Answers
Holy crow .. I darn near fell off my chair when I read this one!
Is this a good deal for the taxpayer - buying the toxic mortgages for far, far more than their worth, and letting the banks determine how much the taxpayer will pay for them?
Read this fascinating article before you answer. I'll quote it here for people who don't follow links.
The Free Market, Financial Style
How the Scam Works
URL: dubya dubya duba dot counter punch dot org slash
hudson03272009 dot html
By MICHAEL HUDSON
Newspaper reports seem surprised at how high banks are bidding for the junk mortgages that Treasury Secretary Geithner is now bidding for, having mobilized the FDIC and Fed to transfer yet more public funds to the banks. Bank stocks are soaring – thereby bidding up the Dow Jones Industrial Average, as if the “financial industry” really were part of the industrial economy.
Why are the very worst offenders – Bank of America (now owner of the Countrywide crooks) and Citibank the largest buyers? As the worst abusers and packagers of CDOs, shouldn’t they be in the best position to see how worthless their junk mortgages are?
That turns out to be the key! Obviously, the government has failed to protect itself – deliberately, intentionally failed to do so – in order to let the banks pull off the following scam.
Suppose a bank is sitting on a $10 million package of collateralized debt obligations (CDOs) that was put together by, say, Countrywide out of junk mortgages. Given the high proportion of fraud (and a recent Fitch study found that every package it examined was rife with financial fraud), this package may be worth at most only $2 million as defaults loom on Alt-A “liars’ loan” mortgages and subprime mortgages where the mortgage brokers also have lied in filling out the forms for hapless borrowers or witting operators taking out mortgages at far more than properties were worth and pocketing the excess.
The bank now offers $3 million to buy back this mortgage. What the hell, the more they bid, the more they get from the government. So why not bid $5 million. (In practice, friendly banks may bid for each other’s junk CDOs.) The government – that is, the hapless FDIC – puts up 85 per cent of $5 million to buy this – namely, $4,250,000. The bank only needs to put up 15 per cent – namely, $750,000.
Here’s the rip-off as I see it. For an outlay of $750,000, the bank rids its books of a mortgage worth $2 million, for which it receives $4,250,000. It gets twice as much as the junk is worth.
The more the banks holding junk mortgages pay for this toxic waste, the more the government will pay as part of its 85 per cent. So the strategy is to overpay, overpay, and overpay. Paying 15 per cent is a small price to pay for getting the government to put in 85 per cent to take the most toxic waste off your books.
The free market at work, financial style.
Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002)
(end of quote)
Please someone ... how do people intelligent enough to rise to the positions of financial advisers to the Administration and Treasury make such errors?
Are they truly errors, or is this an example of what happens when you let the wolves guard the hen house?
The taxpayers got scammed , and that other word that starts with an S.
dave dinino,www.kansascityseniorsad visor.com,(816) 925-0560,expert senior advisor,kansas city missouri,what is annuity,financial advisor services ...
Three decades later, miracle still inspires - KansasCity.com
VANCOUVER, British Columbia | The buzz started Sunday, moments after the U.S. hockey team shocked Canada on its home ice. </p><p>This American team — comprised of top-line NHL talent — may actually have a chance to win the gold medal, its first since 1980. </p><p>Yes, there’s a buzz surrounding U.S. hockey, a buzz that hasn’t been seen since a team of young Americans sent the country into a miracle-induced frenzy 30 years ago. </p><p>Monday was the 30th anniversary of the improbable win over the Russians, a 4-3 semifinal victory that was immortalized by announcer Al Michaels’ call — “Do you believe in miracles? Yes!” — in the final seconds. And today marks 30 years since the U.S. clinched the gold medal with a victory over Finland at the Olympics in Lake Placid, N.Y. </p><p>Of course, those victories turned the players on the ice into national heroes. And it turned Herb Brooks, the man who handpicked and guided the 1980 team, into a coaching icon. </p><p>“The greatest thing about our victory,” said Jim Craig, the goalie on the 1980 U.S. team, “was that it was more than a hockey game to a lot of people.”</p><p> It was a shining moment for Americans, one “that everyone knows exactly where they were when that happened,” said Brooks’ son Dan, who was 12 when he watched the game from the arena’s standing-room-only section.</p><p> “You got 9/11, you got the Kennedy assassination, you have the space shuttle blowing up ... And unfortunately, those were all tragedies, and this wasn’t. This wasn’t a sporting event — it was really a piece of American history,” said Dan Brooks, now a 42-year-old financial adviser in Minneapolis.</p><p> Dan Brooks said his father, who died in a freeway crash in 2003, tried to “chip away at the Soviet mystique” to inspire his players, who were mainly collegians from Minnesota, Massachusetts, Michigan and Wisconsin competing against a dominant Soviet machine.</p><p> “He kept saying throughout that whole two-week tournament that someone is going to beat those guys,” the younger Brooks recalled. “He just tried to make them (the Soviets) more human because back then, that team was ... inhuman, they were almost superheroes, kind of like robots.”</p><p> To Dan Brooks, the Americans’ victory over the Soviets provided a boost of patriotism after long gas lines in the 1970s and the U.S. hostage crisis in Iran.</p><p> “No one felt good about themselves. And that was what the country needed,” he said.</p><p> Both his son and wife say Brooks, who later coached the U.S. to a silver medal in the 2002 Olympics, did not revel in the “Miracle on Ice” hoopla. After her husband’s death, Patti Brooks said, “the UPS man came to the door and he had big tears in his eyes” and recalled that Brooks, a humble, blue-collar guy from St. Paul, would talk “about the yard or the dog” — but not about the Americans’ upset win.</p><p> Mike Eruzione, who at 25 was one of the oldest players on the 1980 team, said Herb Brooks, a three-time national winner while coaching the University of Minnesota, had “a great knack” for picking talented players.</p><p> “I think it was kind of the perfect storm,” said Eruzione, the team captain who scored the game-winner midway through the final period. “I’ve said before, ‘We don’t win without him and he doesn’t win without us.’ It was the perfect marriage.”</p><p> Brooks’ family had no plans to mark the Miracle on Ice anniversary. Former Minnesota North Stars general manager Lou Nanne, who was general manager of the 1980 U.S. Olympic squad, said he didn’t realize Monday was the anniversary until he saw Craig, the 1980 team’s goalie, doing an interview.</p><p> If his father were alive, Dan Brooks said, he probably would have marked the anniversary like any other day — by hanging out with his buddies at a Twin Cities coffee shop. And he would be cheering on Team USA in Vancouver.</p><p> “He believed in the American player back in the ’70s, he believed in his team in 2002,” Dan Brooks said. “And I know he’d believe in this team that the U.S. has put on the ice.” </p><p><hr class="infobox-hr-separator" /> <div class="infobox"> @ Go to Joe Posnanski’s blog at <strong>KansasCity.com</strong> for his list of 10 things you may or may not know about the Miracle on Ice.</p><p></div>
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