The thing that makes this situation special is manipulative regulation. Last July, the FED had an inverted yield curve, the SEC repealed the short rule, and FASB announced mark to market for the banks to post losses against paper losses on 30 year mortgages. Now, the government is absorbing all these companies at 12% interest rates.
The government has amassed half of the mortgage assets of this country for a $24 million severance package to the CEO's from FNM and FRE and acquired a $30 billion equity stake in AIG with a 12% annual interest payment. Maybe Paulson is the puppet master behind all the CDS contracts.
The government now has most of assets they need to take care of the federal deficit. They are getting them all for nothing. I'm sure they would be more than happy to take over the rest of the mortgage portfolios of all the small and regional banks in exchange for a guarantee of their depository assets.
They could spend the next 10 years selling off the mortgage assets at outrageous returns since the cost base is zero. Then, they would be getting triple taxation from individuals, corporations, and all mortgage payments. Someone has to take care of the deficit and the government figured out a brilliant way to buy $10 trillon of assets for a total of $85 billion and the severance package to the guys at the GSE's.
Really, I don't blame the government for not wanting the GSE's and monolines to make money at the expense of the taxpayer. It's getting quite obvious who gets to stay and who gets to go. The carnage is pretty well defined in the big 5 failures -BSC, FNM, FRE, LEH, and AIG. C, JPM, BAC, WFC, USB, and even WB have been defined as the remaining depositories at the major level. So that leaves MS and GS as the only 2 loose cannons left to deal with. My guess is that MS will get a $50 billion deal just like MER. GS should go private and continue to control the strings of the entire system. |
