Friday, January 16, 2009

The "bad bank" makes its appearance

Now that Bank of America has joined Citi as a hat size, it wouldn't take long for the market bears to start reassessing the fiction of JP Morgan's earnings report, and giving Goldman Sachs the scrutiny it deserves. We also saw the pressure on "fortress bank" Wells Fargo, which traded at just .03 cents above 17.

So enter the bad bank. Now that everything that Bernanke has envisioned has failed, our government wants to take over the bad assets in our nations banks:

The U.S. government, recognizing that the banking crisis is far larger than originally thought, is laying the groundwork for a second phase of its rescue attempt, with plans to purge bad assets that are paralyzing the financial system.

Officials at the Treasury, Federal Reserve and Federal Deposit Insurance Corp., in consultation with the incoming Obama administration, are discussing a plan that would create a government bank that would buy up the bad investments and loans that are behind the huge losses that U.S. banks continue to report, say government officials. Another plan under discussion is an additional and giant government guarantee of banks' assets against further losses.

The discussions, which have intensified in recent days, show how the rapid deterioration of bank assets is outpacing the government's rescue efforts. Banks are now struggling not only with the real-estate investments that sparked the crisis, but also with the car loans, credit-card debt and other consumer debt that has taken a hit with the faltering economy.

The taxpayer is already down $64 billion on the first few hundred billion invested, but you wouldn't know it from how Bernanke mindlessly chirps that the FederalRreserve hasn't lost a penny.

And the "bad bank" would buy the assets at the fiction price that the banks say these assets are worth:

Ms. Bair said the assets could be purchased at fair value, the figure banks use to value their own assets. Such a move would remove the challenge of placing a price on assets that rarely trade. That would allow banks to avoid selling their assets for a low price, which would force them to take additional write-offs.

The Federal Reserve supposedly gives a "haircut" on supposedly AAA assets, yet the Fed thinks it should buy two trillion of dreck on the Nations banks, that aren't worth a trillion dollars, without a haircut! It's just marked at levels to pretend that these problems don't exist , even though everybody in banking knows it does!

So now we know who "to who" is.

"To who" is you. Since no one else will buy the bank's paper, they'll sell it to you!

The tax payer.

But don't call it a "bad bank" because the connotations are too bad.

This bank will be the "Asset Aggregator."

And they need it before the Fed's favored sons, JP Morgan and Goldman Sachs expose more cracks than they want shown!


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Klinik Raden Saleh said...

very good article and very easy to understand.

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