It Looks Like Citi And Bank Of America Are Already Gaming The System

[girl gone mad]

It Looks Like Citi And Bank Of America Are Already Gaming The System
http://www.businessinsider.com/it-looks-like-citi-and-bank-of-america-are-already-gaming-the-system-2009-3

The huge subsidy to banks hidden inside of Tim Geithner's public-private partnership program may already be leading banks to load up on securities they plan to sell at inflated prices.

According to the New York Post, Citi and Bank of America have been aggressively buying up Alt-A and ARM mortgage backed securities, sometimes paying more than the going rate of around 30 cents on the dollar.

Mark DeCambre reports:

One Wall Street trader told The Post that what's been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.

Recently, securities rated AAA have changed hands for roughly 30 cents on the dollar, and most of the buyers have been hedge funds acting opportunistically on a bet that prices will rise over time. However, sources said Citi and BofA have trumped those bids.

This raises serious questions about how the banks are using TARP funds. Instead of stimulating the economy by making new loans, B of A and Citi seem to be spending money to buy up old loans. That's probably a bet that the Geithner plan will create renewed demand for MBS.

[thereismore]

1. When did they stop? nt

[mike_c]

2. who couldn't see this coming...?

It's the triumph of naked greed over patriotism and common sense. The Geithner plan is a big pie served up by the Treasury-- BOA and Citi just want to get the biggest piece of it they can.

Greedy rat bastards. :grr:

[ixion]

3. and the ex-CEO of Countrywide is setting up a company to do the same

there's something fishy going on here, IMO.

[girl gone mad]

20. He belongs in jail.

People are upset about the $165 million bonus payouts to AIG employees, but Mozilo walked away with 300 million, all for himself, for his role in creating these fraudulent loans.

[MercutioATC]

4. But...but....we have complete faith in Geithner and Obama and their plan.

...after all, they're much smarter than us, right?

:eyes:

[terisan]

5. Yes they sold us out and their fervent supporters (Bank CEOs and many on Left)

will soon be telling us how we have to sacrifice to help our country. As you know we are all supposed to "give some skin" or "take a haircut" (why do these new political phrases remind me of the mob)

It is quite the con and I am not falling for it.

[MercutioATC]

6. I'm not even suggesting they're acting in bad faith. I think Obama thinks this is a good idea.

I'm questioning his judgment, not his motives.

...but it's still a lousy deal for all of us.

[terisan]

9. I think the decision is politically driven. Wall St and Big Banks contributed massively

to Obama

When the the average worker compensation at Goldman Sachs alone in 2008 was over $350000 (down from over $660000 the year before) and their contribution to Obama was, just from this one firm , over 4980000 I suggest their is a political motive for Obama's decision.

Unlike the small contributors who may expect societal improvements in exchange for their support, Wall Street expects favors or a significant return on investment. Their attitude is basically: You owe us Buddy and we are here to collect.

So my opinion is that unless voters get very tough with Obama very fast we will not get a very significant return, especially since the investment banks have an appetite for more money and more favors.

I think Obama began re-paying Wall Street/Big Banks with his Treasury and Financial Advisor appointments. Surely he knew that a plan devised by -Rubin, Summers, and Geithner would be a massive bailout accompanied by a massive indebtedness for the rest of us.

The banks were first on the agenda and so now we are turning to the spending on us-the Budget. The problem of coming second is that we have already committed our fortunes (taxing and borrowing capacity) to Wall Street and the Big Banks.

The Budget will be cut-the process will involve presentations of citizens as poor, weak, and desperate (which many are) needing to be saved by government, with other presentations about how we cannot afford to do many of the things promised in the election cycle. Perhaps someone will mention the need to sacrifice.

Obama supporters will revile Democratic congress members who call for cuts in the interest of fiscal responsibility.

A compromise will be reached but the citizens will never make out as well as the investment banks did and the indebtedness will hang over us.

After that Social Security will again be targeted because, as I said above, the investment banks want more.

In the meantime we seem to be having trouble getting others to buy our debt. If interest rates begin to rise it will be the people who get hurt.


So this is why I think it is a form of a confidence racket. The people see their leader as someone in whom they have placed their confidence but special interest contributors make deals. The people give their leaders time, make excuses, sympathize with how tough it must be for their leader. The dealmakers demand their payback immediately. They win.

I think Obama, no matter how well-intentioned, knows the difference between these two constituencies and is acting accordingly.

[no limit]

7. And our government couldnt have seen this beforehand? Yeah fucking right.

They are in on it.

[natrat]

8. thank you obama administration, you fucking whores

[A HERETIC I AM]

10. Interesting bit of info on the author of that piece...

His writing often takes controversial positions on business topics. He has argued that failed banks should not be bailed out, Lehman’s collapse was not a disaster, AIG should be declared bankrupt, that naked short selling is not a problem, that backdating isn't so bad, insider trading should be legal, many corporate CEOs are underpaid, global solutions are worse than local solutions, Warren Buffett is overrated, Michael Milken is a great American, the collapse of the hedge fund was not a scandal, hedge funds are over-regulated, education is overrated by the educated, bonuses at successful Wall Street's firms are deserved and possibly undersized, management buyouts are boons to the economy, Enron's management was victimized by an over-zealous prosecution, Sarbanes-Oxley should be repealed, corporate compliance culture is a disaster, shareholder democracy is overrated, hostile takeovers ought to be revived, the market is permanently moving away from public ownership of equity in corporations, private partnerships are on the rise, public ignorance is encouraged and manipulated by governments and corporations, experts overrate expertise, regulatory agencies are controlled by the businesses they supposedly regulate and Wall Street is much more fun than people give it credit for.

http://www.businessinsider.com/john-carney

Something tells me Mr. Carney has an agenda and it does not involve either telling the whole truth or the average American's best interest.

[girl gone mad]

11. If you have a factual basis dispute these claims, let us know.

Attack the messenger tactics are meaningless.

What's more, your point is completely negated by the fact that Carney didn't make this observation, he's merely commenting on Mark DeCambre's reporting.

[A HERETIC I AM]

12. Did you read the Post article?

Fine, I attacked the messenger by quoting the bio directly linked on the page you linked.

But did you read the Post article?

Did you understand it?

Please explain why you feel those banks buying securities that have a yield of 22% is such a bad thing?

[girl gone mad]

13. Do you have an actual criticism of this reporting..

or are you just going to play games?

[A HERETIC I AM]

15. You posted the article.

Do you expect me to just swallow Mr. Carney's and Mr. DeCambre's opinion that this is a horrible thing? Do you share that opinion?

Or is it that you're surprised someone on this board has decided to question an article you posted instead of nod agreement like everyone else?

Again, please explain why YOU think these banks buying securities that have a 22% yield is such a bad thing.

Games? I'm not playing any games. I'm just asking you if you really understand all of what the article you posted discusses.

[girl gone mad]

17. Putting words in my mouth, which you are attempting to do..

when you write things like "please explain why YOU think these banks buying securities that have a 22% yield is such a bad thing" is a game. Just like attacking the reporter who commented on the banks' trades is a game.

These are lame attempts to divert the subject away from the potentially corrupt activity described in the article and onto journalists or me.

Let me clear it up for anyone else who might be paying attention. These are my actual words:

The act of buying mortgage backed securities that yield up to 22% is not a bad thing.

The act of buying mortgage backed securities that yield up to 22% with funds provided by the taxpayer, which were intended to spur lending, not more speculative investing, may or may not be a bad thing (ETA: depending on the long view).

The act of supposedly illiquid banks using TARP funds to buy mortgage backed securities that yield up to 22% in an attempt to front run a taxpayer funded program which is explicitly designed to free up money for consumer and business lending by essentially guaranteeing close to full value on those mortgage backed toxic assets is a bad thing.

[A HERETIC I AM]

18. The reason those securities have been bid down to $.30 on the dollar

is because no one would buy them at a higher bid. If by buying large quantities of them Citi and BofA have helped to free up that segment of the market then I respectfully disagree with your last sentence.

They bought them from someone or somewhere. If the holders didn't want to sell them, they wouldn't have offered them up. Most bonds do not trade on an exchange, they trade over-the-counter and as a result, a buyer NEEDS A SELLER in order to execute the trade.

The statement from notesdev below; "The whole plan is based on the idea that these banks have to unload these very same pieces of crap they are buying" is not necessarily the case at all. They don't "have to unload" them by any means. They can hold them to maturity. Even if they don't mature at par, they probably stand to make money on a large percentage of them, even if they mature or are settled well below par.

[girl gone mad]

19. There is already a market for these assets..

the banks are using TARP money to swoop in and bid them up slightly. They are doing this under the assumption that they will be able to sell them (to the same hedge funds currently bidding on them @ $.30 on the dollar) for close to face value. This scheme offers almost no downside risk to the banks, since they know the market for these securities exists at close to the prices they are paying.

I think "freeing up that segment of the market" is a grossly inaccurate depiction of this activity. The big banks are essentially colluding to use their preferred "too big to fail" status in the PPIP to interfere with smaller firms' acquisition strategies.

If you feel this is a more valid use of TARP funds than lending, and if you think this is in keeping with the spirit of the PPIP, then make that case rather than attacking the reporter or insulting me.

[TheWatcher]

21. He can't, and he never does.

You're wasting time with that one.

He's been an Apologist throughout the Bubbles and The Collapse.

He's clueless. Or a shill. Maybe a bit of Both.

Good Post, though.

[A HERETIC I AM]

23. Hmmmm....

Thought you were leaving us there, Pat.

Because I sure won't see any of it. I'm done with the lot of you. Stated here

And again here "Those who cannot or will not listen, are too far gone, and too invested in "The Football Team" to be reached. I'm done as of today."

To quote the immortal Gene Wilder from the jail scene in "Blazing Saddles".......When?

He's clueless. Or a shill. Maybe a bit of Both.

Naah...just a dick. You?

[A HERETIC I AM]

22. There might be a market, but it had pretty much seized up.

There is already a market for these assets...the banks are using TARP money to swoop in and bid them up slightly.

No, they're BUYING them. If they offered more than the bid, so be it. The sellers will likely be happy to get more than that previous bid price.

They are doing this under the assumption that they will be able to sell them (to the same hedge funds currently bidding on them @ $.30 on the dollar) for close to face value.

What proof do you have for this claim? Neither Mr. Carney nor Mr. DeCambre in his Post article suggested such a thing, although Mr. Carney did say they "may already be leading banks to load up on securities they plan to sell at inflated prices." But that is speculation on his part, pure and simple. The seller of a bond can in no way inflate the price beyond what a buyer is willing to pay, any more than you can inflate the price of a car you are trying to sell higher than the market will bear. Keeping that in mind, one has to ask how is it POSSIBLY a bad thing if they can buy a security for $300.00 and sell it for nearly $1000.00? It is pure speculation on your part to suggest they "are doing this under the assumption" of selling them at all instead of hold them to maturity, much less sell them "to the same Hedge Funds bidding on them @ $.30 on the dollar". Are you defending the poor Hedge Funds here? Be still my heart.

This scheme offers almost no downside risk to the banks, since they know the market for these securities exists at close to the prices they are paying.

Perhaps. It's also possible that the value of them could fall further. Or, their value could climb as they approach maturity and/or if the prospects of defaults declines. If the latter is the case it will improve the balance sheets of the banks, making them MORE solvent and able to lend. But that does not answer the underlying question raised by your statement. If Bank of America buys bonds priced at 30.00 and turns around and sells them at or around the same price (presumably to a "Hedge Fund"), how much do you suspect they stand to make on such a deal? Do you think they'll make that 22% figure? Because they won't. That 22% is yield to maturity and in order to realize it, they have to hold them until they're redeemed.

I think "freeing up that segment of the market" is a grossly inaccurate depiction of this activity.

You're most certainly entitled to your opinion.

The big banks are essentially colluding to use their preferred "too big to fail" status in the PPIP to interfere with smaller firms' acquisition strategies.

What smaller firms and what "acquisition strategies"? These bonds have been available for sale by their owners at varying quantities since this crisis began. I can not see how you made the jump equating two banks buying bonds selling for 30% of par to making them somehow "interfere with smaller firms acquisition strategies"

If you feel this is a more valid use of TARP funds than lending, and if you think this is in keeping with the spirit of the PPIP, then make that case

I am not going to make a judgment whether or not this action is "keeping with the spirit" of anything, but it is apparently, entirely the point. If it improves their cash flow then it's a good thing. If it increases liquidity in this segment of the MBS market it's a good thing. If it makes money for two banks mired in red ink then.....

rather than attacking the reporter or insulting me.

If you're insulted merely because I asked you if you understood what you read and posted, then you are incredibly thin skinned. If you feel I have attacked the reporter merely because I quoted a bio page linked on the page you put up in your OP, too fucking bad. Based on that bio page, I wouldn't cross the street to piss on Mr Carney if he was on fire.

[notesdev]

14. The obvious conclusion

The game was rigged from the start. The whole plan is based on the idea that these banks have to unload these very same pieces of crap they are buying. I know and don't care that they are paying 'market' prices for these things. It has every appearance of impropriety up and down the line and if these guys don't 'get it' by now they never will.

Every last damn one of these companies on the taxpayer dole ought to have a 100% change throughout the entire management structure, maybe even the entire staff as well. I'm sure there are enough people out there willing to do the work.

[JohnWxy]

16. recommended.