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HomeSend in the Clown
Posted by Larry Doyle on March 26th, 2009 5:15 AM |
In 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. (more…)
Will Banks Truly Sell These Toxic Assets?
Posted by Larry Doyle on March 23rd, 2009 5:25 PM |
A quick summary of the plans proposed by Tim Geithner. Everything looks great on the surface and markets rally in anticipation, but VERY FEW transactions have occurred.
Let’s go over a few points:
1. Government provides cheap loans for investors to buy toxic assets . . . DONE.
2. Government provides backstop for investors to be somewhat protected against losses . . . DONE.
3. Investors express desire to purchase assets . . . DONE.
4. Banks express desire to sell assets to unclog balance sheets . . . DONE. (more…)
Public-Private Partnership? or “Won’t You Be My Neighbor?”
Posted by Larry Doyle on March 23rd, 2009 9:22 AM |
An oversimplified view of the proposed private-public partnership for investors to purchase toxic assets from banks is as follows:
A couple (private investor) looking for a home finds a piece of property (toxic asset) that seems very appealing. A mortgage broker (the government) is indicating that he can preapprove some very attractive financing terms. The mortgage broker also indicates that he can fortuitously provide a large cushion against potential losses on the property. The buyers inquire how that cushion may work. The broker informs them that he has access to funds from all the other homeowners (taxpayers) in town to offer as incentive to sell this property and others like it.
The couple’s interest increases, but they start to wonder what’s the catch as the property has been on the market for a while.
Upon further review, the prospective buyer discovers that the property may have structural issues. In hearing that, they think about scaling back a potential bid on the property. The broker pressures them to the point where the couple starts personally disliking the broker. (more…)
Fed Releases Names of AIG’s Creditors
Posted by Larry Doyle on March 6th, 2009 9:03 PM |
Under pressure from Congress this week to release the names of AIG’s creditors, the Federal Reserve’s Vice Chairman Donald Kohn clearly got the message. The Fed has acquiesced in releasing that Top U.S., European Banks Got $50 Billion in AIG AID.
My immediate reaction to this news is how interesting that the bulk of these institutions are European. What does that tell me? These European banks were getting plowed by Wall Street with a lot of sub-prime backed CDOs and when the dam was breaking they wanted to hedge their position. Market speculation is that European institutions own twice the amount of toxic assets as U.S. based institutions. That exposure on top of their delinquent loans in eastern Europe is crushing a number of western European banks. Who are they? Start by looking at the list, included in the above-referenced article, of AIG creditors.
In providing the hedge – which is the insurance – AIG received a fat premium but has been paying for it ever since. Actually, AIG only truly paid for it up until last September . . . the American taxpayer has been and will continue to be paying for it for a long time. Where were the regulators when we really needed them?
LD
