Wednesday, June 03, 2009

PPIP Put On Hold

Shockingly, banks are not lined up to voluntarily sell their "toxic" (i.e., worth something less than par) assets, lest their balance sheets begin to reflect economic truth.

The truth would be unacceptable.

Or, as a friend of TILB so succinctly put it, "Amazing. You give a Trillion dollars to banks and suspend MTM, and they don't want to sell? That's a head scratcher."


That Which is Seen, and That Which is Not Seen:
In addition, if you were a bank why on Earth would you sell when We The People are willing to subsidize your balance sheet via one of the steepest curves in history (on top of wide spreads!)?

In fact, not only have we subsidized your past (balance sheet injections) and obfuscated your current state to your benefit (MTM), we fully intend to subsidize your future (steep curve, zero funding costs, gifted trading profits).

In essence, the government has licensed the banking system a money printing machine. Of course, private industry does not have an actual money printing machine (and if it did, it would still lead to wealth theft from savers). Rather, the money being "printed" by bank profitability is actually the collection of the profitability excretion that results from the forced consumption of a massive ex-lax that was jammed down the throat of the rest of the economic system. To the extent the Fist of Government has granted super-normal future profitability to the banking system, you can rest peacefully at night knowing that other parts of the economy are paying for it - just stay close to the shitter.

So, as a member of the Brahman level of the corporate caste system, why would Bank XYZ sell? What's the downside? Bankruptcy? Ha! As if. Simply play the same game Ford selected and give the dice a roll; worst case scenario, you get bailed out anyway. Best case scenario, you confiscate enough profits from the rest of the economic system that you regain your swagger as a global BSD.

And thus, shockingly, the FDIC expects a supply shortage and Super SIV v5.0 is shelved along with all of its prior incarnations. Not canceled, of course, simply shelved - we must always build in an escape hatch so that we can reactivate the plan without seeming like we keep changing our mind.

In any case, here's the FDIC's release. Basically, the LLP will only function for assets from banks in conservatorship:
FDIC Statement on the Status of the Legacy Loans Program

June 3, 2009 Media Contact:
Andrew Gray (202-898-7192)

The FDIC today formally announced that development of the Legacy Loans Program (LLP) will continue, but that a previously planned pilot sale of assets by open banks will be postponed. In making the announcement, Chairman Bair stated, "Banks have been able to raise capital without having to sell bad assets through the LLP, which reflects renewed investor confidence in our banking system. As a consequence, banks and their supervisors will take additional time to assess the magnitude and timing of troubled assets sales as part of our larger efforts to strengthen the banking sector."

As a next step, the FDIC will test the funding mechanism contemplated by the LLP in a sale of receivership assets this summer. This funding mechanism draws upon concepts successfully employed by the Resolution Trust Corporation in the 1990s, which routinely assisted in the financing of asset sales through responsible use of leverage. The FDIC expects to solicit bids for this sale of receivership assets in July.

Chairman Bair added, "The FDIC will continue its work on the LLP and will be prepared to offer it in the future as an important tool to cleanse bank balance sheets and bolster their ability to support the credit needs of the economy."


Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation's banking system. The FDIC insures deposits at the nation's 8,246 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars – insured financial institutions fund its operations.

FDIC press releases and other information are available on the Internet at, by subscription electronically (go to and may also be obtained through the FDIC's Public Information Center (877-275-3342 or 703-562-2200). PR-84-2009