Mark Patterson: "It's A Sham. The Banks Are Insolvent"

[girl gone mad]

The original article was removed, but http://zerohedge.blogspot.com/2009/05/mark-patterson-its-sham-banks-are.html">Zero Hedge saved it.

Mark Patterson: "It's A Sham. The Banks Are Insolvent"
Posted by Tyler Durden at 8:40 PM

The chairman of $7 billion distressed Private Equity firm and TARP beneficiary MatlinPatterson calls a spade a spade and in the process exposes the entire Geithner plan for the complete sham that it is. His comments before the Qatar Global Investment Forum were captured by the Daily Telegraph's Evans-Pritchard earlier, and Zero Hedge republishes the piece in its entirety as it presents every nuance of our predicament with masterful simplicity.

***

US 'sham' bank bail-outs enrich speculators, says buy-out chief Mark Patterson

The US Treasury’s effort to stabilise the banking system through the TARP programme is a hopelessly ill-conceived policy that enriches speculators at public expense, according to the buy-out firm supposed to be pioneering the joint public-private bank rescues.

“The taxpayers ought to know that we are in effect receiving a subsidy. They put in 40pc of the money but get little of the equity upside,” said Mark Patterson, chairman of MatlinPatterson Advisers.

The comments are likely to infuriate Tim Geithner, the US Treasury Secretary, because MatlinPatterson took advantage of the TARP’s matching funds to buy Flagstar Bancorp in Michigan. His confession appears to validate concerns that the bail-out strategy is geared towards Wall Street.
Under the convoluted deal agreed earlier this year, MatlinPatterson has come to own 80pc of the shares while the US government has ended up with under 10pc.

Mr Patterson said the US Treasury is out of its depth and seems to be trying to put off drastic action by pretending that the banking system is still viable.

“It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn (£66bn) of the $700bn TARP funds. They think they’re doing this for the greater good of society,” he said, speaking at the Qatar Global Investment Forum.

Mr Patterson said it would be better for the US to bite the bullet as Britain has done, accepting that crippled lenders must be nationalised. “At least the British are not hiding the bail-out,” he said.

MatlinPatterson said private equity and hedge funds were deluding themselves in hoping to go back to business as usual after the trauma of the last 18 months.

“This is not a normal recession and there will be no V-shaped recovery. The crisis has destroyed leveraged companies. We’re going to see a catastrophic increase in the number of LBO’s (leveraged buyouts) going into default because they’re knee-deep in debt and no solution exists since they can’t refinance,” he said.

“Alfa hedge funds have been making their money by gambling with excessive leverage, so the knife that cuts off leverage is going to cut off their heads as well,” he said.

Like many bears, Mr Patterson expects the great crunch to end in deliberate inflation, deemed a lesser evil than outright depression.

“The US government has thrown 29pc of GDP at this crisis compared to 8pc in the early 1930s. The Fed’s balance sheet has risen from $900bn to $2.7 trillion to bail out the system. America has to do it because the only way out is to debase the currency, but that is going to lead to some very high inflation three years down the road,” he said.

Matlin Patterson, however, has missed the Spring rebound, the most powerful rise in equities in over 70 years. “We shorted the equity rally because we thought it was lunatic. We’ve kept adding positions seven times, and we’re still holding,” he said. Ouch!

[xchrom]

1. oh. dear. nt

[Butch350]

2. I appreciate town criers

...just exactly are we supposed to do now that we've been informed by the numerous posts.

SO WHAT DO WE DO?

[bvar22]

4. Do the work.

Find out who voted AGAINST the Bailout for Billionaires with NO strings attached.
Find out who SPOKE OUT AGAINST IT.
Support THEM in their bids for re-election.

STOP supporting those who aided in the SHAM.
Speak out against them.
Support their opposition in the Primaries.
Send no more money to the complicit Democratic Party establishment.


NOW we have Your Children’s Money too !!!
And there is not a fucking thing you can do about it!
Now THIS is “Post-Partisanship” !
Better get used to it!!
Hahahahahahahahaha!



OR
Sell everything you own.
Move to the Woods.
Plant a garden.

[unblock]

3. this is the silliest complaint yet. OF COURSE they're insolvent. why else give them all that money?

the whine shouldn't be about their insolvency, or the government's decision to basically fill the hole, however deep it turns out to be. that in any event was exactly what was advertised. it's not a sham, it's exactly as they described. the banks screwed up big time, and the federal government is bailing them out and covering their losses.

the whine should be about whether or not that was wise or whether or not there was a better way, e.g., letting them fail and starting up new banks with clean balance sheets in their place.

or the whine should be about whether or not more regulation or equity is needed in exchange for all the loot.

or even whether or not they should pay into a "too big to fail" fund when healthy, to spare taxpayers from footing the bailout bill.

but don't say it's a sham. it's exactly what they said it was, a bailout. institutions that aren't insolvent don't need a bailout.

[rhett o rick]

5. Giving the banks money is only attempting to prop up the pyramid scheme that is sagging.

It will only postpone the inevitable and make it worse. The next step, hyper-inflation.

[unblock]

7. banks are deleveraging as fast as they can.

under pressure from all sides to clean up their balance sheets, they are barely making new loans while retiring old ones as best they can.

yes there will be inflation but that is the inevitable result of paying trillions without meaningfully increasing taxes. as far as inflation goes, it would have made little difference how the money were spent.

personally, i would have preferred a much wider distribution of the money (e.g., to the neediest) and to establish NEW banks with clean balance sheets, rather than to preserve ALL of these banks who screwed up. but then, i'm not president....

[FlyingTiger]

8. As I posted in the other thread, that's wrong. The bailouts are for ILLIQUID banks, not INSOLVENT

If the banks are indeed insolvent (which they are, and it's not even difficult to prove, the whole argument that they're only illiquid relies on the fairy-tale notion that housing prices will soon make a big rebound), then, yes, this whole thing is a big, fat sham.

[unblock]

9. please see the other thread.

they're only really insolvent if the feds can't plug the hole. THEN it would be a sham.

[FlyingTiger]

10. Yup. Other thread. n/t

[northernlights]

6. inflation may not be as bad as expected, for 1 reason

I am no economist, not even close. My eyes really glaze over when people start talking econobabble. The only definition of inflation that has ever stuck in my head is "inflation is when there are too many dollars chasing too few goods."

But one side of the problem today is too many goods and excess capacity. It seems to me it doesn't matter how many dollars they print, we can't consume enough crap to keep up with capacity. And it also seems that the current hard times could lead to a major re-think in consumption.

There is something about being jobless long-term and in the streets. It could be a generation or two before people start feeling secure enough to overconsume.

Also, it may not matter how many dollars they print (or invent electronically) if they all end up in the hands of the top 1%. The top 1% (or 5 or 10% if they manage to trickle a few dollars down to the have mores, versus the have alls). No matter how many yachts and mansions before they just get bored with them all.

So I suspect that no matter how many dollars they print, no matter how much they try to inflate another bubble, I just don't see consumption rising any time soon.

They say they see a huge demand rising -- that soon people will be *forced* to start buying new cars, for example. Not necessarily. It's true, for instance, that I will need to replace my 12 year old car -- it's only good for another 100,000 miles at best. But I won't be buying a new one to replace it -- I'll be buying a used one.

How many families out there loaded up on cars during the "good times?" How many times did I read about and see couples with 2 cars, or families with 4 cars -- 1 for each spouse and each kid?

Many of which I now see sitting parked out front with 4-sale signs, and couples sharing the ride to work to save on gas?

And I, for one, am using this fake bubble to restructure once again. Yes, I will replace the aging computer. But it may be a combined computer/phone/teevee/whatever. And I probably will not replace the aging teevees, unless I can't combine it with the 'puter. And even if I do replace the teevees, it will be 2 down to 1. A small one that I can carry easily from one room to the next.

So they can print all the dollars they want. That won't necessarily cause the return to rampant consumption they expect. The shiny new baubles have worn very, very thin. As people return to the earth for sustenance, they may re-find their centers.