The WSJ reports:
Off balance sheet only frees up capital because it hides risks. This is absolutely mind boggling. Not the fact that they are asking, but how is this even a remote possibility?Banking trade groups are lobbying the Federal Deposit Insurance Corp. for permission to bid on the same assets that the banks would put up for sale as part of the government's Public Private Investment Program.
PPIP was hatched by the Obama administration as a way for banks to sell hard-to-value loans and securities to private investors, who would get financial aid as an enticement to help them unclog bank balance sheets. The program, expected to start this summer, will get as much as $100 billion in taxpayer-funded capital. That could increase to more than $500 billion in purchasing power with participation from private investors and FDIC financing.
The lobbying push is aimed at the Legacy Loans Program, which will use about half of the government's overall PPIP infusion to facilitate the sale of whole loans such as residential and commercial mortgages.
Federal officials haven't specified whether banks will be allowed to both buy and sell loans, but a list released by the FDIC and Treasury Department of the types of financial firms likely to be buyers made no mention of banks.
Allowing banks to have it both ways would give them added incentive to sell assets at low prices, even at a loss, the banks contend. They claim it also would free up capital by moving the assets off balance sheets, spurring more lending.
"Banks may be more willing to accept a lower initial price if they and their shareholders have a meaningful opportunity to share in the upside," Norman R. Nelson, general counsel of the Clearing House Association LLC, wrote in a letter to the FDIC last month.
"Allowing banks to have it both ways would give them added incentive to sell assets at low prices, even at a loss, the banks contend."
ReplyDeleteThis is, in fact, one positive note. It could mean that the banks feel that the loans will be a good value based on what they know. In other words, the banks are anxious to sell, even at a lower price.
Of course, they could be hoping to bid prices up or make it appear that they're ready to sell as well, I suppose.
However, if you believe that the government is already guaranteeing these assets, why not let them buy them at lower prices?
Don the libertarian Democrat
i don't feel the point is to let them sell at the lower prices, i feel the point is to have them sell at propped up (via tax payer subsidies) to themselves, only themselves allows them to put them off-balance sheet.
ReplyDeletethe whole point was to clean up the banks. by moving them off-balance sheet it doens't clean them up, it lets them hide the problem.
I don't get it. What did you expect to happen when the largest banks were declared to big to fail? What incentive do they have to sell the assets if they're not "distressed" other than profit motive?
ReplyDeleteGrow up. You either put the banks to death in re-org, or you let them do their thing with government capital. There is no middle ground unless you want 10 years or more of economic stagnation ala Japan.
so which bank do you work for?
ReplyDeleteif you've read this blog more than a week, you'd know i would prefer transparency. would it be bullsh^t to say "we are giving bank X $100 billion at no interest"? of course, but better than these back door bailouts....
my ideal preference; wipe out all equity and sub-debt until all that is left is assets on one side and debt of equal value on the other (pricing will be a problem, i know). then take that clean entity and raise new equity.
We are not getting out of this depression anytime soon. Its going to get a lot worse for most of us. It didn't have to be this way. Greed ruins everything.
ReplyDelete"As mass production has to be accompanied by mass consumption; mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped."
Marriner Eccles, FDR's Chairman of the Federal Reserve Bank - 1959
In other words, the first Great Depression was caused by greed. The rich couldn't settle for reasonable pay. They had to have more and more and more. That caused a giant shift in buying power from the majority to the rich. When the majority lost their buying power, they lost their ability to support the economy. Einstein said basically the same thing in 1949.
Its even worse now. Ordinary people havn't only lost their relative buying power. They have also lost their savings, home values, pensions, and benefits. This didn't happen overnight. Its been happening gradually for the last 30 years. Meanwhile, the rich have become super incredibly rich. The richest 500 Americans are worth about two trillion dollars. More than the bottom 40% of American housholds combined. The richest 1 percent are worth about 15 trillion dollars. More than the bottom 98% of American households combined. Thats just insane. I don't care how much work for humanity the rich claim to do. Its nothing but a cover for their own greed. We don't need anymore rich people to entertain us or create jobs or make donations for charity. We need them to get reasonable about how much money and assets they keep for themselves.
Don't believe their excuse about paying more income taxes. They don't pay enough. For every tax they pay, they get an obscene profit, bailout, or kickback from our government to cover it. We had a progressive tax system that worked for over 40 years. It prevented too much wealth from accumulating at the top. In 1976, the middle 80% owned about 2/3 of America's total wealth. Reagan lowered taxes for the rich. Bush lowered them again. Now, the richest 5% own about 2/3 of America's total wealth. The lower 95% own about 1/3. America's wealth has been transfered from poor to rich again. Now, we have another depression.
Don't believe it when the rich claim to be getting poorer. Property values have gone down for everyone. Thats because of the concentration of wealth and income. When the economy slows down, property values tank. So when rich people complain about lower net worth, thats a trick. They still have the same buying power on average.
Everything that is happening with the economy is happening because too much wealth has been taken away from the majority and concentrated into the private vaults of rich people. The same ones on TV and radio telling us how much they want to help the world. Its a big lie. Just another way to promote their own business and get more of our money. Rich people don't want to help the world. They want to own it.
Now, the economy is ruined. Obama can't fix it because the rich won't let him. There will be no bailout for the people because the ones with all the money won't settle for less. They want more. Its going to get a lot worse. Say goodbye to the American dream and hello to the American nightmare.