Enabling the Damned: TARP Redux

Well, tax payer rip-off, part deux will be officially announced on Monday according to the New York Times.

Officials hope that that part of the plan is not labeled a “bad bank” administered by the government, although they expect that some might call it that.

No matter what it is called, the government would assume some of the risk of declining assets at the heart of the economic crisis. But by relying on a combination of private investors and government guarantees, the administration hopes to reduce its exposure to losses and avoid the problem of having to place a value on assets that the institutions have been unable to sell.

I’m not even sure where to start other than there probably is some law somewhere against being an accomplice to robbery and we should send out a sheriff with an arrest warrant fast!

The banking plan will involve a close review of financial institutions, possibly including a so-called stress test to measure whether they have enough resources to weather a continued economic decline. It will also enable the government, when it provides a new round of investment, to convert the warrants for preferred stock it has already received from many institutions into common stock. The move, which essentially would swap debt for equity, would help relieve the balance sheets of those institutions, although it would also hurt other existing shareholders by diluting their common stock.

Lawmakers said they were told that Mr. Geithner would not spell out the details of much of the program next week, including how the government would use more than $50 billion from that program to help homeowners facing foreclosure.

Notice the priorities.  We give more to the banks FIRST, THEN we get around to the homeowners facing foreclosure.  I’ve said this time and again, but it bears repeating.  Without establishing a bottom to asset prices, none of this will do ANY good.  Asset prices include those of homes AND all those fancy derivatives surrounding them.

The plan appears to try to deal with excessive executive compensation and bonuses but does not have any teeth that would force banks to loan the money.  They can still recapitalize or purchases other banks which they most likely will do while there is still no bottom to asset prices.

For weeks, administration officials have been exploring several alternatives for reducing the wave of foreclosures. One proposal involves Fannie Mae and Freddie Mac, the mortgage finance companies now under government control, to help further stabilize the housing markets by providing guarantees on low-rate mortgages.

Another proposal, said to be favored by Lawrence H. Summers, the senior White House economic official, would provide incentives to entice investors in pools of mortgages — and the companies that service mortgages — to refinance troubled home loans.

Now this is more intriguing, but again, why entice and incent people that you’re basically throwing money at?  MANDATE it!   Provide the guarantees on the mortgages and make them refinance the homes!  While your at it, make them hold on to the assets they we fund rather than trying to palm crap loans off on the secondary market.  If the wind up with Fannie or Freddie, we’re just giving them the money, and they’re sending us more NEW crap.  Make them give loans they have to hold on to!  That’ll send them to a crash course in Underwriting 101.  Give loans to people that can afford them.  Don’t overloan to speculators.  Don’t loan based on thinking you can pass the trash!  Giving them no cost capital basically allows them to take on even more risk.  Without setting some boundaries, this is essentially an act of robbery!  I wouldn’t buy their stocks under these conditions so why am I being forced to fund convertible warrents for them?  Maybe it’s because Penny Pritzker and the worst of the worst were sitting on Obama’s finance committee when he was running for office and now have cushy positions on his economic advisory board.   What say you?

Oh, and one more thing … not that these banks donated money to campaigns (guess whose?) and paid huge sums for the inauguration bash, NOW we see restrictions on lobbying.

This week’s new restrictions on executive pay and last week’s announcement of new lobbying rules that banks and other groups seeking assistance must follow have been part of the effort by the Obama administration to restore credibility to the program and regain support in Congress. That effort will be essential if the administration returns to Congress for more money.

I guess it takes a pig to create a pig in a poke these days.   I’m going to have to look into selling pork bellies short.  I have a feeling there’s a ton of them about to hit the market and the fan.