Tuesday, 24 March 2009

But we paid the market price for them - honest guv!

Several commentators have posted concerns that the recently announced PPIP program could be open to some form of abuse. There have even been wild accusations that the alleged price discovery process could somehow be rigged and that it has been a setup designed to provide cover for the Treasury if (when) things go wrong.

One suggestion is that the banks that are holding the dodgy assets could in fact benefit from "bidding" for their own assets at prices which are far higher than their actual market value (i.e. in a market where the FDIC is not providing non-recourse leverage of 6:1).

Surely this could not be allowed to happen!

Fortunately an astute blogger has even taken steps ahead of time to alert the FDIC Ombudsman of such a possibility and his warning letter can be seen here .

It is a sad reflection on our sorry state when people can be so cynical about the motives of the US Treasury which is trying its best to rescue the ailing banking system. After all the markets have responded so well since Mr. Geithner's outline of the plan.

1 comment:

  1. Not only is it just possible that the banks could become bidders for their own distressed assets by running their FDIC assisted financing through an SPV - it seems that that will be the ony way that the scheme can work.
    So taxpayers will absorb massive losses on CDO's etc that the banks might pay par value for and which are really only worth let's say 30% - at least 60% of the phony transaction will end up being a loss to the taxpayers

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