The Joker Takes Over American Financial Policy

by: Chris Bowers

Mon Feb 02, 2009 at 15:26


Americans of all stripes are justifiably upset over the looming Obama administration plan to spend $250 billion on purchasing worthless assets from banks. Among many of the progressives vocing opposition to this plan, Jane Hamsher, Paul Krugman and Joseph Stiglitz had some choice words on the matter today. I am with all of them, in that I too oppose The Joker becoming Treasury Secretary.

However, there is something we have overlooked in the argument over spending $250 billion to purchase toxic assets: we have already spent $2.4 trillion purchasing toxic assets. While it is still a bad idea to spend another $250 billion doing this, it would actually only increase the price tag by 10%:

It gets worse. While Washington debates TARP II, the Federal Reserve Board continues to buy or guarantee or provide loans for a vast and growing pile of questionable financial and corporate assets, much of which are likely to be worth far less than the Fed has paid or guaranteed or accepted as collateral. We're talking big money here -- so far over $2.4 trillion. (The entire TARP -- parts I and II -- in combination with the proposed stimulus package come to just over $1.5 trillion.)

Taxpayers are on the hook for this Fed bailout money, too, of course. We have to pay the interest on the ever-growing debt used to make these payments or guarantees and loans. Yet while TARP II and the upcoming stimulus package are receiving a great deal of attention, this much larger public commitment by the Fed is not. That's partly because the media doesn't much of understand it, but also because the Fed is doing it in secret, using provisions of its charter never before utilized, and avoiding discussion before the full Board of Governors for fear such meetings would be subject to the Freedom of Information Act.

In other words, the "bad bank" has already been formed. The Shitpile has already been purchased. We have already traded cash for trash. The deed is already done.

Upon reflection, perhaps it was unfair to compare the Federal Reserve and the Treasury Department to The Joker. I mean, at least The Joker only burned his half of the money, and basically owned the other gangs even afterward.
Chris Bowers :: The Joker Takes Over American Financial Policy

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The Joker Takes Over American Financial Policy | 9 comments
Is this legal (0.00 / 0)
Here's a question I have.  And I have no idea what the answer is:

"the Federal Reserve Board continues to buy or guarantee or provide loans for a vast and growing pile of questionable financial and corporate assets, much of which are likely to be worth far less than the Fed has paid or guaranteed or accepted as collateral."

Is this legal?  Outside what has been authorized by TARP legislation, can the Fed unilaterally decide to accept collateral that it knows or should know is not worth the stated value?  Can the Fed buy assets knowing the price is inflated?  Why was TARP even passed if the Fed can use Treasury money to do all this stuff without Congressional approval?

"Cash for Trash" (4.00 / 2)
That's Stiglitz's useful line:

Nobel laureate Joseph Stiglitz said any decision by President Barack Obama to establish a so-called bad bank to rid financial companies of toxic assets risks swelling the national debt.

Obama's administration is moving closer to buying the illiquid assets currently clogging bank's balance sheets and preventing them from boosting lending, people familiar with the matter said this week.

That amounts to swapping taxpayers' "cash for trash," Stiglitz said yesterday in a panel discussion at the World Economic Forum in Davos, Switzerland. "You shouldn't chase good money after bad. We're talking about a national debt that's very hard to manage."

http://www.bloomberg.com/apps/...


Ok Dude (0.00 / 0)
You need to be reading some financial analysis regularly and probably take a financial accounting class. I think Nouriel Rubini and Mike Shedlock are both excellent regular must reads, you'll get a lot reading them daily.

The banks are somewhere in over their collective heads to the tune of $1-4 Trillion MORE. That $250 Billion is NOT what is being debated. This is why there is talk of TARP 2, 3, etc. What is being debated is how the fuck the govt comes up with 1-4 Trillion to buy the most worthless shit on earth and not have the politicians thrown out on their asses for making all of us pay for it.

Also the govt has about 6 Trillion in obligations out to the likes of C and BOA in the form of shit pile backstops and Federal Reserve collateral holdings - this is the shit they won't tell us about in detail. They have loaned dollars (back stopped by Treasury bills) in exchange for this crap at face value. That means if those assets fail to pay, then you know who makes up the difference. That's what those two tranches of $300 Billion where about. And that's what Fannie Mae Freddie Mac AIG and any other number of free pony fuckers was about.

10% more my ass!

TNX hasn't bounced because the bond market thinks this is just a few dollars more on the BarBQ - the bond market is starting to call Ben's bluff, and the US govt can't do shit about it. This IS why plans for a bad bank fleecing of tax payers is not being rolled out this week. The shit pile is fucking super colon blow that not even the US Govt can wrap a depends around.

~* the * Will * to go on *~

Wells F*** Fargo as an example (0.00 / 0)
Shedlock conveniently dissected Wells Fargo today:
http://globaleconomicanalysis....

snap shot from its balance sheet:
* $110+ billion in junior mortgage liens
* commercial real estate exposure of $356 billion
* consumer loans, most of which is mortgage related is a whopping $474+ billion

Wells Fargo has set aside $21Billion to cover loan losses.

But meanwhile!
"30% of Wells Fargo's reworked mortgage loans are 90 days past due or longer, one year after loan modification."

holy crap 30% of the loans reworked are 90 days past due! That stuff is dead and just waiting to be served.

and!
"hidden in the 70% grouping is an undisclosed percentage of customers who are not even current"

So what percentage of total loans are reworked? How can we get a grip on how much of those hundreds of billions are at risk? We don't know because Fargo and all the other banks are playing hide the salami. And that doesn't even include the off balance sheet salami that they leave off their books as 49% ownership stakes. how convenient.

Why are the markets still crushing the financials? Its because they are playing games with transparency and even from what can be seen the whole sector looks horrible and that $250B is about 10% of what is yet to be lost (average of range).

~* the * Will * to go on *~

[ Parent ]
Yeah (0.00 / 0)
I linked that Mish piece way back at the end of Sirota's posting on Wall St. still having a seat at the table to start the day.

Echo that Mish is a must read. I would add Denninger to that:

http://market-ticker.denninger...

I just don't think we can "spend our way" out of this, at least not if that is not accompanied by "let banks fail that have failed and arrest the crooks who put us in this mess".

But ObscureName is right, you all need to add a few of those economic blogs to your reading lists. There is truth being spoken on some of those about what is happeneing that I am not hearing from a lot of other places.

[ Parent ]
correx (0.00 / 0)
ive exaggerated something.

"exchange for this crap at face value"

The Federal Reserve may or may not have taken assets as collateral at face value. They most certainly have taken it at values over market otherwise it would not have done the banks any good. but we don't really know the values they have taken them at because the Fed Reserve won't tell us and is fighting a FOIA request from Bloomberg news.  

~* the * Will * to go on *~

[ Parent ]
Wealth is toast (4.00 / 5)
I've mentioned this elsewhere, but my take is we (as a nation) are missing two to three trillion dollars we thought we had only a few months ago.  We can talk about bad banks, high economics and so on, but the money gone.

All that is left to determine is how that loss is distributed.  

And since Obama himself says that (0.00 / 0)
"some banks won't make it" it might not be worth subsidising companies that won't be around to give the money back.

Forgotten Countries - a foreign policy-focused blog
[ Parent ]
I am so depressed. (0.00 / 0)


I live in a true blue state--I will have a choice in November
The Joker Takes Over American Financial Policy | 9 comments
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