Three Wholesale Credit Unions Nationalized As US Securitizes $50 Billion In Legacy Toxic Assets; Failure "Sweep Under The Rug" Friday Just Got Real

Tyler Durden's picture

It is Friday afternoon, and of course the most troubling news come out. Last week it was that the idiots in charge are raising their stake in Ally to 80%; this week also did not disappoint: the WSJ reports what can arguably be the most important story of the week - to wit: the government just seized three wholesale credit unions and has launched an "unusual plan" to manage $50 billion of troubled assets inherited from failed
institutions.
The unions taken into conservatorship include Members United Corporate Federal Credit Union in Warrenville, Ill.,
Southwest Corporate Federal Credit Union of Plano, Texas, and
Constitution Corporate Federal Credit Union, Wallingford, Conn., which
had a total of $19.67 billion in assets as of July. As for the funding of the new bailout program: "To help fund the rescue, the National Credit Union Administration plans
to issue $30 billion to $35 billion in government-guaranteed bonds,
backed by the shaky mortgage-related assets." Once again, uncle Sam bails out those who have committed federal crime and sticks Joe Sixpack with the bill. How is it a crime? "Under federal rules, wholesale credit unions were supposed to invest
only in safe, liquid assets. But some institutions chased higher returns
by loading up on securities backed by subprime mortgages or other risky
loans.
Their portfolios were decimated by the mortgage meltdown."And here is the punchline: "Officials said the plan won't cost taxpayers any money." How can one not simply laugh at the continued lies and crimes that occur each and every day, and are perpetrated by every single person in charge of this collapsing country?

And this kind of shit continues to this day, as the morons at the pension and mutual funds are now loading up on high yield debt and stocks trading at thousands of forward PEs, which will be decimated the second rates start turning up. And guess who will pay for that next rescue, which will come just as "free" as this one, save for the several hundred billion of new bonds that will have to be issued again... and again... and again.

More from the WSJ:

[This intervention] marks the latest aggressive intervention by U.S. government officials
into a corner of the financial system threatened by losses. Bad bets on
mortgage-backed securities have killed five of the nation's 27
wholesale credit unions since March 2009. The federal government, which
now controls about 70% of the total assets at such credit unions, also
said the surviving institutions will be reined in so that they take
fewer risks with their investments.

And some more:

Losses on the mortgage-backed securities held by the five seized credit unions are expected by regulators to total about $15 billion. Wiping out the capital of the failed institutions will cover a chunk of those losses, but the remaining $7 billion to $9.2 billion eventually will be passed along to the nation's 7,445 federally insured credit unions in the form of future assessments.

Bert Ely, a longtime financial-industry consultant in Alexandria, Va., said regulators share some of the blame for the resulting mess because wholesale credit unions were allowed to pursue a strategy that was "viable only because of what clearly has turned out to be excessive risk-taking."

Ms. Matz, the nation's top credit-union regulator, said the investment losses reflect "unprecedented economic times" and "bad decisions" by regulators, credit-union managers and board members "by heavily over-concentrating in mortgage-backed securities."

New regulations issued by the NCUA on Friday will make oversight of wholesale credit unions much tougher and are meant to fix any regulatory shortcomings, she said.

As part of the plan announced Friday, regulators will eventually wind down the operations of the five failed credit unions, which together had about $50 billion in shaky mortgage-backed securities on their books, according to Larry Fazio, NCUA's deputy executive director. Based on current market values, those securities are worth roughly half of their face value, representing a potential loss of $25 billion.

And oddly enough, this whole "viable only because of what clearly has turned out to be excessive risk-taking" strategy continues, and now has focused on pension funds like the Illinois TRS which is counting down the days to its own "conservatorship." Only now it is occurring in broad daylight, with blogs like Zero Hedge discussing it all day, yet nobody taking any action.... Much like nothing would have ever been done on HFT if the criminal practices of the cabal had not been exposed for all to see.

As for the tally, as another reader so well recaps it, here is the tally so far:

The federal government now runs the student loan business, has
controlling interest in the American auto industry, and controls the
wholesale credit industry, which essentially gives them control of
retail credit unions via control of their investment assets. They want
control of the health insurance industry and will take control by
running the private insurance companies out of business. They want
control of individual medical decisions, with veto authority.

We would add that the government also controls the stock market, the bond market, and the FX market.

Can the farce of the US "democratic" experiment just accelerate?

On second thought, the only way things will unravel is not for stock and bonds to gradually go to their fair values around 95% lower, but for everything to burst in a meltup of unprecedented historic proportions, as the very few remaining players terminally cannibalize each other. Perhaps it is time that those hoping for a fresh start start cheering every single uptick in the Dow Jones (the government still doesn't realize the S&P index exists), as all that does is bring us one step closer to the final disequilibrium.

Frankly, we have had enough of this farce.