Wednesday, March 4, 2009

IF THE 'SHADOW BANKING' WORLD SOUNDS SHADOWY--AND SCARY--READ ON

Financial Rescue Turns to Toxic Assets


New Funds to Vie for the Securities, Setting A Market Price So Banks Could Sell Them

By David Cho and Neil Irwin
Washington Post Staff Writers
Wednesday, March 4, 2009; D01

The Obama administration is aiming to solve one of the toughest riddles at the heart of the financial crisis -- how to value the toxic assets weighing down the books of banks -- by setting up several funds to vie for these securities, sources familiar with the plans said yesterday. By competing to buy assets, the funds could set a market price that would finally allow banks to sell them off.

. . . Federal officials in the Bush and Obama administrations have struggled for months to find a way to price these distressed assets, which are backed by troubled mortgages and other loans, that is high enough to help banks but low enough to protect the government from massive losses. Establishing several funds, run by private managers, would take that vexing problem out of the government's hands, allowing market forces to determine what these assets are worth.
A mere paragraph apart, this article tells us our government is planning to 'set' market prices and then 'allow market forces to determine what these assets are worth.' (Econ 101: Market price--the price at which buyers and sellers trade the item in an open marketplace)
Anything in the above article that resembles an open marketplace is purely by sleight-of-hand.

. . . The government would give these private investors loans to help buy the securities and offer to cover some losses.
So your and my government is going to loan your and my money to private investors, helping to cover their losses, while you and I lose our homes and can't get a loan to keep our lawn-care business afloat.

What a brilliant idea.

. . . Both of these initiatives look to tap private investment funds, bond traders and some hedge funds, which are key players in what is often called the "shadow banking system" -- the financial markets beyond traditional commercial banks that provided about 70 percent of credit to borrowers before the crisis.
Let me get this straight. These shadow bankers, unregulated all, are the guys who toxified the financial market with their 70%.

. . . Government officials said lending could not return to normal without helping the shadow bankers. . . The government's terms give private firms the potential for making tremendous profits, while limiting the losses private investors could face.
Now our elected government of change is prepared to give these same dodo investment dudes the potential for making tremendous profits to de-toxify what they toxified.

"I think if the government is prepared to partner with the private sector as well as put up leverage to facilitate certain kinds of investment it could be quite interesting to a private-sector investors," Schwartzman said. He added it is very difficult today for most private investors to get such favorable opportunities.
Well, I'll just bet that would be interesting and that last line understates the situation by about 300 million to one. It is increasingly difficult today for most private citizens to survive, keep their kids in school, stay in their home, have some hope of retirement and not find themselves on the street with no job and no health insurance.

Maybe the government could put up some leverage for that.

--read entire sorry mess of an article--
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That screwing sound you just heard was the public being filleted, sauteed and served up for dinner to the same people who wrecked a worldwide financial system.

Bon apetit.