Federal Reserve Chairman Ben S. Bernanke signaled that the government should buy devalued assets at above-market values to make its proposed $700 billion rescue package most effective in combating the financial crisis.
``Accounting rules require banks to value many assets at something close to a very low fire-sale price rather than the hold-to-maturity price,'' Bernanke said in testimony to the Senate Banking Committee today. ``If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits.''
Bernanke's remarks, an unusual departure from his prepared testimony, come as lawmakers and the Bush administration negotiate a rescue plan aimed at easing the worst financial crisis since the Great Depression. The Fed chief said paying prices higher than the bad assets would fetch in the open market would help ``unfreeze'' credit markets and aid the economy.
Analysts said Bernanke is essentially advocating that government use a pricing model that assumes that the debt will be paid in full over a long period of time. That is different from the mark-to-market model used by investment banks that prices assets at what they are worth on a given day.
The risk is that the model does not provide transparent pricing of the assets taxpayers are taking on, said Ann Rutledge, partner at R&R Consulting in New York, a firm that specializes in structured finance. Many of the securities ``are not going to pay at maturity,'' Rutledge said.
This is 100% pure crap, bullshit or whatever else you want to call it.
1.) These are not "firesale" prieces. They are the prices the current market will tolerate. Has it ever occurred to anyone why these assets are priced where they are? They're crap. It's that simple. But ol' free market Ben and laissez faire Paulson won't have any of that market stuff when an investment bank might actually have to lose money.
2.) What Ben is essentially saying is, "please pay a price that has no one has any possibility of ever getting for this paper. That will make everything better. Really." Over pay, screw the taxpayer, and bail out wall street for their really stupid ways.
3.) Consider that most of these assets are backed by mortgages. Also consider that that delinquencies are increasing. Take a look at this chart from the latest Quarterly Banking Profile from the FDIC
This plan is pure bullshit. Plain and simple.
UPDATE: A comment noted that I used incorrect phrasing on the mortgage issue. Mortgage delinquencies are increasing, but most are not delinquent.
9 comments:
Even though the bulk of my income comes from Wall Street, and I'm retired, I've reached the point where I'm willing to let Wall Street collapse under the weight of its own greed. These people have no morals whatsoever, and it would be a pleasure to read about them jumping out of the windows of their skyscrapers with no parachutes at all. If Paulson believes in this bailout so strongly, why doesn't he pony up his $700mn fortune to pay for 0.1% of the bailout. Surely then there would be a crowd of other Wall Streeters lining up to pledge their fortunes as collateral against the bailout. Why wouldn't they do this if the bailout is so vital to the American economy? Surely these people believe in the economy that made them wealthier than God. Don't they?
"Also consider that most mortgages are delinquent..."
I don't think a chart showing a 3% delinquency rate justifies this phrasing. An abnormally large and growing share, yes. Most, no.
You're absolutely right, Bonddad, it's total BS. If we're buying the assets nobody else will touch, we should be the market makers. Who ever heard of a market for trash where to sellers were the market makers ???? who are these guys and what's REALLY going on here ?????
So, if the Fed is going to bail out wall street does this mean I can stop paying my credit cards? Wouldn't they just line up for the welfare too?
We could do this if Congress agreed to raise the taxes on anyone making more than $3 million per year to 50 percent. Would that work?
I believe they are doing this so that there is no price discovery. Other related assets can then be "marked to market" at a value that will allow currently insolvent banks to appear solvent. Voila. Problem solved!
What do you think?
Well, once the government starts buying this shitty paper at unicornland prices, you'd suppose that the market in it will pick up somewhat as players that don't hold any scramble to get their piece.
fuckin crooks the lot of em.
What do we do if Hank resigns ? ... or even threatens to?
He really knows the shit the market is in ...According to page 20 the Goldman Sachs 10-Q regulatory filing for the first quarter of 2006:
During the three months ended February 2006 and February 2005, the firm securitised $19.25bn and $15.24bn, respectively, of financial assets, including $18.15bn and $14.43bn, respectively, of residential mortgage loans and securities.
2 pages later ... exposures to Variable Interest Entities “which primarily issue mortgage-backed and other asset backed securites and collateralised debt obligations” included $22bn of CDOs, $2.9bn of “asset repackagings and credit-linked notes” and $6.5bn of “mortgage-backed and other asset-backed” securities.
Just remember Hank (Wall Street's highest paid Exec) was also hauling dowen big potatoes for this...$18.7 million cash bonus (none of those fancy share options for Hank the Bank)for half a year of work as the Chairman & CEO of the Goldman Sachs Group for 7 years, just before joining George Bush as Treasury Secretary
Perhaps more significantly on the day he left ..."Goldman filed with regulators last Thursday for a sale of Mr. Paulson's 3.23 million common shares, worth $491.6 million based on that day's closing price."
Meanwhile his cronies on the Street have magically got their Get out of Jail card by putting on their magic Cloaks and becoming regulated Banks ! With one bound they are free!
But what of all the other strange debt selling instruments cobbled for Credit Card, Auto and Student loans?
In the current environment, the mortgage mess will eventually resolve only to be supplanted by several new flavors of mess as the entire post 1980 edifice of free wheeling debt ballooning unwinds in a most disorderly way.
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