Another Voice in the Wilderness

Here is Barry Ritholtz's take on Geithner's bank bailout plan:

The NYPost reports the two biggest banking wrecks, CitiGroup amnd Bank of America, have been aggressively buying toxic assets with bailout money, and goosing the MBS auctions.

You can imagine why this might get people upset. I suspect its rather unavoidable. These banks have investment wings, and they are trolling for opportunities.

“As Treasury Secretary Tim Geithner orchestrated a plan to help the nation’s largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post. . . But the banks’ purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.

One Wall Street trader told The Post that what’s been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.

Recently, securities rated AAA have changed hands for roughly 30 cents on the dollar, and most of the buyers have been hedge funds acting opportunistically on a bet that prices will rise over time. However, sources said Citi and BofA have trumped those bids . . .”

If anything, this argues against bailouts and in favor of nationalization, firing management, wiping out S/Hs, zeroing out debt, haircutting bond holders, etc.

In other words, the taxpayer bailout money is being used by the big banks to buy toxic assets that they can then put in play in Geithner's "heads you win, tails the taxpayer loses" bank plan. They smell money to be made at the taxpayer's expense. The feeding frenzy has begun. This is a very, very expensive way to "strengthen" the banks at the expense of taxpayers.