Posted by Karl Denninger
If you’re not mad enough to contemplate the use of your pitchfork and torch after reading this, you are unfit to be an American and should immediately book yourself on a one-way flight – to Yemen.
This is about PPIP – and a game I predicted would be played in March of last year. Specifically:
Only months after it was started, the U.S. program designed to purge debts of no immediate discernable value from the balance sheets of troubled banks has helped transform the frozen debt into a money-maker as the bonds have rallied. Bank of America Corp. and Citigroup Inc., who received 22 percent of the $418.7 billion American taxpayers loaned to troubled financial institutions, boosted holdings on their trading books of home- loan bonds that lack government guarantees while investors were raising cash for the program, according to Federal Reserve data.
You got that?
Let me ‘splain it in English.
The banks bought bonds that were worthless in the open market, because The Government intended to intentionally overpay for these bonds.
This is exactly what I said would happen in March of 2009:
There’s nothing complicated about this at all.
Buy for 30 cents, sell to the PPIP for 50 cents, pocket a quick (and huge) profit immediately and nobody’s the wiser.
Now here’s the problem.
We were later told that the FDIC would not allow the banks to game the system like this.
That was a lie too.
It’s “absolutely ridiculous” that banks, which were expected to reduce their holding of such volatile mortgage securities, bought them before the government program was running and may now profit, said Michael Schlachter, managing director of Wilshire Associates, the Santa Monica, California-based investment-consulting firm. “Some of them created this mess, and they are making a killing undoing it.”
The people involved need to be indicted for looting the Treasury and Geithner along with Sheila Bair must be removed from office for permitting it, after BOTH said it would not happen.
They lied – period.
Here’s what The Fed’s Dudley said at the time:
His comments add to signs that Treasury Secretary Timothy Geithner’s Public-Private Investment Program to boost debt prices and rid banks of devalued assets to expand lending is stalling, after helping to spark a rally in stocks and bonds. The Federal Deposit Insurance Corp. yesterday delayed a test sale of bad loans held by U.S. banks that had been billed as a tryout for its role.
Well it sure rallied the prices of those assets, but the banks didn’t rid themselves of them. They instead bought up yet more worthless paper, adding to the trash they were holding, and now are in fact using the speculative gains to record “profits” on securities that still have not and cannot perform as the underlying loans are still not paying as agreed!
I thought The Fed was supposed to REGULATE banks? You know, when they decide this is how something should happen (or something that should not happen) they then PREVENT IT FROM HAPPENING AND/OR FORCE IT TO STOP?
Lying is an art form but in this case you literally had your pocket picked by Congress so these banksters could intentionally game the system, exactly as I said they would, and instead of REDUCING their holdings of toxic assets THEY ADDED TO THEM!
What happens when, not if, the true “value” (that is, ZILCH!) of these so-called “assets” pokes its head through NOW?
Back in April of 2009 I posted the following:
And since the banks will apparently get paid (by you the taxpayer) any difference between internal marks and the sale price, not only get to prevent more than a 5% loss off the market price, they do even better as they get to guarantee no more than a 5% loss off their internal mark!
We just keep adding scams on top of scams; if $170 billion stolen from taxpayers to “bail out” banks via AIG isn’t bad enough, this program will be some $500 billion (or more), and that’s not even the total value since some banks have been buying up “distressed” ALT-A liar loans with TARP money in front of this program’s announcement!
I hate it when I’m right.
The question is when Americans will be pissed off enough to do something about being literally robbed blind by the banksters that infest this nation.