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Send in the Clown

Posted by Larry Doyle on March 26, 2009 5:15 AM |

clownIn the process of a business transaction, have you ever encountered the sudden appearance of another interested buyer?  Where does this other mysterious buyer suddenly come from?  How is it that the new buyer appears at the most inopportune time? If you thought you were the primary buyer, do you feel as if your bid is being shopped? In business, this appearance of a supposed late buyer is known as “send in the clown!”

This part of the circus act is played out on Wall Street all the time. As we enter into the largest liquidation sale in the history of Wall Street, the big fellow with the red nose, floppy feet, baggy pants, and squeaky voice has just shown up, in the form of Citigroup and Bank of America’s bank portfolios. 

Citigroup and Bank of America’s broker-dealer units will likely be the two largest sellers of toxic mortgage securities through the recently released Public-Private Investment Program. While the PPIP  has been conceptually well received, the issue of price for the securities remains a highly problematic and unknown factor.

What’s a seller to do? Send in the clown!! How does this work?  The bank portfolios of these two respective banks can enter the marketplace and buy, or announce their intention to buy, some of these toxic assets at ever higher prices. The bank portfolio is a totally separate and distinct entity from the broker-dealer division which holds the toxic mortgage assets and will look to sell them through the PPIP.

The New York Post reports Citi, BofA Buying Back Laundered Loans.

The risk in the PPIP is in making sure transactions occur at arm’s length. The fact that the Citi and BofA bank portfolios are currently entering the marketplace to buy these types of assets while their broker-dealer units are preparing to sell the same assets is very disconcerting. 

The real risk in the PPIP is that assets, for which the American taxpayer bears the overwhelming degree of risk, are transferred at inflated levels.

That’s not very funny!! Is Uncle Sam monitoring and properly regulating this situation or is he riding the large bicycle and selling the popcorn?

 LD

  • fiscalliberal

    Years ago, a farm could have a auction of its machinery and other assets like cattle. Ususally these auctions were the result of a death of the owner or a equivalent banckrupcy. Occasionally a member of the family holding the auction would bid, obviously to bid the price up.

    That type of thing happened for about two items and everyong would leave the sale. The owner is left with the items. The same thing has to happen here. That said, we have to rely in Sheila to terminate the sale. I think she had the tenacity to do that.

    The government is developing a Plan B in terms of developing a systemic regulater and authority to go in and take over the institution like the FDIC does. That is a less favorable scenario for Citi and BofA. So – the concern is legitmate, but let us hope the market place will work here to do the right thing.

    So let us hope the

  • Fiscal…there are three parts of this PPIP. Sheila Bair and the FDIC will monitor the sale of raw whole loans from the banks.

    This story that I am highlighting is focused on securities which would be encompassed in the TALF or via the partnership with the large asset managers.

    My father-in-law was involved in the machinery biz and shared with me that very often auctions were not on the up and up.

  • thinkaboutthis

    I tell ya — if I were these big money holders of companies — I would be making my exit to another country — The one thing our government has not factored in — is the mores of the generations that are now in the decision making positions.

  • Larry Doyle

    Truly amazing times.






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