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Big Banks: Pulling Off the Ultimate Bait and Switch

1. The banks C, BAC, WFC, and GE (yes, GE is a financial), and possibly JPM are insolvent. If you don’t believe that, then I’ve go some mortgage backed securities to sell you!

2. How does our competent Treasury Secretary expect there to be ‘private sector participation’ when the country’s major money centers have no money?

3. From Bloomberg: “The plan is aimed at financing as much as $1 trillion in purchases of illiquid real-estate assets, using $75 billion to $100 billion of the Treasury’s remaining bank-rescue funds. The Public-Private Investment Program will also rely on Federal Reserve financing and Federal Deposit Insurance Corp. debt guarantees, the Treasury said in a statement in Washington.”

4. The astute student will see the pure genius and eloquence of this article. It basically is describing how the private sector is going to participate in this process with OUR (the taxpayers money)! Number 5 below is a post from JT77 from another article:

5. From JT77 post: “The Geithner plan is at grave risk of being gamed by the financial industry. The money center banks can be bidders in this process, and are greatly incentivized to collaborate to bid up each other’s offered asset pools. This allows them to:
1. Transfer 93% of the downside risk they now own to the FDIC and Treasury.
2. Control the bidding process; ensuring bids are well above MTM.
3. Mark up remaining assets they will keep on their books.
In the near term, this will lead to a surge in the XLF and bank share prices, ensuring passage of the Tangible Common Equity “stress” test. In the longer term, the continued decline in employment and home prices, rising savings rates, and rising credit card, auto loan, student loan, and CMBS defaults, may lead to historic losses for the FDIC. Unfortunately, the FDIC’s Deposit Insurance Fund is already near zero. Should the FDIC become impaired in its new role as guarantor of bank assets, it risks failure in its original role as guarantor of bank liabilities, i.e. deposits. We will then be at risk of what we have so far managed to avoid – a good, old-fashioned Depression era bank run.”