Wednesday, September 24, 2008

The Overs Take it! (and how!)

For each of the last two weeks, the overs have taken it running away. I guess technically the failure of Fannie and Freddie two weeks ago (it seems like a lifetime ago!) don't qualify as depository institutions, but I'll make an exception. And while Lehman and AIG aren't perfect fits either, their epic failure combined with the failure of tiny Ameribank, Inc. in West Virginia certainly meets the intent of the rule.

I have an enormous number of thoughts about the Keystone Cops', I mean Hammerin' Hank and Helicopter Ben's, announcement about the reliquification of the global financial sector using We The People's money.

I can sum it up my views very briefly with the following statement: as long as they continue to expect any losses from this bailout, we know for a fact that the government intends to overpay for the mortgage assets! I can assure you the Street will hit that bid and hammer the Treasury over and over again with the worst assets at the wrong prices until the Treasury lowers its bid. Then the Street will pound the bid some more.

In theory, the taxpayers ought to be making a profit on this if we buy at reasonable prices (ignoring all of the unintended consequences) and it is an f'ing travesty that the implicit subsidy of the banking system which I've been railing on for years is becoming explicit.

We damned well better extract a pound of flesh.

The Hammer keeps saying that the root causes of this once "contained subprime problem" are falling housing prices and the resultant illiquid, depressed asset values that banks are carrying. That is fundamentally misleading. The root problem is too much allowable leverage by banks due to their falsely precise regulatory oversight and Fed backstop combined with bad to horrific underwriting practices. This reliquidifcation does absolutely nothing to address either of those issues.

Prediction: more pain to come, even it we shift who receives it.

Further prediction: before Treasie Mae and Feddie Mac can get this horrific foray into trickle down communism up and running, we run headlong into some other large problems.

I will have more thoughts on this in the coming days. Suffice it to say I think the whole thing is evil.


PS: Don't trust a word from anyone at a bank, on Wall Street, or at a firm like PIMCO, Blackrock or TCW. They are all completely and utterly comprimised by this bailout. Wall Street and commercial banks all stand to sell assets to tax payers at inflated prices and investment management firms like PIMCO and Blackrock stand to be hired by Treasie Mae as external managers to run the process. I expect a thorough knob slobbing until this is over.

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