Since most of SIGTARP investigations are confidential at this point, it is unknown how many, if any, of the current criminal and civil investigations relate just to PPIP. And since the TARP program is actually a rat's nest of many programs ripe for fraud, the SIGTARP has more than enough to investigate in the far-flung TARP criminal enterprise.
For example, "SIGTARP continues to play a significant role in the investigations by the New York State Attorney General’s Office, the Securities and Exchange Commission (“SEC”), and the Department of Justice (“DOJ”) into the circumstances of Bank of America’s merger with Merrill Lynch and its receipt of additional TARP funds under the Targeted Investment Program (“TIP”). " (page 7)
SIGTARP encourages tips on fraud or other criminal acts relating to PPIP or other TARP programs:
"Nearly 50% of SIGTARP’s ongoing investigations were developed in whole or in part through tips or leads provided on SIGTARP’s Hotline (877-SIG-2009 or accessible at www.SIGTARP.gov). Since its inception, the SIGTARP Hotline received and analyzed more than 7,000 contacts, running the gamut from expressions of concern over the economy to serious allegations of fraud." (page 7)
http://www.sigtarp.gov/reports/congress/2009/October2009_Quarterly_Repor...
Hmmm, call me cynical but I have misgivings here. Lets say that, BoA for instance, gets found guilty is charge a large fine -> Treasury will just create some "found guilty of fraud or other criminal activity relief program (FCARP)" to bail them out, no?
Truly disgusting! A country of LAWS ,not. Just proves to me that being merely human is not enuf.
The honesty is in the spirit of who we are. The body and mind/ego rule the day in the pursuit of power and other desires large and small. We must again respect the very PRESENCE that we are , the very moment we are in, instead of pursuing eternal desires of the human aspects.
The world merely reflects who we are and what we create with our thought. Blame no one, we are each the root cause of our life.
Short religion, long truth and common sense.
PPIP? Oh, I think it's accomplished it's "goal". But perhaps nothing has performed as well as the rouse that is/was TARP. Classic misdirection and carried out very well. But do they have a second trick up their sleeve?
As Bawney said, anything to keep house prices where they are. He said that folks, and he and his colleagues are going to get re-elected, so blame their constituents, and look into the mirror when you do so.
absolutely it has/ did. no question whatsoever.
you're on fire today GW, great show.
I don't think there's any coherent defense against the moral hazard argument anymore...
You guys do not understand. Initially, the PPIP was supposed to use 75-100 bln of TARP money.
Timmi scaled it back to 12 bln. Technically, he saved us
88 bln that we and our kids would have to pay. I bet it will be in his resume - "Saved 88 bln of tax payers' money". This is a perfect example of better than expected news.
And we still have TALF to look forward to!!!
Sure- if the government told me that I could make 80% profits on 20% downpayment and that the asset was backstopped by infinite taxpayer money I'd say SIGN ME UP. I'd also say that the hedge funds that tried to sign up for this and were rejected makes this a clear case of a games system. Basically favored banks who need recapitalization by insider deals got into the program. Real investors who looked at this sweetheart deal were given the middle finger. Another invention by the peabrained Treasury Secretary for a bank profit program. Let's just call all this shit the BEPP- bank easy profits program.
Well, you know what they say, give a banker an inch and hhe will stab you in the throat and screw your dog.