Friday, June 5, 2009


Oh, the incompetence of it all ...

One of the goals of the numerous bailout programs for the Obama administration is to help homeowners and other troubled borrowers. To do this the American taxpayer has ponied up trillions in funds and other guarantees. The idea is to save banks and other financial institutions so that they, rather than the federal government, can extend credit and renegotiate with those in financial trouble. It doesn't look like this is going to happen any time soon. Here's why.

According to this article the Private-Public Investment Partnership (PPIP), which was designed by the Secretary of Treasury to get the truly toxic instruments off of the books of the banks, has hit a snag. PPIP, which is designed to put credit into the system by purging the truly toxic ("legacy") assets from the system is being undone by the financial sector's new cojones. Simply put, after receiving trillions in government bailout funds, and other guarantees, market players don't want to sell their toxic instruments.

In essence they are saying "we've gotten enough taxpayer money and federal guarantees - and have seen our situation stabilize - so we're going to wait for a better deal."

But wait, it gets better.

Today is reporting that Tim Geithner's Term Asset-Backed Securities Loan Facility program not going to be all that it can be. TALF funds are essentially Federal Reserve backed loans (for certain securities) that are designed to put credit back in the market by putting money in the hands of lenders.

The problem is that market players are not happy that the range of security "assets" that they can borrow against - which currently includes SBA loans, credit card loans, student loans, etc. - may not include real estate (because of problems associated with valuation). Put more simply, market players are saying "we won't participate in TALF if we can't borrow against the toxic mortgage securities that we helped create."

So this is what we have. In the PPIP case market players who have been stabilized by taxpayer dollars are simply holding out "until they are repaid at full value" for the toxic instruments that they helped create. In the TALF case market players are saying if the federal government wants them to put taxpayer-backed credit into the system the federal government needs to use taxpayer money to guarantee the toxic assets they want to borrow against.

If you're an American taxpayer, a pampered and bailed out Wall Street has just given you the middle finger.

- Mark

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