-nothing special here-this is just a brief replay of our weekly financial discussions at martinis on main-you are welcome to join us-they get even better after a few tankards of hearty grog-
the fed, a few days ago, revealed the beneficiaries of the 3.5 trillions in bank bailout expenditures.
the banks write downs were about a trillion and a half
when bear stearns went into bankruptcy, they basically got bought by jamie dimon(another jamie deal), bear stearns got bought for $2 per share, then he upped his bid to $10, just out of the goodness of his black heart(he stole bear stearns), the government took in $30 billion in bear crap because jamie wouldnt take it.
the feds gave him money, helped finance the deal, and took over the $30 billion in crummy debt.
the reason you are getting this info this week is that congress is not in session and is off coloring easter eggs or something, and wont have to answer for it.
the first part of the details is the bear stearns dreck.
allegedly the bad portfolio value has doubled since 2008 when stearns was taken over, claimed now to be $74 billion, but the government hasnt made anything, because the government hasnt sold ANY of it.
of course the government is propping up the valuation now(they wont be sold at anywhere near that-try 20 billion, if that).
whoever comes to the window first, during the next 5 or 10 years is likely to make out very well indeed.
the new york fed has published for the first time( thanks to congressman issa's prodding). every time he gets on the dias, he keeps saying, "what the heck is going on with this portfolio?"
161 pages of documents. if you have an old jaguar that wont run, neither aloc, nor anyone else, will take it off your hands for what a new jag sells for, but it has some value greater than zero. these assets werent valued at anywhere near what the government paid for them (with your and my money).
the portfolio contains $619 billion in ccc mortgages backed by countrywide, described as, all adjustable rate mortgages. 33% havent made a payment in 60 days or more.
if 4% of loans with credit scores of 750 were defaulting, you can only imagine what the rate was for ninja loans and nodocs, the knockouts, interest only, and other games played at the low end. you've got a portfolio of these credit default swaps, which explode in value as the default rate increases.
$100 million of insurance on a garbage mortgage portfolio was selling for $200,000 a year. why didnt the government just cancel those contracts, rather than do the huge payoffs?
the government cancels union contracts and everything else. these conform to the loose guidelines the swaps and derivatives association came up with. there's nothing in there that says these things absolutely have to pay off.
the voices of those guys who bought these default swaps were pretty influential, dontcha think? their $600,000 investment was going to become worth $100 million on default.
i would think a good bet now might be to buy insurance, if anybody was foolish enough to sell it, on the default of the state of california.
there is never going to be a true financial reform. what brought us here is the openended contracts. this shouldnt be allowed to happen, i feel, unless at least half of that is posted as security. they were posting up 5%, and that's nothing.
who would have thought, years ago, that the government would have to come in and rescue these banks because of the contracts that were written out(we do it every 20 years)?
were i selling these swaps, when i sold them, i would still have obligations(in the loop). you cant sell these and be rid of the obligations. these 'assets' are pieces of paper that obligate you to do something. if dimon had bought these obligations, they would have taken down j p morgan by september.
when the fed buys this junk, it isnt servicing it. somebody is, for a big fee. who? do you wanna bet that many of the same folks who made these moronic loans are being paid big bucks to service them(collections, delinquency notes, warnings,, etc.)? they have all the contavt info. who else would?
the federal vehicle is called maiden lane llc, with numerical suffixes designating the targets.
they started by grabbing stuff from bear stearns, a whole bunch of the countrywide stuff(they took most of that when bankamerica took them over).
a lot of the debt is rated ccc. the portfolio includes $619 billion backed by countrywide.
many of these ccc level mortgages (8 levels BELOW investment grade) were adjustable loans requiring very little documentation. meanwhile countrywide lives on as bankamerica.
they purchased a bunch of stuff from washington mutual.
this is absolutely unbelievable. we all know that they paid these irresponsible lenders 100 cents on the dollar.
the fed is going to sell all these vehicles at a heavy discount(just like they did in the 80s) to a small group of people who can get in there and buy it at a heavy discount(probably naming their own terms). a tiny group of people is going to make a big bundle of money and the rest of us are going to finance it.
how do we do this over and over again? as a people, are we this stupid?
you see people get on national tv waxing glowingly on the resolution trust, but do a google search on the real history of the resolution trust and find out what a bleepstorm it really was.
its the age old story of the relationship between government and business and the rest of the people. the people with wealth have the connection to government and keep getting wealthier. the masses keep financing that proliferation.
there are lunkheads who still think that government is screwing big business.
our dear president and congress would love you to think that; it couldnt be further from the truth.
the government has essentially saved certain chosen big banks.
the president came out this week and seems to have said that he wants to drill more for oil.(although the pronouncements of a highly inebriated drunk are more credible than those of ANY politician or public officeholder).
what does this president guy have to do to get republicans to like him? he's been pushing this green initiative(renewable, reusable, clean coal technology blah blah blah); and, oh, by the way we are exploring the prospect of drilling for oil all up and down the east coast. it will only get us another 10 milion barrels(another 5 or 10 years worth of oil). you want to rip up the whole east coast for another 5 or 10 years of oil? of course, that's better than china drilling off the florida coast.
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