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Toxic Asset Plan Will Leave The Same Amount Of Toxic Assets In The System, But With the Taxpayers Now Liable For Most Of The Losses
George Washington’s Blog
Saturday, April 4, 2009
The most succinct description of what is wrong with Geithner’s PPIP toxic asset plan comes from the Financial Times:
That’s exactly right. American banks that have received billions in bailout funds, including Citigroup Inc, Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co, are considering buying toxic assets to be sold by rivals under the Treasury’s trillion dollar plan (and Bank of America – another big bailout recipient – is buying toxic assets as well).
The amount of toxic assets isn’t going to be meaningfully reduced – the assets will just be shuffled from one bailout buddy to another.
But the government is guaranteeing 85% of the value of the toxic assets.
So the taxpayers (who anteed up for the bailout funds which the banks are now using to purchase the assets) will again pick up the tab when the assets turn out to not be worth as much as the banks are paying for them.
But why would the banks overpay for the other guy’s toxic assets?
Some financial writers have speculated that these banks are giving each other kickbacks under the table. But we don’t even have to go there.
If all of the big banks holding the lion’s share of toxic assets (about 5 banks, as discussed below) have a gentleman’s agreement to overpay for the other guy’s toxic assets, then they will end up in the same position as if they had all paid fair market value. You overpay for mine, I’ll overpay for yours . . .
But since they can then say that they naively overvalued the assets, the government will pay them back for their “losses”.
Get it?
It is well-known that JP Morgan, B of A, Citigroup, HSBC and Wells Fargo have by far the largest derivatives holdings (and see this). Their derivatives exposure – especially credit default swaps – are the core type of toxic asset (and one of the main causes of the financial crisis). These are really the players which would need to agree to play this game for it to work.
Critics say that would leave the same amount of toxic assets in the system as before, but with the government now liable for most of the losses through its provision of non-recourse loans.
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40 Responses to “Toxic Asset Plan Will Leave The Same Amount Of Toxic Assets In The System, But With the Taxpayers Now Liable For Most Of The Losses”
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April 4th, 2009 at 6:42 am
What a GOOD plan for the Bankers!
April 4th, 2009 at 6:43 am
If the government pays fair market value for these so-called “assets” there would be no advantage to the banks for getting them off the balance sheet. They are only exchanging one asset for another of the same value.
Only if the government pays significant MORE than they are worth will buying them benefit the banks. If this is true then we’d (the people, taxpayers whatever) be getting screwed in the exchange. I guess that’s the whole point of this.
I think all derivative holdings just need to be invalidated, just wiped off the page, declared null and void. It’s the only way. Derivatives are nothing more than bets, with no real tangible value. they can be erased with no real loss to the economy other than all the cash sunk into them by hedge funds and banks. Well so what, they are just bets. Sorry suckers, you lost.
Wez the Aussie Reply:
April 4th, 2009 at 2:10 pm
The entire “Real” economy is being fed into this black hole of derivatives deliberately. Wiping out the derivatives would fill the black hole in the financial economy, then there would be no hole to stick the real economy. They don’t want the SIV’s, CDS’s etc. wiped out because then they wouldn’t have an excuse for the sheople, so that they can steal everything in the name of saving them.
Alex (not Jones) Reply:
April 4th, 2009 at 5:05 pm
too true mate, I know they’d never do this. I think a lot of them were set up to be “dach sinks” to absorb all that excess spending by the government to help tame real inflation. Lock the newly created dollars away. NASDAQ and real estate were two more cash sinks.
April 4th, 2009 at 6:57 am
Anything real is censored on this site – FACT
April 4th, 2009 at 6:59 am
Alerx Jones / Robert Denero / Al Pacino
April 4th, 2009 at 8:06 am
hang the criminals bankers with our worthless criminal government
April 4th, 2009 at 9:05 am
When are the American people going to get pissed off about this…and start fighting in the streets, and hanging these traitors?
April 4th, 2009 at 12:46 pm
The conventional wisdom that poison kills poison is an oxymorone. Poison adds to poison, thereby multiply poison and never eleminates the effects of poison by any means.
The only viable solution is to write off all the toxic assets once and for all and the balance the the books by way of bailing out individual borrowers and not the lenders who created the toxicity in the asset and then punish the lenders responsible. Any thing short of it will end up in short term success but long term myopia and will only creat more problem in the future.
April 4th, 2009 at 12:47 pm
Alex (not Jones) is correct, these derivitives are only paper. And how do you place market value on a non tangible that has no market value?
back during the S&L crisis of the late 80’s early 90’s, again based on real estate and “gimick” mortgages. The gov’t established the RTC (Resolution Trust Corporation). What the RTC did FIRST was to appraise all the properties the banksters wished to unload. The difference here is that the real estate was tangible, it had a actual location, it had physical properties related to them. They were then appraised at “market value” usually assuming a 90 sale “as is” or valued at 180 day “repaired” sale. The RTC then paid the banksters a value based on these new appraised values, (guaranteeing the RTC a profit as best as could be determined).
But with the Wall Street created CDO’s and CDS’s, which are vastly over leveraged
speculation. They really do not have any legal interest in a tangible asset. Again you must ask, how do you value something that has no market value?
What is being done is simply another bailout for the banks and Wall Street. But considering the public is completely fed up with more bailouts for those responsible for our economic collaspe, and 5 MILLION Jobs lost, they created the PPIP. They dressed up the pig. But it is still a pig, and will feed off billions more of taxpayer dollars. Then to add even more insult to injury, the Congress has allowed new “mark-to-market” accounting rules, that basically allows the banks to take these worthless CDO’s and CDS’s and place their own value on them, OFF THE BOOKS, to make themselves appear solvent.
Pure “smoke and mirrors.”
The corporate CEO’s of the “bailout” companies, should all be charged with fraud. Stock fraud, wire fraud, accounting fraud to shareholders, and certainly a host of international criminal charges also. Congress and certain gov’t officials should also be charged for complicity in the sceme. But we all know it will never happen.
As long as we have a corrupt Congress, and a corrupt corporate hiearchy it will go on, and on, and on. They will not be satisfied until they have turned our beloved country into a 3rd world failed state.
Wez the Aussie Reply:
April 4th, 2009 at 2:15 pm
Weimar republic, Zimbabwe, U.S., England, Australia ………… and Iceland. This is what the list will be, once these thieving bastards have had their way.
Alex (not Jones) Reply:
April 4th, 2009 at 5:09 pm
’nuff said.
It will take a revolution to unwind it all I’m afraid.
But the good news is the system will collapse from the weight of it’s own corruption. It’s a huge pyramid scam and they’ve run out new suckers.
April 4th, 2009 at 2:07 pm
I have posted many stories and sent many emails to many people that continue to be ignored. I have reported story after story of how I am being framed for crimes I have not committed and attempts are being made on my life. I worked for the American Red Cross until I was forced to resign after I believe I was given an overdose of poison or some type of methamphetamine. As I reported at least two Red Cross vehicles, my personal vehicle and a rental car where contaminated with an unknown toxic chemical that massively and rapidly attacked and deteriorated the cells and tissue in my back, legs and buttocks. I went to 4 hospitals and an internal specialist with severe health problems. These hospitals seem to be hiding something or are outright lying and refusing to treat me. I will list some of the symptoms I rushed to the hospital with. Blurry vision, not sleeping, no appetite, convulsions or seizures, severe central nervous system attack, severe pain in my teeth and roots, oozing and blistering on my face, massive and rapid tissue and muscle deterioration, loss of motor function, Inability to read simple words, loss of bladder control, irregular heart beat, heart attacks and collapsing heart muscle.. I was forced to abandon my personal vehicle and a Red Cross van after someone apparently gained access and sprayed or poured what I believe was some form of radio active material in the seats and floorboard. The substance had the same smell in all of the vehicles and my clothes. (It was not a noxious odor but had a sweet fragrance)The Red Cross has said nothing of these contaminations even though anyone else who might drive these vehicles would be in extreme danger. I believe these attempts on my life are intended to silence me and cover up the many some high profile crimes including RAPES that have been committed against me my family and others. I had also recently visited the passport office in order to apply for my passport for upcoming trips out of the United States . They have been openly stalking, provoking and harassing me for over 10 years and nobody including the police will say anything. They have been attempting to force me to confess to crimes I have not committed. These might be high profile crimes that would gain world wide media attention so they clearly have a vested interest in discrediting or silencing me.
Alex (not Jones) Reply:
April 4th, 2009 at 5:08 pm
are your stories posted on any sites? Try Above Top Secret. Start a thread.
April 4th, 2009 at 5:50 pm
This is the reason, that the Banking Organization as a WHOLE should be thrown to the winds, and Barter brought back to the forefront. Worthless cash, overvaluing of worthless paper, and using it’s power to steal from the masses, bankers should all be hung from the gallows.
April 4th, 2009 at 9:32 pm
The bailout was the biggest robbery in history. But now it will be the second biggest since Geithners plan will become the new “biggest robbery in history”.
BTW check out this site to see where the top three presidential candidates got much of their campaign funding:
http://www.opensecrets.org/pre.....cycle=2008
Looks like many of the banks named in the article above also contributed to Obama, Hillary and McCain.
Coincidence?
April 5th, 2009 at 2:53 am
The bailout was the biggest robbery in history. But now it will be the second biggest since Geithners plan will become the new “biggest robbery in history”.
BTW check out this site to see where the top three presidential candidates got much of their campaign funding:
http://www.opensecrets.org/pre.....cycle=2008
Looks like many of the banks named in the article above also contributed to Obama, Hillary and McCain.
Coincidence?
OH! You’re my new favorite blogger fyi
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April 18th, 2009 at 4:05 am
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