That's because they are.
The details of the asset plan make sense. Basically they are going to put the FDIC on the hook for debt written against these assets, up to 6 to 1 leverage or so. That means the "carry" on them will be huge, because debt can be issued against them at insured CD rates.
Do some vulture investors want 30 cents on the dollar when the things are really worth 60? Sure, they'd like to freely double their money. But if you can borrow most of the price, you can double your *equity* paying 50, if they are really worth 60. It is a perfectly sensible plan, and all the "it won't work" nonsense is based on the same old puritanical market-perfection belief that the lowest quotes to date are the "true value". Which is nonsense, and the banks know it is nonsense. So will the new players who take these deals. PIMCO isn't going to hold out for 30 when they can do the math and see they can double their money paying 50.
Which is exactly what Citi and BoA are doing now. It's an easy way to get really profitable really fast, using leverage, and pay off TARP loans (which is in everybody's interest) if / when financial system is stabilized and bear raids or run on the bank are no longer in the picture. That would unclog the credit facilities of the banks, which have been already thawing due to lower spreads and LIBOR rates.
Your scenario is true if the banks are willing to sell at 50 with a true value of 60.
But what about all of the banks that have most of their toxic assets still marked around 92-95 and won't budge downwards unless it's them buying their own debt?
There are still a lot of banks carrying their commercial loans at 100.
This is why the PPIP won't work. The 84 that the FDIC uses as an "example" auction is a dream. Very few banks will touch that.
Citi and BAC are buying all of the Alt-A and ARM that they can get their hands on. They're about to game the system - at the taxpayers expense.
We don't want folks trading CDS. They shouldn't even exist.
We "little people" don't want Geitner bailing out their asses. We want them tarred and feathered and their so-called banks sown under with salt.
“banks believe these assets are extremely undervalued”
......That’s because they are......
The collateral is good, the paper is bad. The solution requires separating the assets from the broke holders of the paper. The banks need to be able to eliminate the middle guy holding title and directly own the asset.
The poor must go back to renting. The property must be forclosed or title given to the Bank and the former owner becomes a renter