Amazing Public Comments on the FDIC/Treasury "Legacy Loans Program"
The LLP consisting of PPIFs (Public-Private-Investment Funds) is T.H.E.F.T. I can't believe some of the comments posted. by Jake Towne, the Champion of the Constitution
(libertarian)
Saturday, April 11, 2009
Sheila Bair, chairman of the FDIC, and Treasury Secretary Timothy "Turbo Tax" Geithner are two of the unelected central planners of the current administration, and are behaving quite as I had predicted in this piece for the Campaign for Liberty. Bair, at least, deserves to be somewhat commended. Yes, commended!! On the FDIC website, Bair allowed the publishing of some seriously dissenting citizens.
The FDIC requested public comments concerning its new Legacy Loan Program over a two-week period ending yesterday, April 10th. [You can receive these emails by joining the FDIC's mailing list - if a bank fails near me, I want to know about it ASAP.]
As we recreate the horrendous "alphabet soup" days of the last Great Depression, the LLP consists of PPIFs (Public-Private-Investment Funds). The FDIC describes the program in the following manner:
In order to cleanse bank balance sheets of distressed loans and other assets and reduce the associated market overhang, the FDIC and Treasury are launching the Legacy Loans Program.
The FDIC will provide oversight for the formation, funding, and operation of new public-private investment funds ("PPIFs") that will purchase loans and other assets from depository institutions. The Legacy Loans Program will attract private capital through an FDIC debt guarantee and Treasury equity co-investment. Private market equity investors ("Private Investors') are expected to include but are not limited to financial institutions, individuals, insurance companies, mutual funds, publicly managed investment funds, pension funds, foreign investors with a headquarters in the United States, private equity funds, and hedge funds. The participation of mutual funds, pension plans, insurance companies, and other long term investors is particularly encouraged..
My opinion is this "Plan" will just be another straight-out robbery of the taxpayer in favor of the Federal Reserve-led banking system. There is, of course, a possibility that , and if you read the details (in the above link) that the investors could profit, but the taxpayer will lose for sure.
Although I disagreed with many of the comments Keynesian Nobel laureate Joseph Stiglitz made at a talk in Shanghai last month on the financial crisis, I believe he is quite lucid in this New York Times article on the LPP:
"The Obama administration’s $500 billion or more proposal to deal with America’s ailing banks has been described by some in the financial markets as a win-win-win proposal. Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.
"Treasury hopes to get us out of the mess by replicating the flawed system that the private sector used to bring the world crashing down, with a proposal marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency.
"Let’s take a moment to remember what caused this mess in the first place. Banks got themselves, and our economy, into trouble by overleveraging — that is, using relatively little capital of their own, they borrowed heavily to buy extremely risky real estate assets.
"... Under the plan by Treasury Secretary Timothy Geithner, the government would provide about 92 percent of the money to buy the asset but would stand to receive only 50 percent of any gains, and would absorb almost all of the losses."
The translation is that government/taxpayer puts up 92 cents for each dollar "invested" in the aptly-named TOXIC ASSETS, while private speculators - probably hedge funds and the like - will put up 8 cents. It's really just an attractive way for speculators to use the US government/taxpayer to take on most of the risk. If it loses out, the taxpayer takes almost all of the losses. If by some chance hell freezes over, the speculators take 50% of the gains.
Meanwhile we feed the "taxeater" - the banking industry - money for free and the TOXIC ASSETS are taken care of. [To learn more about derivatives, please try reading Parts 9-11 of the Money Matrix, starting here.]
Now, kudos to Bair for posting what are certainly real letters from the public here. More kudos to the 200+ members of the public who told Bair what they really think:
"I am opposed to more scams against the American public designed to enrich the banking cartel at the expense of the taxpayer. I do NOT want to pay off these thieves.
They need to be investigated and prosecuted, not enriched. I'm appalled at how the US government is aiding and abetting failure. " (letter to FDIC) (photo)
WE MUST HAVE FULL DISCLOSURE AND REGULATION! Let's stop touching the pretty, glowing coils on the stovetop.
And geithner & FDIC - enough with the nauseating acronyms. Just plainly call it theft, please. WE PUBLIC SCHOOL-EDUCATED PEOPLE ARE NOT AS STUPID AS YOU ASSUME. And we are SO sick of the abuse.
I'm confident that I speak for most Americans when I note that the proposed PPIP is grossly unfair to the banks, investors and asset managers. This sweetheart deal for taxpayers would penalize banks for finding themselves in an unforeseeable predicament for which they bear no responsibility. It would also require selfless investors and asset managers to bear an unconscionable portion of the risk in return for minimal reward. If we're going to get through this crisis, everyone's going to have pitch in and sacrifice -- and that includes the taxpayer.
So, unless you want the global financial system to be Lehmaned again, I suggest you change the terms of the program as follows:
1. Given that the underlying loans are sound, performing and cash flow positive, they should be priced at the banks' "mark-to-model" valuations plus, of course, a premium in order to induce the banks to make the sacrifice of parting with these valuable legacies. I suggest that market-driven price discovery occur in a range of 120-140% of par depending on the specific assets at issue.
2. The Government would put up 100% of the capital plus 100-1 leverage in the form of on-recourse financing funded by a combination of the FDIC fund for deposit protection and the Social Security endowment. (Medicare and Medicaid could also be asked to chip in as necessary -- I see no reason why the poor and elderly should not pay their fair share here).
3. Once bought, these assets would then be gifted to large hedge funds and private equity firms. In order to properly allocate risk, they would be forced to accept 100% of any profit and 0% of any loss. (And remember: hold your ground if the investors try to haggle over this.)
4. A small number of asset managers should be selected in secret to manage the assets in return for guaranteed fees to be paid by the Government. Typically, hedge funds are paid 2% of the value of the assets under management plus 20% any gains. That seems fair here. Because investors will be entitled to 100% of any gains, the Government will need to come up with the extra 20% for the asset managers. (I suggest diminishing handouts to socialist programs like Head Start and AIDS-research organizations.)
5. Obviously, you'll need to guarantee all parties that in exchange for rescuing the taxpayer they won't be subject to any Government meddling before, during or after the transactions are completed.
I suggest you lobby Congress to pass a law prohibiting it and all regulators (you too, Ms. Bair) from engaging in any interference or exercising any oversight over the program or the parties involved.
In addition, Congress should grant a pre-emptive amnesty and pardon to all parties for any wrongdoing that they later may be unfairly accused of in connection with the program. (Remember, contrary to what certain populist muckrakers may claim, "gaming the system" is just another word for "nothing to lose".) I hope it goes without saying that none of the fees or profits resulting from the PPIP should be subject to any ordinary (much less special) taxes.
Finally, I think it would be appropriate for you, Mr. Geithner and Mr. Bernanke to send letters of gratitude to all parties involved for their generous effort to bail out the American taxpayer. Their magnanimity, propriety and responsible leadership during this crisis should be examples to every American.
Well, now its just up to our friendly Central Planners and the hapless Congress (save Ron Paul, a man among babes) to decide what to do - they've already solicited our opinion, and have completely forgotten the Constitution of the United States, which preemptively forbids their actions with the Tenth Amendment.
"The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."
The socialist powers to execute the LPP program, bailout banks, takeover companies like GM, etc, etc. in such a biased manner is not listed in the powers of Congress, nor the Executive or judicial branches.
The founding fathers of the Republic are rolling in their graves.
Thanks to "Tyler Durden" of Zero Hedge for bringing the above responses to the public. An interesting article on a possible plummet in the equity markets written here two days ago.
Tu ne cede malis sed contra audentior ito. Do not give in to evil but proceed ever more boldly against it.
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
As always, unlike the NFL, the author grants full permission to allow any accounts of, rebroadcasts, retransmissions, repostings in part or full of this article to your blog or anywhere else in order to promote the Restoration of our Republic.
Veritas numquam perit. Veritas odit moras. Veritas vincit. Truth never perishes. Truth hates delay. Truth conquers.
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in this article are those of Jake Towne, the Champion of the Constitution only and
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Jake Towne, the Champion of the Constitution is solely responsible for the contents
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"The founding fathers of the Republic are rolling in their graves."
I think if the founders were capable of rolling in their graves they would go one step further and climb out of their graves and strangle the bastards who are currently robbing us blind!
I don't know if you read the commentary on this program that analyzed it as an "options" program with the Fed doing to backing and taking the risk.
A small percentage is put down [10%], the fed loans the principle [which apparently will be above market value to bolster bank's balance sheets] and then the trader gets to decide at some point whether the value has risen enough to "commit" to the purchase [by reselling the leveraged asset]. If he does, the profit is split 50/50 I believe. If not, he is out the down and the bank retains the inflated principle.  Sounds like the dream deal to me unless you are the taxpayer!
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Now, kudos to Bair for posting what are certainly real letters from the public 
