Fed, Congress & Banks Create New Moral Hazard
American taxpayers may already be liable for billions of dollars stemming from Federal Reserve and Treasury efforts to quell a financial crisis.
History suggests the Fed may not recover some of the almost $30 billion investment in illiquid mortgage securities it received from Bear Stearns.
The average recovery on failed bank assets is 40 cents on the dollar over a six-year period.
Treasury's push to have Fannie Mae and Freddie Mac buy more mortgage bonds reduces the capital the government-chartered companies hold in reserve at a time when foreclosures and defaults are surging.
Senate Finance Committee Chairman Max Baucus: "Americans are being asked to back a brand-new kind of transaction, to the tune of tens of billions of dollars."
The Fed authorized a $29 billion loan against illiquid mortgage- and asset-backed securities from Bear Stearns that will be held in a Delaware corporation.
In other words, the Fed will guarantee Bear's assets while lending $29 billion to JPMorgan Chase & Co. which contributed $1 billion.
The Nattering One muses.. Whats wrong with this picture? Is it just that Nattering sound inside my head or has the world flipped upside down?
Goldman Sachs said in a March 7 report:
The supply of credit for businesses and consumers may decline $2 trillion, equivalent to 7% of household, corporate and government debt.
Losses on home mortgages may reach $500 billion and as much as $656 billion on commercial real estate, other business loans, credit cards and autos.
With the solvency & credit crisis in full bloom... A brand new kind of transaction? You don't say. Lets see now...
I don't have 20% down, much less 1/30th down. And my solvency is questionable. But I want to buy that $30 billion "foreclosure" down the block for $1 billion.
If I get "new" investors with a promise of 18%, I can sell "new" stock in the "old" company.
What about the "old" investors that paid up to $170 a share? Well, they get screwed or retired in this ponzi scheme renewal at $10 a share.
Just like the old MBS holders got ZERO, while the bank keeps the PMI loan payout, takes the tax benefits and resells the property at a 300% profit?
Yep, nice work if you can get it, eh? Some stupid ass down the street defaulted and...
I wish my bank (which keeps raising rates) would finance a McMansion takeover for me... with 1/30th down; and GUARANTEE the balance. Don't you?
No way, my bank and others that are benefitting from PMI or mortgage insurance, are greedily hanging onto their REO's for profit.
Worse yet, many are packaging the properties into "take it or leave it" portfolios for large investors and contractors at... 50 cents on the dollar.
Some are even suggesting that the "less desirably" located REO's be packaged and resold to LOW INCOME families with generous price concessions and loan terms.
But, no breaks for the middle class or folks that DID NOT enable this pack of gambling fools, no way, we won't even entertain your discounted offers.
It's apparently NOT OK for the banks to extend the same hefty discount's they give deep pocket investors on their REO's to the general public.
But, it's OK for the Fed to bailout Bear Stearns and provide TAXPAYER WELFARE for JPMorgan to make the purchase?
Why should the public, and in particular, the part of the public that DID NOT participate in creating this fiasco, bailout ANYONE involved?
We clearly see the "moral hazard" here. The rich get richer, the poor get poorer and the middle class get screwed.
Hattip to Bloomberg.
History suggests the Fed may not recover some of the almost $30 billion investment in illiquid mortgage securities it received from Bear Stearns.
The average recovery on failed bank assets is 40 cents on the dollar over a six-year period.
Treasury's push to have Fannie Mae and Freddie Mac buy more mortgage bonds reduces the capital the government-chartered companies hold in reserve at a time when foreclosures and defaults are surging.
Senate Finance Committee Chairman Max Baucus: "Americans are being asked to back a brand-new kind of transaction, to the tune of tens of billions of dollars."
The Fed authorized a $29 billion loan against illiquid mortgage- and asset-backed securities from Bear Stearns that will be held in a Delaware corporation.
In other words, the Fed will guarantee Bear's assets while lending $29 billion to JPMorgan Chase & Co. which contributed $1 billion.
The Nattering One muses.. Whats wrong with this picture? Is it just that Nattering sound inside my head or has the world flipped upside down?
Goldman Sachs said in a March 7 report:
The supply of credit for businesses and consumers may decline $2 trillion, equivalent to 7% of household, corporate and government debt.
Losses on home mortgages may reach $500 billion and as much as $656 billion on commercial real estate, other business loans, credit cards and autos.
With the solvency & credit crisis in full bloom... A brand new kind of transaction? You don't say. Lets see now...
I don't have 20% down, much less 1/30th down. And my solvency is questionable. But I want to buy that $30 billion "foreclosure" down the block for $1 billion.
If I get "new" investors with a promise of 18%, I can sell "new" stock in the "old" company.
What about the "old" investors that paid up to $170 a share? Well, they get screwed or retired in this ponzi scheme renewal at $10 a share.
Just like the old MBS holders got ZERO, while the bank keeps the PMI loan payout, takes the tax benefits and resells the property at a 300% profit?
Yep, nice work if you can get it, eh? Some stupid ass down the street defaulted and...
I wish my bank (which keeps raising rates) would finance a McMansion takeover for me... with 1/30th down; and GUARANTEE the balance. Don't you?
No way, my bank and others that are benefitting from PMI or mortgage insurance, are greedily hanging onto their REO's for profit.
Worse yet, many are packaging the properties into "take it or leave it" portfolios for large investors and contractors at... 50 cents on the dollar.
Some are even suggesting that the "less desirably" located REO's be packaged and resold to LOW INCOME families with generous price concessions and loan terms.
But, no breaks for the middle class or folks that DID NOT enable this pack of gambling fools, no way, we won't even entertain your discounted offers.
It's apparently NOT OK for the banks to extend the same hefty discount's they give deep pocket investors on their REO's to the general public.
But, it's OK for the Fed to bailout Bear Stearns and provide TAXPAYER WELFARE for JPMorgan to make the purchase?
Why should the public, and in particular, the part of the public that DID NOT participate in creating this fiasco, bailout ANYONE involved?
We clearly see the "moral hazard" here. The rich get richer, the poor get poorer and the middle class get screwed.
Hattip to Bloomberg.
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