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Tuesday, March 24, 2009

TALF, and the Obama-Geithner Public-Partnership Plan

Has President Obama jumped the cravace safely reaching the other side, or will he lose his momentum and fall, whereby he, personally, will need a rescue package? What has now been put into action is the Obama/Geithner Private-Public Partnership Plan, whereby private investors seeking to buy into the banking industry’s toxic mortgage backed securities pools will get their chance to help move the stuff off the bank’s balance sheets freeing them up to make more loans without the toxic boogieman lurking deep within their balance sheets. What a comforting thought, except banks have been lending in spite of this liability. There is no problem with liquidity. What we have is a solvency problem. Also, there is a confidence issue. No one really trusts what has been going on for quite a while. I guess, this is a plan to make the banks solvent again in just a matter of weeks. The taxpayers will become Mr. Clean and wipe all the dirt right out of their balance sheets.

We the public, along with the FDIC, will take on, at least, 85% of the risk of the sales of these toxic debt instruments, while the private sector takes on around 7% of the risk. But if the private sector sees that the toxic debt instruments are really worth less than they bought them for, and not the grade quality they believed they were, then they can ask for a refund. At that point, the public eats the deal. Sweet, aye?

TimmyG finally blew some very bad notes from that rusty horn he has been carrying around with him; or, has he? The way this all will come down is that these toxic securities will be auctioned off to the highest bidder. TimmyG is hoping to get around 40-50-60 cents on the dollar. The prospective buyers, such as hedge funds, JPMorgan Chase, PIMCO, and the others are hoping to get a really good deal, whereby, sometime in the future, they would be able to sell the stuff at a profit.

My question is if 40-50-60 cents are what TimmyG thinks these securities are worth, then why haven’t these banks sold them for that price already? Many experts believe that they are worth far less than even 40 cents on the dollar. Some have stated they are only worth around 25 cents on the dollar. That is quite a discrepancy, in my opinion. So, since 2007, when this all blew up, no one has actually unraveled these debt-engineered assets (now that is an oxymoron) to find out what they are really worth?

As I recall TimmyG, Ben Bernanke, and Larry Summers were there when the Bush Bailout began. They had their secret meetings, including their former employer-Goldman Sachs, discussing who will get what when the bailout money got dropped out of Bernanke’s helicopter. They all knew then what was causing the bank failures, but they did not choose to unravel the toxic mortgage backed securities when it all was unfolding. They were all in bed together trying to prevent an economic nuclear meltdown. But it did. It happened. We are now living it. It continues everyday, although Wall Street does not think so. If you are still in, I sure hope you know when to sell because a technical upswing in the market may not be real. And now, we are to believe that this plan will all make it better. Or is it actually the kiss of death on a very deep wound.

TimmyG is stress testing these toxic securities. I guess he should know their worth, but the reality is that stress testing will not unravel these securities totally exposing their actual values. It is all a game of Estimation. It is not like the weather forecaster on the evening news saying it will rain tomorrow so don’t forget your umbrella and jacket, only to find out the next day that there is not a single cloud in the sky from morning ‘til night. Not a really big problem that will totally f**k up your life for years to come. Or, how about generations to come.

President Obama has walked up to the casino table, and placed his bet that credit will get flowing again with this plan. He is betting that all boats will rise once the banking crime syndicate is completely saturated with trillions of taxpayer dollars in spite of their criminality in this entire mess.

Nobel Prize winner in economics Professor Krugman says he is very skeptical that this plan will work. But we all know that TimmyG is smarter than this Nobel Prize winner; and Professor Stiglitz, also is a Nobel Prize winner and skeptical with the plan. And, don’t Professor Noriel Roubini, who questions the way this administration is moving toward unraveling the “trash”. They are trying to increase asset values, bring about inflation, and move the economy using monetary policy instead of a ground-up worker driven New Deal type initiative. Professor Krugman has stated that he does not believe that these toxic securities are worth what TimmyG claims they are worth, but if they are, he will say he was wrong.

President Roosevelt, upon entering the White house, and before the war began, hired 60% of all the unemployed to build roads, bridges, create the Tennessee Valley Authority, bring “rural electrification” to rural America, build government buildings, and the Cathedral of Learning in Pittsburgh, hire government workers, teachers, and artists lowering unemployment from 25% to 10%. Americans, during that Depression, invested in treasurys, and it took 25 years before the banking industry gained what it has lost. The banks were not all that significant in the recovery plan, at that time. But they sure are now!!!

President Obama, I, too, hope you are right. I hope your scheme will work out just fine!! I hope that the $1 trillion dollar “cash for trash” plan turns out to rescue the economy from its slide into the abyss. Only an evil person would hope it would fail, no doubt for the sake of media ratings.

What is interesting is that no one really knows what these toxic mortgage (residential and commercial) backed securities are worth because when the mortgages were originally gathered up into the “sell-off” basket over at the Shadow Bank, which specialized in crafting “creative”, non-regulated, non-transparent, non-identifiable over-the-counter pools of mortgage back securities, which were all mixed together like the Daily Lottery ball machine, one could no longer tell which mortgage out of the bunch was the healthy one from of all the diseased ones. Once they were all mixed up and poured into molds, slices were taken, called tranches, and sold off to suckers all over the world. Then AIG sold counter bets, or should I say insurance.

It was like a slab of Mystery Meat. Somewhere in that slab of strange food, was a portion of actual real quality triple A graded meat. But you actually could not see it, nor even assume it was in there. So now, the Mystery Meat, which eventually ended up on your plate sitting before you, had a long and winding road of travel before it was able to get close to your fork. The same goes for these mortgage backed securities.

Yet, TimmyG has a way to unravel and stress test these slabs of Mystery Meat. Good luck, Timmy. I hope you are reallllllllllllllllllllly smart because you will need a scalpel, blank microscope slides and very technical tools to separate the good from the bad from the ugly.

President Obama has placed his bet to win. If it works, and he hits with real winnings, then he will become King Neptune who guided the horribly wounded ship through rough waters and into safety. But, if not, and the plan falls flat, and his toxic MBS rescue plan to facilitate more lending fails, he will have given the vile vitriolic GOP assault team all the ammo they will need to devastate his presidency.

We will know within the next several weeks.

thanks for reading, jerry


The blogspot called Economicrot has kindly posted this article. 


solbama said...

Anonymous said...

Thanks for changing your colors.
The light gray is MUCH BETTER.

I can see why you don't want plain white, as well.


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