U.S.-Led Program to Buy Up to $1T in Toxic Assets

[Bluesuiter-Retired]

The federal government announced some details of a three-part plan Monday that will partner it with private investors to purchase up to a trillion dollars -- or more -- of toxic loans from the nation’s banks, as well as purchase securities backed by souring loans.

After launching a bank capital investment program and a mortgage restructuring plan, the Treasury intends to use $75 billion to $100 billion in funds from the Troubled Asset Relief Program, or TARP, to tackle the last big, and most vexing, problem in the financial crisis -- toxic assets, which officials call “legacy assets.” These are mainly billions of dollars in deteriorating residential and commercial mortgage loans underwritten in the real estate bubble and now stuck somewhere in the financial system, limiting lending and acting as a drag on the economy.

"There is no doubt that the government is taking risk," Treasury Secretary Timothy Geithner said in a Monday morning briefing to the press. "You can't solve a financial crisis without the government taking risks."

(MORE)

Remember how obama and his merry minnions were constantly attacking the banks and private businesses for months now?

He is now EXPECTING them to help him by buying over $1 TRILLION worth of toxic bank loans.

If I were the target of one of the dim/lib tirades over the past few months, it wouldn't be me telling them no, but PHUCK NO!


modified for Breaking News format -- Chris

[Black Swan]

In the first part of the plan, the Treasury will set up public-private investment programs, or PPIPs, to purchase the bad loans from banks. For loan purchases, the financing will be provided by the FDIC, officials said.  In these transactions, the FDIC will loan around 85% of the purchase price -- if it determines it's willing to leverage the pool at a 6-to-1 debt-to-equity ratio -- with the Treasury and the investors contributing equally to the down payment.

For example, for a group of deteriorating mortgages purchased by a PPIP for $840,000, private investors would put up $60,000, the Treasury would invest $60,000, and the FDIC would provide a loan of $720,000.  The mortgages might have an original face value of $1 million, but would have deteriorated in value with the collapse of housing prices and would already likely been written down by $160,000 in value by the bank holding them. In the sale, not only would the bank get rid of the loans, it would get a fresh injection of capital to use for lending and other purposes.

$840,000 = purchase price

$60,000 = Private investor share
$60,000 = Treasury share
$720,000= provided by FDIC = 85% (?)

So a private investor would spend $60,000 for what someone valued to be worth $1,000,000.  The investor sells them or holds them.  All the investor has to cover is the $60,000. 

OR

So a private investor is going to take the institutions word for it that these were written down by $160,000 from $1,000,000 and they used to be worth $1,000,000.

If the private investor is able to sell these for $840,000 while expending only $60,000, that is a great deal for the private investor.  In fact, the private investor can sell for $70,000 and make a profit of $10,000 and what would they care that it was supposed to be worth $1,000,000 or not.  He only needs and hopes to cover his $60,000. 

Does the taxpayer (FDIC, Treasury) get paid back any money at all on the profits these private investors will make? 

Have I figured this correctly?  Something must be missing or are we really giving this much money away to get these off the banks books? 

Someone please chime in!!

[DumbAss Tanker]

Indirectly I suppose the Treasury would partake in the profits of the non-governmental parties when they realized capital gain on any resale of the asset, but I would bet that there has been or will be a tax break cut for the banks on this, whether the Administration intends there to be or not.  I say this because (1) That much swag carries a huge amount of weight in Congress, which can in turn write the law any way it wants without a by-your-leave from Obama's minions, and do so now or later, and (2) If the Administration is as Draconian on huge profits and as unfriendly to capital gains as they act, the banks will insist on such a break being on the table before signing on to play this game with them.

[Black Swan]

Indirectly I suppose the Treasury would partake in the profits of the non-governmental parties when they realized capital gain on any resale of the asset, but I would bet that there has been or will be a tax break cut for the banks on this, whether the Administration intends there to be or not.  I say this because (1) That much swag carries a huge amount of weight in Congress, which can in turn write the law any way it wants without a by-your-leave from Obama's minions, and do so now or later, and (2) If the Administration is as Draconian on huge profits and as unfriendly to capital gains as they act, the banks will insist on such a break being on the table before signing on to play this game with them.

Any capital gain collected surely is not equal to the money we have expended.  This looks like another screw the taxpayer to help the banks get their bad decisions off their books.  And that is all assuming these are remotely worth anything close to what the claim is.  We are guaranteeing the private investor in excess of 85% and that ticks me off.  Further, the housing market is still going down so you can assume there will be dollars lost right from the get go. 

[Black Swan]

Is there anything in this new plan that would prohibit say Citi's private equity from bidding up Bank of A and vice versa?  Both balance sheets now look better.  They make off with the Fed money and sell what they can from what they bought. 

[5412]

$840,000 = purchase price

$60,000 = Private investor share
$60,000 = Treasury share
$720,000= provided by FDIC = 85% (?)

So a private investor would spend $60,000 for what someone valued to be worth $1,000,000.  The investor sells them or holds them.  All the investor has to cover is the $60,000. 

OR

So a private investor is going to take the institutions word for it that these were written down by $160,000 from $1,000,000 and they used to be worth $1,000,000.

If the private investor is able to sell these for $840,000 while expending only $60,000, that is a great deal for the private investor.  In fact, the private investor can sell for $70,000 and make a profit of $10,000 and what would they care that it was supposed to be worth $1,000,000 or not.  He only needs and hopes to cover his $60,000. 

Does the taxpayer (FDIC, Treasury) get paid back any money at all on the profits these private investors will make? 

Have I figured this correctly?  Something must be missing or are we really giving this much money away to get these off the banks books? 

Someone please chime in!!

Hi,

I see things a bit differently.

ACORN, with the willing help of the Clinton administration required banks to lend money to minorities for homes they could not afford.  The process was accellerated by having Fannie Mae and Freddie Mac buy those loans from the banks so they could continue lending to more folks who could not pay.

Well, despite the objections by the republicans, the libs indicated that nothing was wrong, Freddie Mac and Fannie Mae were just fine thank you.

Well now many of those loans are in default and the government does not know what to do about them.  The last thing they want to do is have the flock of liberal democrats get kicked out of their taxpayer funded free house.  This seems to me to be another scheme to bankrupt the country and create the illusion the government will make it all better.  Notice not a doggone thing has been said about banks being allowed to alter their lending practices to actually just lend money to folks who can pay it back.  Instead the banks just stopped lending to most everyone.

Personally I hope the banks and the public let the libs eat the "toxic loans", hell they created them to begin with.

regards,
5412

[Black Swan]

Hi,

I see things a bit differently.

ACORN, with the willing help of the Clinton administration required banks to lend money to minorities for homes they could not afford.  The process was accellerated by having Fannie Mae and Freddie Mac buy those loans from the banks so they could continue lending to more folks who could not pay.

Well, despite the objections by the republicans, the libs indicated that nothing was wrong, Freddie Mac and Fannie Mae were just fine thank you.

Well now many of those loans are in default and the government does not know what to do about them.  The last thing they want to do is have the flock of liberal democrats get kicked out of their taxpayer funded free house.  This seems to me to be another scheme to bankrupt the country and create the illusion the government will make it all better.  Notice not a doggone thing has been said about banks being allowed to alter their lending practices to actually just lend money to folks who can pay it back.  Instead the banks just stopped lending to most everyone.

Personally I hope the banks and the public let the libs eat the "toxic loans", hell they created them to begin with.

regards,
5412

Either way, the taxpayer gets hosed, banks are made whole and Congress continues to receive the campaign funds and more. 

I agree nothing has been done about lending rules except there are now programs for these same people to refinance or modify their mortgage (at least some of them), FHA, F/F will continue to guarantee the same old ninja loans and nothing is going to be done about ACORN and their scams. 

The responsible end up paying the tab and I am sick of it.  This is another money laundering scheme plain and simple.   Our government is making Madoff look like a petty thief.