Posted on 09/16/2009 6:23:49 PM PDT by bruinbirdman
The U.S. government said Wednesday it had successfully completed a test program to help deal with the toxic loans still weighing on bank balance sheets, providing a glimmer of hope on an issue that has repeatedly stymied policymakers.
The Federal Deposit Insurance Corp. said it received bids from 12 different consortiums interested in purchasing an ownership stake in a newly-created company that will receive a $1.3 billion residential mortgage portfolio owned by the FDIC following the failure of a Texas-based bank.
Residential Credit Services, which used a 6-to-1 leverage option offered by the government, will pay $64.2 million in cash for a 50% equity stake in the new limited liability company, the agency said. The new company will in turn issue an FDIC-guaranteed note worth $727.77 milllion to the FDIC, which the agency anticipates selling into the public market sometime in the future.
The FDIC's pilot program is being closely watched by investors and public officials to see if it resolves the toxic asset problem that has bedeviled the federal government since last year. FDIC officials said they hope to use the test run, which involved assets from a failed bank, and apply the funding mechanism and other lessons learned to solvent institutions.
(Excerpt) Read more at online.wsj.com ...
And just who gets to buy these assets for pennies on the dollar?
A little better than the 100 cents on the dollar the taxpayers paid AIG?
Is that a less than 30% anticipated default rate?
yitbos
and just where does the money go?
I didn’t analyze the deal structure, but one thing that has been missing is allowing the vultures into the picture to clean up the mess. There is way too much government involvement and it has slowed down the clean-up, IMO
70 is better than i expected
Speak of the devil....
Ping
70% is a better mark to market than zero.
This was just a "pilot". Let's get the other $100 trillion on the market, too.
yitbos
Looks to me that $1.3 billion in assets were purchased for $64.2 million in cash and a small amount of funny money.
whew!!! thanks for the explanation
Investors created funds and bought up the loans and the collateral for those pennies on the dollar. This is one of those rich get richer deals. Time to form an investment group get your friends on it and find a friendly banker to stear you to the deals.
But half the loans now have no collateral? The buyers have walked away or should be renter?
Most of the rest of the paper was inflated bubble junk. A lot of people cashed in on the way up to the crash and cashed out before the collapse.
Sometimes we throw stuff out Socratic method?
yitbos
The value of a house or condo may ahve gone from 100k to 20k due to the market but it willreturn to 100k in time. It did in Tx and it will where there is real estate that has location location location.
Need a lot more information than the article provides in order to run an analysis.
Personally, I'd much rather play in traffic than spec poisoned 'assets' such as these.
Back up a sec and look at who provided the leverage for the deal: We sucker taxpayers.
Starting from that point, now work your way through a “margin call” for these assets if the default rate goes to a point where all the money the “private investors” put into the deal is consumed by mark-to-reality accounting of dubious loans and irrecoverable debt.
When you do, what you see is this: the “private sector” gets a big piece of the upside, and we taxpayers are holding the bag on the downside, UNLESS the details of the agreement allow for what would effectively be a “margin call” demanding that the investors put up more cash to hold onto their position.
I seriously doubt that such a clause is going to be enforced on these investors...
If I could get a deal like this, heck, I’d buy some of this crap paper. But there’s no way the FDIC is going to offer a guy like me who asks protologically annoying questions about bank balance sheets and loan terms to play in their game.
“Residential Credit Services, which used a 6-to-1 leverage option offered by the government, “
Free Money.com....lol!
This degree of leverage is being offered by a rogue goobermint that happens also to be the most thoroughly economically illiterate goobermint since (at least) the Hoover administration, perhaps the most thoroughly illiterate forever. The taxpayers have precisely zero say in the matter.
“If I could get a deal like this, heck, I’d buy some of this crap paper. But there’s no way the FDIC is going to offer a guy like me who asks protologically annoying questions about bank balance sheets and loan terms to play in their game.”
I could put together millions for this scam, but this is a closed shop, only cronies need apply.
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