NOW U.S. WON’T BUY TOXIC WASTE LOANS
November 12th, 2008I’m confused. Could this have something to do with “Bretton Woods 2” in a few days?
Via: Reuters:
U.S. Treasury Secretary Henry Paulson on Wednesday said he was backing away from buying troubled mortgage assets using a $700 billion bailout fund, instead favoring a second round of capital injections into financial institutions that would match private funds.
Paulson, in an update on the Treasury’s financial rescue efforts, said his staff has continued to examine the benefits of purchasing illiquid mortgage assets under the so-called Troubled Asset Relief Program.
“Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role, relative to other potential uses of TARP resources,” Paulson told a news conference.
When Treasury was selling the $700 billion bailout plan to Congress, it initially promoted it as a vehicle that would purchase illiquid mortgage assets from banks and other institutions to cushion potential losses.
But it became quickly apparent that setting up such purchases would take time, and Treasury opted for the faster method of injecting capital directly into banks by buying preferred stock. The Treasury has allocated $250 billion of the fund to such purchases so far.
Paulson said the Treasury is evaluating a second program that would provide government investments that would match private investments in capital raisings.
“In developing a potential matching program, we will also consider capital needs of non-bank financial institutions not eligible for the current capital program,” Paulson said.
He also said support was needed for the markets that securitize credit outside the banking system for products such as car loans, credit cards and student loans. The Treasury and Federal Reserve are exploring the development of a potential liquidity facility for highly rated AAA asset-backed securities.
“We are looking at ways to possibly use the TARP to encourage private investors to come back to this troubled market, by providing them access to federal financing while protecting the taxpayers’ investment,” Paulson said.
It’s funny how this TARP evolved, initially they were only going to buy MBS (Mortgage-backed Securities or Major BullShit, it’s a multi-level acronym) then they tip-toed into equity, now it’s just all equity. How many crafty traders are making an arbitrage off of this? Better to have an open arbitrage than a closed-one, as the MBS deal would have been. From a business standpoint, the Treasury should want more stringent terms with it’s private equity purchases, but that’s only if you think of Government as a separate investment entity.
Jim Sinclair opines:
“Quantitive Easing – the direction the Fed is taking, saying they no longer are interested in buying toxic OTC derivatives with little or no value.
This change may well be a result of Bloomberg’s suit to force the Fed to reveal what these assets are on their balance sheet. This forced change to Quantitive Easing is the strongest tool for blasting trillions into economies.”
Lookee this — no surprise, but the Fed is, like, reeling like a drunken sailor:
http://www.econbrowser.com/archives/2008/10/the_federal_res.html
@Pookie,
I didn’t understand a lot in the article until the author started talking about how the Treasury or Fed Reserve were recording their debits and credits. The reason why is that I’m a former accountant now auditor.
I wonder who the hell Maiden Lane is? The acronyms conjured up as code for the manuevers of the Bush Co in their wars never left much to the mind. But now we have the money wars. This code is intriguing.
Maiden Lane? A path never gone down before? Certainly.
Who is the Maiden?
WE NO LONGER WANT TO BUY TOXIC OTC DERIVATIVES.
Sounds like the Treasury and the Fed just found out that their “maiden” was not a virgin, and that the bride they wanted to take to the altar is no longer worthy of all of the billions (?) they placed into her “dowry.”
Kuddos to Bloomberg. This action by them in my estimation ROCKS.
Somewhere in what seems eons ago I read where the financial crisis in the US was inextricably entwined with BOTH Paulson’s and Bernanke’s charts. If I remember correctly, the story read that these two would be burned at a stake somewhere for what they are doing to the world economy (just kidding – I think the article was saying that Paulson and Bernanke’s actions in the future would be inter-twined in the financial crisis). I am sure all is evolving as it should, and right action (dharma) by Bernanke and Paulson would ease their karma. However, it does not appease my eye to see Paulson looking like a deer – actually he looks more like a Moose – in the headlights whenever he goes out in public of late. The man’s aura exudes more fear, actually terror, than I’ve seen exude from anyone aura in my lifetime. He looks positively FRANTIC.
Anyways, keep on trucking. We’re in charge of our own creative force, and it can be used to sink our lives into darkness and want, or well, otherwise.