Demoskratos

There are a couple of passages from the article below that terrifies me.  One, taxpayers will be forced along with other private money to buy assets that nobody wants and to hold indefinitely without any indicators that these “sour assets” will ever yield a return on investment.  Second, the idea that banks are unwilling to sell troubled assets at a loss therefore implying that the government should buy these properties at inflated values.  Let’s keep in mind taxpayers have lost $78 billion already in Paulson’s first round of TARP money issued to banks and nothing has been changed with regards to better regulation in the banking, mortgage and lending industry.

No matter how Geithner is going to spin his plan, it reads to me that trillions of dollars of taxpayers’ money is about to go out the door and pay bankers and its shareholders for bad decisions and take these “sour assets” off their hands.  This is worse than any bank bonuses paid in 2008.

Source:  NY Times

February 10, 2009

Geithner Said to Have Prevailed on the Bailout

By STEPHEN LABATON and EDMUND L. ANDREWS

…It intends to call for the creation of a joint Treasury and Federal Reserve program, at an initial cost of $250 billion to $500 billion, to encourage investors to acquire soured mortgage-related assets from banks…

…There is no market value for most of those troubled assets because they are not trading. Investors want to buy them at the lowest price possible, but banks want to avoid selling them at rock-bottom prices and realizing huge losses.

The impasse is particularly serious for whole mortgages, which are loans that banks have kept on their own books instead of selling them to Wall Street firms, which bundle them into pools and resell them as mortgage-backed securities…