The Bond Trader Full Employment Act Of 2009

The Geithner plan to form public-private investment funds tosses this gem towards the Wall Street bond trading desks:

The FDIC will oversee multiple PPIFs which will be established to own and manage pools of assets. These PPIFs will be vehicles established to purchase pools of loans and other assets from insured depository institutions (“Participant Banks”) under criteria established by the FDIC. Equity in the PPIFs will come from private investors (“Private Investors”) and the UST. The PPIFs will issue FDIC guaranteed debt to expand purchasing power.

Multiple PPIFs.  Many, many PPIFs, each with its own story, maturity and payment dates and each with a FDIC guarantee.  That is a lot of paper to move and since it is not uniform the price to the issuer (that would be "We the People") will be higher, as will the opportunity for bond traders to, well, add value.

The cheaper way would be for the Treasury to fund this in its normal debt issuance and dole out the cash.  I don't think I want to know why they chose this route. It does get the FDIC involved in the creation of what might be called "bad banks" and presumably they are the government experts in that sort of credit assessment.  I would hate to think that a FDIC guarantee allows Geithner to sidestep any debt limit ceilings.  The FDIC seems not to be part of the limit but I await guidance on this.

MORE:  FDIC guaranteed debt is backed by the full and credit of the US, is rated "backed-Aaa", snd is exempt from certain SEC ad OCC registration requirements.

Comments

[clarice]

Mr PUK, looks like we have a bluelight special on Aisla 1.

[RichatUF]

Well that answered one of my questions. Now the other does this thing seem to have that LTCM, it we build it it will blow up sort of feel to it.

[Extraneus]

FDIC guaranteed debt is backed by the full and credit of the US...

Thanks for skipping that one word.

[Charlie (Colorado)]

Sigh. These guys could screw up a two girl blow job.

[Extraneus]

Sign of the times?

I know thigs are bad, but nobody at MSNBC questioned how bad things have gotten that the "girl" might not even be one? I don't know about anyone else, but I don't want to contemplate how "Rebecca" earns $2000 in a week.

[matt]

the Chinese just signaled that they no longer wish to use the dollar as their reserve currency. Primarily because they don't believe our government will retain the value of the dollar. This is going to have a huge impact.

[clarice]

We could send Holbrooke to Beijing to give China out solemn word.

[Greg Toombs]

Good thing there isn't an international debt rating agency...

Oh, hell, matt. Maybe there is one headquartered in Beijing.

[mel]

Not. Touching. This. One. Once.

[RichatUF]

Also seems to answer the question as to why Geithner and Dodd wanted to allow the FDIC to borrow up to 500 billion a few weeks back.

So the FDIC is now insuring CDs and floating guaranteed corporate debt (GE and BoA were 2 remember) and now is going to guarantee this stuff too. I didn't think turning the FDIC into the world's largest hedge fund is going to be the solution to the crisis.

[RichatUF]

mel-

Not. Touching. This. One. Once.

The topic of the thread-I really don't understand Geithner's plan. I could see some utility of getting the "toxic debt" off the books because of the loss reserves the banks have to carry but I thought the TALF program at the Fed was set up (unless that is for non-real estate securitized products and this gem from Geithner fills in the gap) for that purpose. Or the other topic that Russia and China are looking to the IMF to impose a new gold standard because the global economy is quite sick enough?

I'm also curious if anyone has any thoughts on running convergence trades of the FDIC guaranteed debt and either the US Treasury and non-guaranteed corporate issues-any possibility of a trading strategy?

Anyway.

[RichatUF]

the global economy is*n't* quite sick enough

[BobS]

Hi, Gang! Haven't been around here, but I was wondering if Narisco has been manning the phones for Sarah. LUN

[matt]

so far, all I have seen has been close to $1.5 Trillion shipped off to Wall Street with very little to show for it. I would imagine a lot of them are packing their bags as the Republicrats demonize them while the global economy votes thumbs down on the dollar.

The problem has become a hydra, and Geithner is taking mouse bites around the edges. There are 4-5 primary issues which must be addressed as a whole to make this thing work and we have most of the people who are supposed to be leading in the witness protection plan, it seems.

the complexity of the intertwined issues is going to require half a dozen Cray's to understand with the sharpest minds in the financial world working together to minimize the pain, and there will be blood. I just hope that sometime in the very near future there is some kind of breakthrough. I don't see it. I really doubt it, but if there ever was a time for a miracle, it's now.

The alternative is that we could be looking at the end of 230 years of a noble experiment.

[RT]

http://www.ft.com/cms/s/0/7851925a-17a2-11de-8c9d-0000779fd2ac.html

[PeterUK]

When the Private side of the PPIFs goes Pfft leaving the Public side to carry the can in The Curse of Obama II,what then?
PPIFs are simply a sneaky way of keeping debt off balance sheet.

[Chris]

Designed to fail?

[pagar]

The alternative is that we could be looking at the end of 230 years of a noble experiment.

Apparently to be replaced by something that would make Cuba under Castro look like paradise.

[Pofarmer]

Let's just put these banks into DEFACTO actual bankruptcy, and let fly. Somebody will by these assets. Somebody will buy the banks assets, and we won't trash our currency fucking around with all this, and build our national debt to the moon and back. The bubble doesn't need to be reinflated, it needs to BUST so we can get back to getting on.

[Pofarmer]

The participation of mutual funds, pension plans, insurance companies, and other long term investors is particularly encouraged.

Wonderful, just frickin wonderful.

[PeterUK]

A Peasants eye view

[Molon Labe]

Consider Karl Denninger's point that the banks that own the assets must not be allowed to participate in PPIFs lest they bid up the price of their own toxic waste and dump it on the taxpayers.

[Pofarmer]

I think Denninger at The Market Ticker NAILS how this will be played.

Remember those Cozy CDS auctions last winter?

http://market-ticker.denninger.net/

[Greg F]

Keep your eye on the pea under the thimble. From the Geithner plan PDF.

Summary of Public- Private Investment Funds

PPIFs will finance the purchase of eligible asset pools (“Eligible Asset Pools” and the assets comprising such pools, “Eligible Assets”) from Participant Banks by issuing debt guaranteed by the FDIC. The FDIC guarantee will be secured by the Eligible Assets purchased by the PPIFs.

Am I a little slow here? Are not the "asset pools" really liabilities? They are going to buy them with IOU's from FDIC? Isn't the pea under the thimble the liabilities they hope to move around enough so we loose track of who is actually paying for this bad debt?

[Pofarmer]

Oh, and if these banks, insurance companies, whatever, are in de facto govt receivership, why is their stock still trading?

[Sue]

You know, with Bush, the left picked one thing and pounded it into the sand until it stuck. With Obama, there is so much going on you can't pick one thing to pound. Everything he is doing needs to be pounded and everything is getting lost in the attempt to figure out what the hell he is doing.

[Daddy]

Psssst,

Hot stock tip for ya'.
Air filters in Alaska. Gonna' go through the roof!
Keep it under your hat.

[bad]

What's it like, Daddy?

[mel]

Rich-

This steps in front of the Fed's TALF, which is more to the point, it seems, than actually trying to achieve a bid in the ABS market.

The lack of bids, in a mark-to-market environment, is what wrecked these bank's capital ratios in the first place. Everyone seems to lose sight of that, the lack of willing buyers. The hole in interbank confidence, fostered by irrational ratings companies, drove buyers from the market because what they thought was Fannie or Freddie guaranteed debt, was sliced up to be only partly so. They didn't know what they were being offered, and it couldn't be explained away any more. The drying up of housing bids poked a hole in the asset valuations of repackaged "iffy" (and I'm being generous) loans required by Fannie and Freddie just to have real loans purchased. (now who wrote THAT into the arrangement?). Yes, if you wanted to participate, as a lending institution, in any of Fannie or Freddie's "qualified" loan purchase plans, you had to provide, as a percentage of FACE VALUE, loans to the underprivileged. So there are some bad loans out there that Fannie and Freddie obliquely financed, they are hidden in all sorts of non-qualified products that landed in all sorts of interesting places. Of all the outstanding mortgages out there, these "uniquely" obtained mortgages represent about three percent of the pool, which, of course no one wants to own. But they can't be found easily due to some ratings slipshoddiness. So, no bids. Banks almost fail, and CDS's get close to triggering financial Armageddon, especially by idiots who sell stuff they have no idea how the product works, as in AIG.

The TALF was designed to find a bid, by Fed qualified buyers, of Fed defined assets. The Treasury action is designed, as I understand it so far, to bank roll anybody to bid for what ever the Treasury wants to put up as an asset. I really need to go deeper into the plan, but this seems much more a headline grabbing, throw a bucket of cash at it, type of solution. I have my suspicions about this PiPPfft, but I'll read more on it when I get breather.

And this really doesn't give bond traders continued employment in the least, since the Treasury Department runs their book anyway.

More later.

[Pofarmer]

I really need to go deeper into the plan, but this seems much more a headline grabbing, throw a bucket of cash at it, type of solution.

Then, it's PERFECT for the Barack Hussein administration.

[bad]

Obama pronounces "Orion" as in the constellation, as OAR-ee-on.

LUN

[mel]

Time for the rack.

Long day tomorrow, after a long one today, I'm curious whether today was a short covering rally, rather than real bids coming in. We'll know tomorrow when the sheets come out. I hope it was the latter, but I suspect it was the former.

Night all.

[Charlie (Colorado)]

Oh, and if these banks, insurance companies, whatever, are in de facto govt receivership, why is their stock still trading?

Because they aren't in real receivership?

[mel]

bad-

He needs to be introduced to just the "Oar". Firmly.

Don't stay up to late.

G'Night.

[bad]

Sweet Dreams, Mel

[PD]

Obama pronounces "Orion" as in the constellation, as OAR-ee-on.

Give him a break. He's got a lot on his plate.

That's "plah-tay" for you noobs.

[Charlie (Colorado)]

MORE: FDIC guaranteed debt is backed by the full and credit of of the US

I think Tom is having a crisis of faith.

[PD]

Oh, man. Upon closer reading of the Journal-Sentinel article that reported Obama's verbal slip, I find this:

After finishing his remarks and talking with a few people, the president returned to the microphone and said his prepared remarks led him to pronounce the firm's name wrong.

His *prepared remarks led him* to mispronounce? He'd better start eating his Wheaties so he wins a few of his wrestling matches with these volitional, irresistible-force-exerting remarks.

How about "I goofed, that was my error"?

[bad]

I blame the preparer of the prepared remarks.

Off with his/her head....

[daddy]

Hi Bad,

Not too bad, just very hazy. Latest is that the 4:30 am explosion sent stuff up between 10 and 12 miles high, but still pretty benign on the scale as these things go. All our traffic from Asia was cancelled today due to the eruption, though flights to the lower 48 are ongoing as the airport is still clear. The ash has been blown north toward Wasilla and beyond so we've been spared in Anchorage, but if we get some big wind shifts we should have some pretty dirty snow. Looking toward Redoubt it is simply very indistinct and hazy, and haven't seen the Mountain or a horizon in about 2 days.

Kim, a local geo guy on talk radio today said he thought there was already enough stuff in the upper atmosphere to reflect enough sunlight to locally give us a cooler than normal spring, especially if it keeps erupting over the next few weeks as is expected.

[bgates]

PD - quit making fun of Oobuhmah.

[Charlie (Colorado)]

Zogby has Obama at 50 percent approval.

[Charlie (Colorado)]

Oh, and AIG is seeing a wave of resignations.

[Pofarmer]

Oh, and AIG is seeing a wave of resignations

That's terrible, you'd think they pissed 150 BILLION down a rathole or something.

[rhodeymark]

To Denninger's point - is there something to prevent banks from "creatively" trading this garbage with each other at 10c on the $, and letting the taxpayer eat?

[GMax]

Well when the cost to unraveling the CDS at AIG climb through the roof, remember your righteous indignation at a bonus designed to keep guys plugging away at the tedious tasks, who now will not.

Maybe you can step in and fix these?

[Pofarmer]

Well when the cost to unraveling the CDS at AIG climb through the roof, remember your righteous indignation at a bonus designed to keep guys plugging away at the tedious tasks, who now will not.

Maybe you can step in and fix these?

So, what's gonna be more expensive, letting this deal go, or letting this govt burrow extensively into our banking system?

Time to cut bait.

[Harun]

Because paying them massive bonuses in the years prior to the bust kept them hard at work making sure AIG was profitable and would never need a bail out.

Its a win-win for these guys - company doing great = here's a million dollars!

Company bankrupt = here's a million dollars.

This is what gets people.

I would suggest that they bring in a team that was not connected to AIG and pay them the big bucks. The old crew stays on for six months to transition. Seriously, its that complicated that they couldn't transition over a few months? What did they do when one of their guys dies?

[Pofarmer]

Yes, the taxpayer will be in the black any day now.

- Note: Maiden Lane fund hold Bear Stears and AIG assets. Additionally on 1/20, the WSJ noted that at the end of Sept, Maiden Lane had a value of $27B and the same article noted that analysts expect the value of the Maiden Lane assets to have dropped more in Q4. Furthermore on 3/17, it was disclosed that Maiden Lane III paid $62B to buy CDOs and thus settle derivative transactions for AIG with 16 investment banks in return for securities worth less than $30B.

via denninnger.

[richard mcenroe]

So let me see if I have the nub of Geithner's gist:

When Fannie Mae bought toxic assets it was a disaster that wrecked the mortgage industry and dragged down the economy.

When the Treasury buys toxic assets, it's a great idea because they'll be using people's pension money to do it. What could go wrong?

I guess the right letterhead is everything...

[Tom Maguire]

FDIC guaranteed debt is backed by the full and credit of the US...

Thanks for skipping that one word.

Yeah, Obama is scaling way back on faith-based initiatives.