Geithner's Toxic Asset Purchase vs The S&L Bailout - Where Is The Due Diligence?

[althecat]

From: http://www.scoop.co.nz/stories/HL0903/S00336.htm

Geithner's New Toxic Asset Purchase Plan

Comment By Carolyn Betts
Friday, 27 March 2009, 9:21 pm

I'm an attorney who was working in Washington with RTC during the S&L crisis, so I know something about "toxic asset" sales.

I have been poking around the legal and contracting market to find out what work there is out there in reviewing, collecting data on and valuing the billions and billions (trillions?) of dollars of "toxic assets," including the mortgage backed securities, CDOs and other derivatives created and backed by mortgages that are now "toxic."

I have several observations after reading media accounts of the Geithner plan for so-called public-private partnerships to purchase these vaguely described "toxic assets."


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(1) We need to be defining exactly what these "toxic assets" are. One size does not fit all in this regard.

It makes a difference whether we are talking about single family residential mortgages that are somewhere in the procedural process of being past due, in foreclosure or REO (i.e., real estate owned by the lender following foreclosure), which can be valued fairly readily, or, at the other end of the spectrum, derivatives based on derivatives that are subject to pooling and servicing agreements that put strict limitations on what work-outs can take place to resolve the "toxicity."


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(2) If non-performing assets are to be sold to private investors, those private investors will only pay the best possible price if they have access to reliable data upon which to base their bids. I talked to a senior partner in a DC-based law firm who knows everything there is to know about what goes on in Washington having to do with mortgages.

He said he is unaware of any significant efforts to hire government contractors to undertake the type of loan due diligence, review, data collection and valuation that would have to be done to conduct sales of the "TARP" assets that have been talked about since the fall of last year and earlier.

I talked to a national legal temp firm and asked whether there was any work available in toxic asset review. The recruiter said that her firm had expected to see a lot of that type of work coming down the pike, but there is nothing of that type out there so far. By all accounts, government regulators like FDIC and SEC are short of funds, and FDIC is hiring a lot of bank examiners.

If you go on USAJobs and look for job openings with FDIC and the Commodity Futures Trading Commission, there are few or no openings for experts in valuing or otherwise dealing with non-performing loans.

We have been talking about the bursting of the housing bubble for over a year now, and there seems to be no one taking any initiative in categorizing, stress-testing, quantifying, defining, analyzing, valuing or otherwise collecting information to define the problem.

And if any of this is going on secretly and behind closed doors in Washington, then shame on them. Real estate is all local. And if we don't know what the problem is, any proposed solution will fail.

Much more here: From: http://www.scoop.co.nz/stories/HL0903/S00336.htm

(Note I have permission to quote more than a few paras from the publisher...)

Seems to me that the above raises some serious questions about how this latest chapter in the bailout is being pursued.

Unfortunately Obama's presidency seems to be being derailed on the one hand by the above ^^^ and on the other by events in Afghanistan/Pakistan.

His ability to achieve real change is being sorely undermined.

Its becoming a very sad state of affairs.

Alastair

[JDPriestly]

1. Along this line, I summarized depositions in civil suits in the S&L

crisis period. I'm wondering whether the bail-outs have made civil suits against the firms like AIG that got us into this trouble unnecessary. That is unfortunate, because we will never know what really happened unless we ask those who know.

It looks very much like whatever really happened, who did what when, why, how, is being hushed up, hidden from public view. The wrongdoing is just being glossed over. What is going on here? Will there be no investigation? No inquiry? The hearings in Congress are ineffective.

[althecat]

2. Yes yes yes.....

:kick:

[soothsayer]

3. there is criminality being hid. it will all be quickly swept under the carpet and we won't be able

to prove anything, at least not for a long time.

[althecat]

5. This is unfortunate and disappointing....

There is an opportunity in failure to learn from the mistakes. If inquiry is not undertaken then no learning will happen.

[Karenina]

4. It's that giant sucking sound Ross Perot referred to.

[KharmaTrain]

6. Excellent Article...

At least Geitner moved to start to isolate the "toxic"...this should have been done months ago instead of Paulson giving his buddies at Goldman and Wall Street a blank check to fix the problems themselves. We've seen how good that worked...and Geitner is catching a lot of blowback because of this.

An RTC "holding pen" is definitely needed to get bank books again solvent...free up the credit markets and deal with the huge debt bomb that is exploding and is the major reason for the consumer market going flatline. The sooner the junk is isolated and written off, the sooner the corner gets turned. And, hopefully, in time, much of the toxic will lose its poison and start gaining some value itself. If handled properly, the treasury could recoup billions down the road...but that's all predicated on cleaning up not just the debts of the big banks but that of the little guys as well.

[autorank]

7. E Gads, where are the votes

This is a great article. I've been burried for a few days and just saw this. Damn good !

:kick:

[geek tragedy]

8. The lead investors--the hedge funds--would be performing

the due diligence, not the government.

[glitch]

9. Shoot! Too late to rec. Here's a kick though. nt

[robdogbucky]

10. Ad hoc from memory and maybe long....

Al and JD:

You guys may recognize the term "outside fee counsel," from the RTC days. I worked for one as lead investigative paralegal assigned the task of finding any kind of documentation that would support prima facie evidence that would allow a claim to be brought against the bond of said failed S&Ls. That was the hope. It was very interesting work and I sure learned a valuable lesson about how corrupt this country actually is. Everyone, I mean everyone, was along for the ride, content to fleece the taxpayers while pretending to do the due diligence necessary to bring said claims. Like a fool I didn't catch on until after I had actually discovered some things that could support claims.

This evidence when found was largely ignored and I was told not to worry about it. No one wanted to bring charges against anyone in their professional community that had anything to do with the fraudulent actions found. This includes law firms, banks, appraisers, auditors, brokers, and of course the actual S&L directors and officers. I felt like such a fool as the idealistic staff member who actually thought we would do the task assigned. Of course the worst part was the folks that refused to believe any of it and thought I was just another conspiracy nut.

You guys may also be familiar with what I call The Book, titled, "Inside Job," by Steve Pizzo, et al, regarding this whole rotten chapter in our nation's history. What Steve told me when I contacted him with a query about what to do if I suspected negligence in pursuing such evidence in the then-climate of both parties having a part in the scandals, was an eye-opener. I wanted to know from him what I could do to complain or somehow lodge a complaint that said evidence when found was being ignored, swept under the rug, essentially buried in favor of not stepping on toes professionally and politically. His advice to me was honest and harsh. I was on my own if I wanted to blow any whistle. And that was almost 20 years ago. Steve has a website to this day "NewsForReal," and carries on the tradition of what was once investigative journalism. That book and information about it is available at the site. He still fights the good fight.

Imagine, the bodies charged with trying to get some money back for the fool taxpayer that was stuck with the tab by both parties in that mess, were not serious about doing their job. They were content to collect their fees, go through the motions, and essentially not offend or accuse anyone with clout within their own legal communities. They became another part of the ongoing fraud. Oh, sure, some little guys were hung from the lamposts as cheap examples, but from my direct experience, tort feasors with dirty hands that had clout were left alone. Left alone to get away with enabling the corrupt and fraudulent S&L owners, who after obtaining their charters as S&Ls, knowingly defrauded first the Federal Depository through fraudulently obtained CDs, etc., for often non-existent or over-valued projects and then the American public when they went belly-up. Then it came to pass to have all of us sweet fool taxpayers take in the butt once again. This time around in 2008-2009, they learned not to put too big a point on it when disclosing the house of cards constructed and to cause panic (just before the election last fall BTW) and then claim it was all unforseeable and a tragedy no one could avoid. No one should believe anything that is emanating from the beltway about this or measures allegedly taken to cure the problem. There will be no real recovery. No one important will do time for this. That's just the facts in this country.

This time the foxes are even more firmly in control of the hen house I am afraid, faux outrage from both sides of the aisle notwithstanding. Defraud, lie, rinse, repeat. Taxpayers will foot the bill.

robdogbucky

[amandabeech]

11. Thank you for your post.

It's a sorry state of affairs.

Maybe this should be outsourced to St. Louis and staffed by folks not from D.C.