Or so it seems to me.

This is a very bizarre arrangement.

– the FDIC took an initial loss (they judged the assets to be worth less than the value at which they were held on Franklin’s book)

– FDIC is going to try to sell their debt interest as a FDIC insured bond in the deal, probably to raise cash

so what the FDIC is going to end up with is

negatives:
– a loss to the DIF fund due to the bank capsizing
– a guarantee on the cash flows of the assets. leverage was 6:1.

positives:
– $64M equity
– cash (about $800M, from the equity and bond sale), which they need

i couldn’t tell from the materials on the site what interest FDIC is receiving on its loan (which it wants to sell with the guarantee) and what the assets pay when performing.

the quesiton of who is managing the assets is not answered. in the original PPIP the external equity holders managed it.

if i were going to venture a guess, the way this deal is put together did not change the expected outcome much. the FDIC gets cash now and limits its volatility somewhat going forward.

And they seem to have the financial strength to guarantee the notes, which I just do not understand at all. The only way an entity purchasing the notes would want the guarantee is if the loans were not performing, so what does the FDIC get out of that?

first, doesn’t the FDIC need cash right now? they are talking about borrowing from the treasury or from other banks, so I believe they do.

second, if the FDIC were going to get into the business of holding assets, wouldn’t that mean they need a trading operation? (they would need to analyze them, know when they had appreciated sufficiently, etc — holding to maturity is probably not a good idea given their need for cash liquidity.)

third, can the FDIC realistically manage these assets? that’s not what it generally does. there are probably a lot of really crappy assets on Franklin’s books, and a lot of value in them is probably going to come from active management (ie the assets probably consist of claims on bankrupt business entities and households — you can’t just wait for the dollars to pour in, you have to show up in court and twist arms. the FDIC is going to be pretty bad at that.).

and fourth, if the FDIC were going to get into the business of holding assets, why these particular assets? just because these were the ones that were dumped on them? seems a bit arbitrary.

so to sew it up, i don’t think that holding a lot of distressed assets for a long time is a good idea for the FDIC. i’m not 100% sold on the PPIP idea (haven’t read the details) but it does solve FDIC’s problem.

I mean these smaller banks are still dropping like flies. Is it a wise decision to sell off assets when you’re still taking in banks for receivership from the same economic downturn???

And sadly everyone knows that sometime in the unknown unknown future (probably soon) another horrible bubble will burst, economies will be brought to the brink of disaster if not total collapse (nexttime), and when that horrorshow happens, these same shaitans, criminals, and PONZI operators will come crying and begging like little school girls for trillions more in taxpayer funded bailouts.

What we don’t know is – what will happen when the people finally realize these fiends are monsters threatening our lives, our childrens futures, – and that until and unless the TBTF insitutions, their FAILED managements, and their FAILED models are dismantled, and brought to heal, and whatever remains of that nebulous thing called justice. When day comes, (and the sooner the better of the other 99.5% of the earths population), – all bets are off, and predatorclass be the targets of a real horrorshow backlash. I do not condone a revolution, – but I see it as inevitable based on the current baselinescenario.

Bingo! Who wants a true market price right now?