The buzz among some financial engineering students at MIT is that they are feverishly working to id the non-toxic assets…more as a game really–which makes me sad–that they don’t appreciate the seriousness of the situation.

We now know that Goldman Sachs was getting pounded with calls from client hedge fund managers, and could not wait for a delayed settlement on their AIG deals.
The hedge fund managers could care less when Treasury’s scheduled workout would occur. This is the pressure that pushed Goldman Sachs to call Warren Buffet.

Goldman Sachs earned $3.2 billion in 2007 with these clients, and admit to losing $2 billion in 2008. The real damage is probably much higher.

And let’s not forget Mr. McTeer (FED) who told us all “if everyone would go out and buy an SUV-everything would be alright”

History has been unkind to nations which have followed Mr. Greenspan and Mr. McTeer’s lead.

The real problem is that Central Banks have overly defined money and capital formation-as credit.

When borrowers are bankrupt, they cease to both spend and borrow. As such, money ceases to be created in a fractional reserve banking system, and a system must continue an expansion or risk implosion. We remain at this tenuous point in the boundary layer.

Sadly, there is simply too much debt and given the present architecture, with all currencies being dollar derivatives, and as such-inflation remains a most attractive exit for
FED and US Treasury and all other economies.

The biggest fear is it will be inflation without stimulating real economic activity to a meaningful extent.

The best way to restore confidence in the global markets is a diminishing role for the US Dollar as a reserve currency.

The sooner such architecture is in place-the sooner the real economy can begin to function properly.

The government should seize them, then wipe them off the books for the good of the planet, and ban them for all time. That is what this problem really is, trying to cover billionaires gambling debts with future tax payer labor. That’s crazy. They (the derivatives and the bankster quants conmen gamblers) should be airgapped from the real economy before it is too late.

Are you therefore suggesting that banks would cooperate by bidding on each other’s assets (each bank taking a direct loss, which is compensated by other banks’ purchases of that bank’s assets at similarly inflated prices)?

What an interesting cooperation/defection game.

NH
Now we’ve got our house view sort of straight we can move on to the conspiracy theories.
NH
Of which there are lots
PM
And lots
PM
And lots
NH
Okay I like this one – hat tip reader TC (aka Polit2k)
NH
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NH
http://interfluidity.powerblogs.com/posts/1237877649.shtml
PM
Actually – read the whole post – its not a conspiracy theory – it’s just suggesting that history will repeat itself – as in the Panic of 1907, when JP Morgan himself locked everyone in a room and said LEND!
NH
And here’s Marginal Revolution suggesting that banks might game the system – setting themselves up as buyers of the assets and putting insanely high bids on the table – safe in the knowledge that when it all turns to crock they can offload most of the losses on the taxpayer
Readers may also know this former bank as Northern Rock.
NH
Let’s say that I am a bank (“financial institution”) with $100 billion in “toxic assets”. I have them on my balance sheet at 80 cents on the dollar. The market has them marked at 30 cents. We do not know what the held-to-maturity performance will be, since that requires knowing the future, although for the moment let’s assume that they are cash-flowing at the present time.
What I (the bank) do know, however, is that if I sell them at 30 cents I take a monstrous loss – perhaps enough to force me under Tier Capital limits and thus render me subject to an FDIC enforcement action. I therefore will not sell for 30 cents so long as I have any belief whatsoever that the cash flow – or any government subsidy – will exceed that value.
If I, as a “financial institution” can participate as a bidder in these auctions I can foist off my loss onto the taxpayer. Here is how I can rig the game so as to avoid an otherwise-inevitable loss:
I become a “bidder” and “bid” on my own assets at 75 cents.
I am providing 5 or 10% of the money. The rest is covered by Treasury, The Fed and the FDIC via guaranteed bond issuance.
The loan, ex my contribution, is non-recourse. That is, I can lose 5 or 10% of the total portfolio purchased, but nothing more.
NH
Now the “assets” (a passel of CDOs?) turn out to be worthless. I lose 5% of $75 billion, or $3.75 billion that I put up, plus the other nickel on the original mark, but that’s all.
The taxpayer gets hosed for the remaining $71.25 billion dollars.
This can and will be done if the “sellers” of these assets are allowed to bid either directly or indirectly as it provides a means for banks to intentionally dump bad assets at a certain loss that is much smaller than their expected realized loss over time, shifting the rest of the loss to the taxpayer.
This program has the potential to shift literally $500 billion or more in losses onto the taxpayer, not through the operation of “bad luck” but rather through what amounts to a bid rigging operation.
Fortunately that example is a pure hypothetical.
NH
http://www.marginalrevolution.com/marginalrevolution/
NH
Actually that is from The Market Ticker
NH
Open Letter To The FDIC Ombudsman

The message is: Don’t invest alongside the likes of PIMCO etc because you are being taken for a ride.

Geithner’s plan is worse than Pualson’s plan because the plan will definitely cause over-pricing assets purchase and also cause the siphoning from taxpayers’ money into banks and Wall street investors, definitely worse than Madoff ponzi scheme. Why? We are allowed the assets sellers-Wall street investors (Banks, Hedge funds and all kinds of funds) can join in the program to buy assets. They can be both buyers and sellers and they can set up groups of buyers to bid the assets at the over-price and the loss will come to taxpayers’ money. For example, the intrinsic value of asset at 100 dollars but the sellers and buyers are the same Wall Street investors such as CITIGROUP, JP Morgan of BofA. They definitely want to buy like 150 dollars meaning they will gain 43 dollars (gain from assets sales at 50 dollars but loss from private capital investment at 7 dollars) but the tax payers’ money will lose 43 dollars from the public capital at 7 dollars and the FDIC guaranteed bonds at 36 dollars. Therefore, Geithner’s plan is siphoning plan from taxpayers’ money into the banks and Wall Street investors. If the total plan is 1 trillion dollars, we could expect the loss up to 300-400 billion dollars if they allow Wall street investors to join buying at 40-50 % over intrinsic value. Therefore, we should reduce conflict of interest by not allowing the sellers or the investors who are holding the assets to join buying assets in the program.

Why depression occur from government’s reckless intervention

Another point I would like to explain why the economic situation is getting worse to depression if the policy makers transfer the loss from the private investors to taxpayers or we call it as the severe cost of intervention. We have to understand that the private investors/speculators hold the risky assets under risk management plan that they can get loss from investing; however, the taxpayers do not have the plan or risk management for the loss on investment. Therefore, when the government intervene the market and get loss (we are definitely facing the increasing loss of FED and FDIC and we could expect to see more under reckless Geithner’s plan), it is like money transfer from private investors into taxpayers and taxpayers will have to compensate the loss by higher taxes and higher cost of living such as the higher inflation or higher cost of fund such as the higher long-term government bond yield. I think the worst case scenario is not recession with deflated price but the depression with hyperinflation because there will be the wealth destruction to consumers and taxpayers not free lunch private investors or producers. I think every country face the same problem; all the loss going to taxpayers but all the gain going to investors and producers and this is the real crisis of economic sustainability and the huge burden to the next generation.

Davos provided a flashpoint for a profound change in global leadership. The whimpering US-UK-EU bankers have been shamed. Then after the finger pointing, insults, hand wringing, and gut wrenching, Putin rode in on a white horse carrying a banner. Chinese Premier Wen Jiabao provided the confirmation to what Putin laid out, like a second of a formal motion. Wen Jiabao proceeded from the Davos stage to four European capitals to seal the new path and its legitimacy. The barter system has been launched in quiet, while the Western press continues not to comprehend a ruptured status quo limping along. It cannot; it will not; the transition is on.

http://www.marketoracle.co.uk/Article8986.html

Get ready for the new world order.

It may be true that alot of the mess makers stayed within “most” laws, but, the heads of any organizations that actually signed the financial statements of their company without knowing or understanding what was there, truly could not verify the truth of the financial statement and as such, they violated Sarbanes-oxley–so, if only anyone cared to pursuit this, we could stimulate the economy by building a prison or two, to hold the some of the culprits! Fraud is fraud, and certainly people putting false income on mortgages is fraud, whether it is the signer or the mortgage maker—I FIND IT COMPLETELY FLIPPANT AND ASTONISHING THAT PRESIDENT OBAMA SAID THAT TO LENO–it makes me more sure that he, like all other presidents, has becoome a puppet to the BANKSTER CARTEL.