Public-Private Ponzi
Research for Online Investors

by John Dalt

4/03/09

The 30-year mortgage rate fell to 4.78 percent last week, the lowest since records began in 1971, according to Freddie Mac.  The Federal Reserve is having success, for the present, of forcing rates down.  Mortgage applications in the U.S. rose for the fourth consecutive week.

The profits the banks bragged about on January and February may not have been as virgin as we were led to believe.  I read an ‘insiders’ account of what kind of shenanigans were going on at AIG, it is shocking that there is gambling going on.  I just cannot avoid referring to my favorite line from Casablanca.  We know that a lot of the money that was sent to AIG in the initial bank bailout was funneled directly to Goldman Sachs and other banks as backdoor bailouts.  Goldman Sachs received $12.9 billion!

In January and February, “AIG, knowing it would need to ask for much more capital from the Treasury imminently, decided to throw in the towel, and gifted major bank counter-parties with trades which were egregiously profitable to the banks, and even more egregiously money losing to the U.S. taxpayers, who had to dump more and more cash into AIG, without having the U.S. Treasury Secretary Tim Geithner disclose the real extent of this, for lack of a better word, fraudulent scam.”

Read the whole blog here.

The government Ponzi scheme is almost impossible for us to comprehend.  The more we learn, we find out the whole enterprise of “saving the financial system” is manipulated to line the pockets of a few politically connected individuals.

The private-public program the Treasury announced to buy up toxic assets from banks has hit a snag.  With the requirements placed on the program, few funds can participate.  The main rule in the application is only funds that already have a minimum of $10 billion in toxic securities under management can apply!  You may ask yourself, “Who has that much?”  You will love this; Goldman Sachs, Bank of America, Citi, Pimco, Black Rock, Legg Mason and Bridgewater.  The securities under management have to be “secured directly by the actual mortgages.”  This is like saying they have to be “first tier” assets of banks.  Reference this article from the Wall Street Journal.

Pimco says it may not participate since there is not enough leverage in the program to make it profitable.  Here is where I get a nervous tick.  What if the whole idea is to let the insiders buy each other’s toxic assets, with a Fed backstop of 95%?  Bank of America buys Goldman’s for 86 cents on the dollar, Citi buys Bank of America’s for 88 cents on the dollar, and Goldman buys Citi’s for 87 cents on the dollar.  Each trach is for $10 billion in face value.  $26.1 billion dollars just changed hands, but now $24.795 billion is backed by the Fed!  The securities that were trading for 20 cents on the dollar are now worth 82.65 cents on the dollar in Fed guarantees!  Here is the math:

Face Value:                                      $10,000,000,000,000
Avg Auction Price @ $0.87             $ 8,700,000,000,000
Fed guarantee @ 95%                     $ 8,265,000,000,000
Previous value @ $0.20                   $ 2,000,000,000,000
Gain to banks:                                  $ 6,265,000,000,000
Or to put it in a percentage:                    313%

AMOUNT DUMPED ON TAXPAYERS:   $ 8,265,000,000,000

How many of these transactions will take place?  Multiply by ten or one hundred times. The result is the same, the gains for banks get larger, the losses for taxpayers grow larger.  Everybody makes money and government takes the loss. These auctions can take place, all participants will declare a success, and the risk is transferred to the government.

If you do not think this can happen, you have not been paying attention for the last six months.  If you do not think this will happen, you have not been paying attention for the last 70 days!

”I believe that banking institutions are more dangerous to our liberties than standing armies.”
                                                            Thomas Jefferson

Did Jefferson know something we do not?

Big Al only wishes he was a banker!

Our last closed trade from the SwingTrader Service.

PO T-bought 3/10 for 71.96 sold 4/01at 82.98 gain 15.3%

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

MarketWatch Home Page

Back to Top