[deMolay]

Why would private equity buy Toxic Debt Sludge. What am I missing here? http://www.iht.com/articles/2009/03/22/ ... s/bank.php

[seldom_seen]

Because the Fed will be giving them the money. Geithner is trying to create a fake market for worthless paper with fake money.

Not much different than the Fed buying treasury securities.

Another slight of hand to maintain the facade.

[ReverseEngineer]

$this->bbcode_second_pass_quote('seldom_seen', 'B')ecause the Fed will be giving them the money.

[deMolay]

OK, not sure if you are just being sarcastic RE but who in their right mind, would take their hard earned cash and buy worthless toxic sludge? They would have to recieve some kind of guarantee and a very heavy rate of return from the taxpayer. How else would it work. Again the taxpayer will assume the position and take it up the ass without lube.

[ReverseEngineer]

$this->bbcode_second_pass_quote('deMolay', 'O')K, not sure if you are just being sarcastic RE but who in their right mind, would take their hard earned cash and buy worthless toxic sludge? They would have to recieve some kind of guarantee and a very heavy rate of return from the taxpayer. How else would it work. Again the taxpayer will assume the position and take it up the ass without lube.

[deMolay]

They estimate that this move will add another 1 plus Trillion of Bumwipe Fiat Money to the Debt Load. This will take Obama's Financial package to arount 4 Trillion maybe more in 2 Months.

[ReverseEngineer]

$this->bbcode_second_pass_quote('deMolay', 'T')hey estimate that this move will add another 1 plus Trillion of Bumwipe Fiat Money to the Debt Load. This will take Obama's Financial package to arount 4 Trillion maybe more in 2 Months.

[auscanman]

My understanding is that the treasury will first subsidize the banks currently holding these toxic instruments of financial death, giving them something (at least while the US dollar still has some value) for the toxic crap worth nothing. The treasury will then subsidize the hedge funds and other institutional investory who will 'buy' this stuff, with the subsidy again being far more than this junk is worth. The hedge funds/institutions may throw in some nominal money to avoid the appearance of this being purely another taxpayer funded bailout, but they will still be profiting thanks to the taxpayer when it's all summed up. Why wouldn't any desperate hedge fund want in on this government sanctioned fraud?

The 'subsidies' at both ends of the transaction are of course pure bailout. I look forward to seeing how the media spin this one as being for the benefit of the public in the coming days. Also, who will be the equivalent of the AIG bonus recipient scapegoat this time?

[Armageddon]

$this->bbcode_second_pass_quote('ReverseEngineer', '')$this->bbcode_second_pass_quote('deMolay', 'O')K, not sure if you are just being sarcastic RE but who in their right mind, would take their hard earned cash and buy worthless toxic sludge? They would have to recieve some kind of guarantee and a very heavy rate of return from the taxpayer. How else would it work. Again the taxpayer will assume the position and take it up the ass without lube.

[frankthetank]

How does it work when the only ones paying taxes are gov employees, medical workers, and bankers?

[ReverseEngineer]

$this->bbcode_second_pass_quote('frankthetank', 'H')ow does it work when the only ones paying taxes are gov employees, medical workers, and bankers?

[Tyler_JC]

Everything can be sold. Depends on the price.

A bond gives you fixed payouts each year and then a final payout of the face value of the bond at maturity.

A $1000 bond at 5% will give you $50 per year and then a big bonus payment of $1000 when the bond matures.

If the bond is trading at its face value of $1000, the effective yield is 5%. You get 5% a year plus your money back when the bond expires.

But let's say you are a private equity firm buying toxic debt from the Treasury. You might say, I'm not paying $1000 (face value). I want a big discount!

A 50% discount means you could buy that bond for $500. Your yearly payout is still $50/year. That means every year you are getting 10% back on your money. That's an incredible payout in this environment.

But it gets better.

When the bond matures (say, ten years), you get $1000 back, not $500.

That means your effective return over that ten year span is nearly 15%.

Sure, there is risked involved with buying this obviously risky asset but the potential rewards are equally huge. If the Treasury offers any kind of guarantee on the debt, maybe an insurance plan to protect the private investor against default risk...this "toxic" debt could become gold for investors.

In fact, this is EXACTLY what lead to the current mess in the first place. The only difference is that instead of an insurance policy issued by a corrupt insurance company that never created a cash reserve to payout the policies (AIG...), you would be getting an insurance policy from a corrupt government that has a nearly unlimited capacity to pay out your policy.

It would go from being high risk junk bonds to as risk free as Treasury Bonds. The difference is that these bonds would actually be guaranteed by the full faith and credit of the US Federal Government, not merely rubber stamped by some phony credit agency as Triple A.

Long story short, if they start offering serious discounts and government-paid default protection on these bonds, private investors will buy them by the boatload.

[Cog]

$this->bbcode_second_pass_quote('Tyler_JC', '
')Long story short, if they start offering serious discounts and government-paid default protection on these bonds, private investors will buy them by the boatload.

[frankthetank]

Cog-

Soon there will be no taxpayers!

Only future is in farming or security

[Tyler_JC]

$this->bbcode_second_pass_quote('Cog', '')$this->bbcode_second_pass_quote('Tyler_JC', '
')Long story short, if they start offering serious discounts and government-paid default protection on these bonds, private investors will buy them by the boatload.

[the48thronin]

So let me see if I understand this;

We are going to repackage the bad asset based bonds in to new junk asset based bond, and we are gonna save AIG from the CDS quadrillions by issuing Government backed CDSs and the same pig men will write even more quadrillions of fantasy insurance of fantasy asset backed bond and get their usual commissions for doing so.

HMMM the house of cards trick again.

[deMolay]

All it is in laymans terms is a global money laundering scheme run by the Gubmint. Dirty ass wipe in, clean asswipe out. Looks good everybodys is happy except the taxpayer or anyone who works and cannot escape taxes. A debt load like what is being created will consume about 60% of every dollar earned by the average working taxpayer who has no tax shelters etc. They won't all be called taxes. Many of the taxes will be caused fees, licensees, permits etc. One very fatal mistake that Obama is making concerning the taxation of the moneyed or rich class. Is this, the rich are very mobile. Wealth is very portable and can disappear fast. When the rich bailed out of Germany just before Hitler really got going. They converted to diamonds etc all very valuable small and portable. And high class jewelry. They sewed it into clothing and left. Again this time they will find a way to make their wealth invisible. They will sit out the Sudden Stop Event and following chaos in comfort and watch via the internet and satellite dish as it becomes very nasty.

[billg]

Excellent summation of how Geithner's new scheme works:
http://www.youtube.com/watch?v=n-arbfLTCtI

[efarmer]

Perhaps Tyler_JC or some other economic centric persons
would explain the dynamic of Paul Krugman vs.
Tim Geithner on tactics since I do not understand either
of them to be honest.

I grasp the basics and am drawn to von Mises types
of approaches in economic things but fall back to
instinctual feelings that the Geithner vs. Krugman
friction is a turf war between witch doctors who are
competing on a high profile zombie resurrection.

I hope the difference is more substantial than the
proper dosage of snake oil for the zombie patient.

[Keith_McClary]

$this->bbcode_second_pass_quote('deMolay', 'W')ealth is very portable and can disappear fast. When the rich bailed out of Germany just before Hitler really got going. They converted to diamonds etc all very valuable small and portable. And high class jewelry. They sewed it into clothing and left. Again this time they will find a way to make their wealth invisible. They will sit out the Sudden Stop Event and following chaos in comfort and watch via the internet and satellite dish as it becomes very nasty.