FDIC Inviting Public Comment on Legacy Loan Program

FDIC is accepting public comments on its Legacy Loan Program. The program that provides even more leverage in our financial system in the form of subsidies to private investors so that private investors will purchase toxic loans from banks (especially zombie banks). Look at what the FDIC is considering:

The FDIC may allow the sellers of a loan to get an equity interest in the vehicle that buys it, meaning they would gain from any future increase in the asset’s value. The aim is to give healthier banks an incentive to sell loans at a cheaper price, encouraging more investors to make bids.

Healtier banks right, but what the zombie banks: is the FDIC going to prevent zombie banks from being on both sides of the same transaction? Recent history makes me doubt it. FDIC claims this double dealing doesn't represent a conflict of interest. Sure.

So how what form is this FDIC subsidy going to take, you guess it more debt:

Rather than guarantee debt issued by the buyers as previously envisaged, the program could issue FDIC-backed notes directly to the banks that are selling loans. That would avoid underwriting fees and accelerate the process. It might be a simpler way to run the program, Wigand said.

This is priceless and how is this not "ratings arbitrage":

By effectively trading illiquid loans in exchange for FDIC- guaranteed notes, the selling banks would strengthen their balance sheets. The FDIC notes would carry higher ratings and may also be eligible for use as collateral for Federal Reserve loan facilities.

It seems our government is hell bent on re-building this "House of Cards".

Oh, public comment period expires April 10 and always make sure your comments are relevant and meaningful.

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