From a story in Bloomberg today
Fed Made Taxpayers Unwitting Junk-Bond Buyers
By Caroline Salas, Craig Torres and Shannon D. Harrington - Jul 1, 2010
Federal Reserve Chairman Ben S. Bernanke and then-New York Fed President Timothy Geithner told senators on April 3, 2008, that the tens of billions of dollars in “assets” the government agreed to purchase in the rescue of Bear Stearns Cos. were “investment-grade.” They didn’t share everything the Fed knew about the money.
“Either the Fed did not understand the distressed state of some of the assets that it was purchasing from banks and is only now discovering their true value, or it understood that it was buying weak assets and attempted to obscure that fact,” Senator Sherrod Brown, an Ohio Democrat and member of the Senate Banking Committee, said in an e-mail when informed about the credit quality of holdings in the Maiden Lane LLC portfolio. The committee held the April 3 hearing.
If "the Fed did not understand the distressed state of some of the assets that it was purchasing from banks.." then we are allowing incompetent entities and disingenuous people to write rules and spend taxpayer money on another scam perpetrated on we the people by the smartest manipulators on earth.
Showing posts with label TARP. Show all posts
Showing posts with label TARP. Show all posts
Thursday, July 1, 2010
Tuesday, February 10, 2009
Waiting for Geithner/Godot
Details of the TARP overhaul and details of the 2009 stimulus package will shape the day, and profit-taking may greet the actual news.
Just as existential an exercise as Waiting for Godot.
Just as existential an exercise as Waiting for Godot.
Market Reflections 2/9/2009
Markets held in mostly narrow ranges awaiting the outcome of the 2009 stimulus package and details of the Treasury's plan to overhaul TARP. The day did see the resignation of the SEC's enforcement chief and a civil agreement with Bernard Madoff. The criminal case against the suspected Ponzi giant, the giant who slipped by the SEC, is still open.
The Dow industrials slipped slightly on the day while Treasury yields were little changed. The pending stimulus news didn't help the value of the dollar which fell back 1-1/2 cents against the euro to end at $1.3016. Oil, benefiting from talk of OPEC quota compliance, is holding near $40. Benefiting from talk of post-stimulus inflation, gold is holding near $900, ending just under on the day.
The Dow industrials slipped slightly on the day while Treasury yields were little changed. The pending stimulus news didn't help the value of the dollar which fell back 1-1/2 cents against the euro to end at $1.3016. Oil, benefiting from talk of OPEC quota compliance, is holding near $40. Benefiting from talk of post-stimulus inflation, gold is holding near $900, ending just under on the day.
Tuesday, February 3, 2009
Banking system still on life support
As expected The Federal Reserve on Tuesday announced the extension through October 30, 2009, of its existing liquidity programs that were scheduled to expire on April 30, 2009. The Board of Governors approved the extension through October 30 of the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF), the Commercial Paper Funding Facility (CPFF), the Money Market Investor Funding Facility (MMIFF), the Primary Dealer Credit Facility (PDCF), and the Term Securities Lending Facility (TSLF). The FOMC also took action to extend the TSLF, which is established under the joint authority of the Board and the FOMC.
In addition, to address continued pressures in global U.S. dollar funding markets, the temporary reciprocal currency arrangements (swap lines) between the Federal Reserve and other central banks have been extended to October 30. This extension currently applies to the swap lines between the Federal Reserve and each of the following central banks: the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Canada, Danmarks Nationalbank, the Bank of England, the European Central Bank, the Bank of Korea, the Banco de Mexico, the Reserve Bank of New Zealand, the Norges Bank, the Monetary Authority of Singapore, the Sveriges Riksbank, and the Swiss National Bank. The Bank of Japan will consider the extension at its next Monetary Policy Meeting. The Federal Reserve action to extend the swap lines was taken by the Federal Open Market Committee.
The current expiration date for the Term Asset-Backed Securities Loan Facility (TALF) remains December 31, 2009. Other Federal Reserve liquidity facilities, such as the Term Auction Facility (TAF), do not have a fixed expiration date.
In addition, to address continued pressures in global U.S. dollar funding markets, the temporary reciprocal currency arrangements (swap lines) between the Federal Reserve and other central banks have been extended to October 30. This extension currently applies to the swap lines between the Federal Reserve and each of the following central banks: the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Canada, Danmarks Nationalbank, the Bank of England, the European Central Bank, the Bank of Korea, the Banco de Mexico, the Reserve Bank of New Zealand, the Norges Bank, the Monetary Authority of Singapore, the Sveriges Riksbank, and the Swiss National Bank. The Bank of Japan will consider the extension at its next Monetary Policy Meeting. The Federal Reserve action to extend the swap lines was taken by the Federal Open Market Committee.
The current expiration date for the Term Asset-Backed Securities Loan Facility (TALF) remains December 31, 2009. Other Federal Reserve liquidity facilities, such as the Term Auction Facility (TAF), do not have a fixed expiration date.
Thursday, January 22, 2009
Banks and the TARP
Courtesy of Casey Research:
Since August, banks have built their cash position in the form of Treasuries, agencies and deposits at the Fed by $865 Billion, while their loans and leases have increased by only $325 Billion.
So you can imagine a chart with one line for cash position rising, and the other line for loans falling...
Here are the people at Casey Research's thoughts... "In other words, rather than lending the billions of dollars received from the Treasury's Troubled Asset Relief Program (TARP), as was originally intended, the recipient banks have squirreled away the bailout funds in order to shore up their balance sheets.
Concurrently, the Federal Reserve is exchanging its excess reserves for toxic waste from the financial institutions.
The combined affect is a "circular bailout" with the Treasury borrowing. in order to lend money to banks. that then lend it back by purchasing more Treasuries.
Of course, the expense of this entire bailout scheme ultimately falls onto the back of the tax-paying public."
Since August, banks have built their cash position in the form of Treasuries, agencies and deposits at the Fed by $865 Billion, while their loans and leases have increased by only $325 Billion.
So you can imagine a chart with one line for cash position rising, and the other line for loans falling...
Here are the people at Casey Research's thoughts... "In other words, rather than lending the billions of dollars received from the Treasury's Troubled Asset Relief Program (TARP), as was originally intended, the recipient banks have squirreled away the bailout funds in order to shore up their balance sheets.
Concurrently, the Federal Reserve is exchanging its excess reserves for toxic waste from the financial institutions.
The combined affect is a "circular bailout" with the Treasury borrowing. in order to lend money to banks. that then lend it back by purchasing more Treasuries.
Of course, the expense of this entire bailout scheme ultimately falls onto the back of the tax-paying public."
Tuesday, January 20, 2009
Mortgage Workout 4: The real urgency
Its inauguration day. There is hope in the air. Change....
It is time for politicians to be patriotic and not parochial.
They MUST rescue the people of this great nation or the American Dream of home ownership willb be lost forever.
They must do this for the benefit of the country. To do anything other than a clean fix aimed laserlike at the problem of home valuation is to charge the country headlong out of the current recession into a second Great Depression of unimagined magnitude and consequence.
Here is an example of how this would work, without using Bailout money, without cramping the style of politicians who want to free up money for stimulating economic activity and would restore the great hope of prosperity for this great nation and the world:
EXAMPLE:
John Smith Family owns a house with a current mortgage of $700,000. It is their primary residence (they live in it).
Smith household income reported on 2007 Federal tax return was $125,000 gross before any deductions (ie NOT their taxable income).
Current US 30 year Treasury notes have an interest rate of 3.125%.
Principle no 1: 30% of $125,000 means Smith can afford to pay no more than $37,500 per year or $3,125 per month for Principal & Interest on the mortgage.
Smith gets a new mortgage under this program with a 30 year term at 3.625% (3.125+0.5) for a nominal value of approx $600,000.(arrived at through DCF analysis based on what Smith can afford to pay). The Government gets the right to 80% of the difference between $600,000 and the original mortgage amount of $700,000 when the house is sold.
Ten years from now Smith sells the house for $700,000
He has paid about $2,900/month in interest for 10 yrs or $348,000 that has gone back into the US treasury.
He has paid about $27,000 in principal. He owes $573,000 on the new government mortgage, and $100,000 difference between his old and new mortgage originally financed by the US govt.
His gross profit on the sale of his house is $127,000. He owes 80% of this or $101,600, under his mortgage contract so that the Government gets the $573,000 and its $100,000 back and $1,600 more.
Smith has had his property written down to a reasonable value and his mortgage therefore becomes valuable in a resale. Banks can resell it or if they wish sell it to FNMA in the regular course of business. Smith has lived with a new lower payment and still got the tax deduction for interest. He has made a profit on the sale of the home!
Most importantly, Smith is not tempted to hand the keys of the house to the bank because he is upside down in the mortgage. The Bankruptcy/foreclosure process is completely avoided.
There is a very real potential for gain by the government. Interest on mortgages comes into the Fed Reserve balance sheet. Potential for profit exists on sale of properties. No new government agencies need to be established. The Fed will hire the necessary personnel to administer the program.
The banking system is unclogged and consumer confidence is restored.
It is time for politicians to be patriotic and not parochial.
They MUST rescue the people of this great nation or the American Dream of home ownership willb be lost forever.
They must do this for the benefit of the country. To do anything other than a clean fix aimed laserlike at the problem of home valuation is to charge the country headlong out of the current recession into a second Great Depression of unimagined magnitude and consequence.
Here is an example of how this would work, without using Bailout money, without cramping the style of politicians who want to free up money for stimulating economic activity and would restore the great hope of prosperity for this great nation and the world:
EXAMPLE:
John Smith Family owns a house with a current mortgage of $700,000. It is their primary residence (they live in it).
Smith household income reported on 2007 Federal tax return was $125,000 gross before any deductions (ie NOT their taxable income).
Current US 30 year Treasury notes have an interest rate of 3.125%.
Principle no 1: 30% of $125,000 means Smith can afford to pay no more than $37,500 per year or $3,125 per month for Principal & Interest on the mortgage.
Smith gets a new mortgage under this program with a 30 year term at 3.625% (3.125+0.5) for a nominal value of approx $600,000.(arrived at through DCF analysis based on what Smith can afford to pay). The Government gets the right to 80% of the difference between $600,000 and the original mortgage amount of $700,000 when the house is sold.
Ten years from now Smith sells the house for $700,000
He has paid about $2,900/month in interest for 10 yrs or $348,000 that has gone back into the US treasury.
He has paid about $27,000 in principal. He owes $573,000 on the new government mortgage, and $100,000 difference between his old and new mortgage originally financed by the US govt.
His gross profit on the sale of his house is $127,000. He owes 80% of this or $101,600, under his mortgage contract so that the Government gets the $573,000 and its $100,000 back and $1,600 more.
Smith has had his property written down to a reasonable value and his mortgage therefore becomes valuable in a resale. Banks can resell it or if they wish sell it to FNMA in the regular course of business. Smith has lived with a new lower payment and still got the tax deduction for interest. He has made a profit on the sale of the home!
Most importantly, Smith is not tempted to hand the keys of the house to the bank because he is upside down in the mortgage. The Bankruptcy/foreclosure process is completely avoided.
There is a very real potential for gain by the government. Interest on mortgages comes into the Fed Reserve balance sheet. Potential for profit exists on sale of properties. No new government agencies need to be established. The Fed will hire the necessary personnel to administer the program.
The banking system is unclogged and consumer confidence is restored.
Mortgage Workou 3: Benefits to Mortgage Holders under water on the Mortgage
a. Current law-abiding households who are current on their mortgages and are seeing negative real value of their primary residence will be able to remain in their homes at affordable cost with a potential for some upside appreciation in the value of their property and a participation in the realization of that potential together with Govt on sale of their property.
b. Banks and other mortgage owners will have a value, real and ascertainable, assigned to each and every such distressed mortgage AND they will have, therefore a viable asset to sell to mortgage repackagers on Wall Street; this frees up capital to lend out on new mortgages under more appropriate terms (20% downpayment, 30% max housing cost : household income)
c. Government gets a real, visible path to recovery of money appropriated to this program, with interest.
d. Government will be helping citizens who most need help and restoring their confidence in The American Dream.
e. Government will restore confidence in the banking system worldwide by establishing a system of mortgage valuation that establishes a valuation methodology that could easily be cloned by private investors and capitalized on by the Financial Services industry worldwide.
f. Bankers and other lenders will now have a method of assessing the value of collateral offered interbank and lending between institutions, currently effectively at a standstill, can be reinvigorated.
g. No new government burocracy needed. FNMA/FHLMC become effective arms of the Federal Reserve who is charged with housing stability as a third mandate.
The result will be a very viable, self-funding solution to the current housing/banking crisis.
Homeowners will see their property values written down to reasonable values. Mortgages then become easy to value as the underlying properties have a value. Homeowners have an affordable mortgage payment, freeing up discretionary income for spending on other goods and services.
Most importantly, homeowners will not be tempted to walk away from unaffordable payments, or houses worth less than they owe, Foreclosure and bankruptcy is avoided completely.
There is a very real potential for gain by the government. Interest on mortgages comes into the Fed Reserve balance sheet. Potential for profit exists on sale of properties. No new government agencies need to be established.
The banking system is unclogged and consumer confidence is restored. All without requiring additional tax burdens on unborn generations.
b. Banks and other mortgage owners will have a value, real and ascertainable, assigned to each and every such distressed mortgage AND they will have, therefore a viable asset to sell to mortgage repackagers on Wall Street; this frees up capital to lend out on new mortgages under more appropriate terms (20% downpayment, 30% max housing cost : household income)
c. Government gets a real, visible path to recovery of money appropriated to this program, with interest.
d. Government will be helping citizens who most need help and restoring their confidence in The American Dream.
e. Government will restore confidence in the banking system worldwide by establishing a system of mortgage valuation that establishes a valuation methodology that could easily be cloned by private investors and capitalized on by the Financial Services industry worldwide.
f. Bankers and other lenders will now have a method of assessing the value of collateral offered interbank and lending between institutions, currently effectively at a standstill, can be reinvigorated.
g. No new government burocracy needed. FNMA/FHLMC become effective arms of the Federal Reserve who is charged with housing stability as a third mandate.
The result will be a very viable, self-funding solution to the current housing/banking crisis.
Homeowners will see their property values written down to reasonable values. Mortgages then become easy to value as the underlying properties have a value. Homeowners have an affordable mortgage payment, freeing up discretionary income for spending on other goods and services.
Most importantly, homeowners will not be tempted to walk away from unaffordable payments, or houses worth less than they owe, Foreclosure and bankruptcy is avoided completely.
There is a very real potential for gain by the government. Interest on mortgages comes into the Fed Reserve balance sheet. Potential for profit exists on sale of properties. No new government agencies need to be established.
The banking system is unclogged and consumer confidence is restored. All without requiring additional tax burdens on unborn generations.
Mortgage Workout 2: Funding
FUNDING for this Program:
Congress will authorize Treasury to issue up to$700 billion annually in 30 year Treasury bonds, at prevailing rates, to implement this program.
These funds will be placed in a separate segregated Federal Reserve Board administered fund that cannot be invaded by Congress. These funds will be used to purchase mortgages funded by Freddie Mac/Fannie Mae.
Chairman of Fed to be responsible for disbursement and oversight of the program through FNMA/FHLMC so co-ordination with Monetary policy will be maximized.
Reporting to Congress on program status twice a year.
Congress will authorize Treasury to issue up to$700 billion annually in 30 year Treasury bonds, at prevailing rates, to implement this program.
These funds will be placed in a separate segregated Federal Reserve Board administered fund that cannot be invaded by Congress. These funds will be used to purchase mortgages funded by Freddie Mac/Fannie Mae.
Chairman of Fed to be responsible for disbursement and oversight of the program through FNMA/FHLMC so co-ordination with Monetary policy will be maximized.
Reporting to Congress on program status twice a year.
A Mortgage Workout for the People of the USA 1: The Plan
This is a suggested plan to help every citizen of the USA whose current mortgage obligation exceeds the value of their primary home.
Principle no 1: No household should pay a housing cost (mortgage payment: principal + Interest only) that exceeds 30% of their gross income( before any deductions) as reported on their latest Federal Tax Return.
Principle no 2: The Federal Government will refinance through Fannie Mae and Freddie Mac(buy existing mortgage and reissue a new mortgage to homeowner) existing homeowners who are under water with their mortgage on primary residences.
Principle no 3: New mortgages issued under this program, based on household ability to pay, will contain a provision that allows FNMA/FHLMC to recover on sale of secured property, 80% of the difference between the nominal value of the new mortgage issued and the then sale price of the property, until full amount of original refinanced mortgage is recovered. These agencies will be allowed to charge a 0.5% fee in addition to 30yr treasury rate to cover cost of implementing program.
Principle no 4: FNMA/FHLMC will be allowed to continue to repackage these new mortgages in CMO’s etc for resale through traditional resale channels.
Principle no 1: No household should pay a housing cost (mortgage payment: principal + Interest only) that exceeds 30% of their gross income( before any deductions) as reported on their latest Federal Tax Return.
Principle no 2: The Federal Government will refinance through Fannie Mae and Freddie Mac(buy existing mortgage and reissue a new mortgage to homeowner) existing homeowners who are under water with their mortgage on primary residences.
Principle no 3: New mortgages issued under this program, based on household ability to pay, will contain a provision that allows FNMA/FHLMC to recover on sale of secured property, 80% of the difference between the nominal value of the new mortgage issued and the then sale price of the property, until full amount of original refinanced mortgage is recovered. These agencies will be allowed to charge a 0.5% fee in addition to 30yr treasury rate to cover cost of implementing program.
Principle no 4: FNMA/FHLMC will be allowed to continue to repackage these new mortgages in CMO’s etc for resale through traditional resale channels.
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