toxic assets

Federal Reserve Turns a Profit , Ignore the Man Behind the Curtain

wizardbehindcurtain.jpegWho says the Federal Reserve isn't good for something? They just made $80.9 billion dollars in 2010.

The Federal Reserve Board on Monday announced preliminary unaudited results indicating that the Reserve Banks provided for payments of approximately $78.4 billion of their estimated 2010 net income of $80.9 billion to the U.S. Treasury. This represents a $31.0 billion increase in payments to the U.S. Treasury over 2009 ($47.4 billion of $53.4 billion of net income). The increase was due primarily to increased interest income earned on securities holdings during 2010.

On the other hand, what they made the money on are securities from Freddie Mac and Fannie Mae, or GSEs, U.S. Treasuries and those infamous mortgage backed securities or toxic assets them purchased.

This is what happens when regulatory reform is not immediately passed

This is what happens when regulatory reform on credit ratings, collateralized debt obligations, derivatives and innovative financial products is put on hold.

Wall Street thinks it's all fine and dandy to do the same damn thing all over again.

Big h/t to MTGM.

Wall Street repackages toxic debt:

In recent months investment banks have been repackaging old mortgage securities and offering to sell them as new products, a plan that's nearly identical to the complicated investment packages at the heart of the market's collapse.

The United States is Subsidizing China to purchase Toxic Assets?

The Big Picture is asking the question, Why is US Government Subsidizing Chinese PPIP?

This is in reference to the MSM headline, The China Investment Corp. is set to invest up to $2 billion in mortgage-backed securities:

China Investment Corp. (CIC) plans to invest soon in U.S. taxpayer subsidized investment funds of toxic mortgage-backed securities, which it sees as a safer bet than buying into the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF).

The 5% Dissolution Solution

5%. That's the magic number, the secret formula, to push banks over the edge into the loving arms of the FDIC. Like date night, bank seizure is now a Friday tradition. In other words, the magic 20 to 1 good debt, bad debt ratio is the tipping point and probably will cause the bank to fail. The dreaded 5 is the ratio of non-performing loans, often aliased as toxic assets.

In Bloomberg's Toxic Loans Topping 5% May Push 150 Banks to Point of No Return :

More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival.

No PPIP for Pimco

Considering Pimco was an originator of the idea of PPIP and it was well documented the massive fees PPIP would generate, the news Pimco pulled out of PPIP is surprising.

The U.S. plan to help buy as much as $40 billion in assets from banks got started almost four months after it was proposed and without Pacific Investment Management Co., the world’s biggest bond manager and an early supporter.

The U.S. Treasury Department picked nine money managers yesterday for the Public-Private Investment Program, or PPIP, including BlackRock Inc. and Invesco Ltd. Pimco, which in March announced plans to apply, said it withdrew its application in June because of “uncertainties” about the plan’s design.

PIPP - Psssss!

Know that sound of a ball deflating right in the middle of your game? Oops, it's time out on PPIP, Geithner's toxic asset plan.

The Financial Times reports the U.S. Treasury's plan to sell toxic assets, PPIP, is in trouble:

The controversial US toxic asset clean-up plan, aimed at clearing bad loans from US banks’ books to enable them to raise capital and lend freely, has fallen behind schedule, and may never be fully implemented.

The plan has fallen prey to concerns from potential investors and regulators and waning interest from the banks themselves. Investors fear that Congress may set caps on pay while regulators are beginning to doubt whether the plan is really necessary.

Distressed Debt Best Market Performer? So says BoA

Ya gotta wonder about headlines like these, U.S. distressed debt best performer in 2009: report

U.S. distressed debt, among the hardest hit asset classes last year, has become the best, with returns of 39.5 percent year to date as risk appetite improves, Bank of America Merrill Lynch said.

For the month of May, distressed debt was second only to emerging market equities after returning 25.4 percent, Bank of America Merrill said in a research note late on Monday.

Should we believe BoA, who probably has a vested interest in selling off toxic assets?

The Financial Times notes:

Banks want to sell to themselves Toxic Assets and have Taxpayers foot the bill

The Wall Street Journal is reporting, Banks are trying to sell toxic assets to themselves.

Banking trade groups are lobbying the Federal Deposit Insurance Corp. for permission to bid on the same assets that the banks would put up for sale as part of the government's Public Private Investment Program.

Banks want to sell themselves back their toxic assets (for a profit I will assume), via the PPIP program, which is (cough, cough) the gift that keeps on giving already. So, remember, the PPIP will have U.S. taxpayer subsidies available to clear the books from these worthless (i.e. toxic) assets many banks currently hold.

Let the (Rigged) Games Begin! Reports of Citigroup, BoA Preparing to Ripoff the Taxpayer

This is one hell of a story. The New York Post is reporting:

As Treasury Secretary Tim Geithner orchestrated a plan to help the nation's largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post.

Both Citi and BofA each have received $45 billion in federal rescue cash meant to help prop up the economy and jumpstart the housing market.

But the banks' purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.