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The TALF trough

By Owen Paine on Saturday February 21, 2009 10:46 AM

Can you say TALF? It rhymes with Ralph, and it's what Father Smiff's mentor Dougwood Hen was clucking and fluttering about back a ways. I think he called it "sick", which rhymes with slick.

Seems suddenly it might be "not so fast there pard" time, what with the fourth estate on the case. Even the grey lady has her long ugly nose past the green door now, and yikes, read all about it: Obie plans to lend a trillion bucks to pathological profit hogs -- at 2% -- allow 20 to one leverage -- cover most losses -- privatize "returns of 20 percent or more" -- assume almost all the downside risk.

Wow. I want in on that caper. Wouldn't you?

"But Owen--" you start to say. And I interrupt: Yeah, yeah, I know, if we all got in at the ground floor -- that would spoil the whole fuckin' scam.

What's pleasant is that it seems all sorts of inside-the-loophole, behind-the-curtain games are going "public" on our lonesome privateers these days, and I mean public in a bad way, baby!

A few choice passages from the genuine NYT article mentioned earlier:

Most banks no longer hold the loans they make, content to collect interest until the debt comes due. Instead, the loans are bundled into securities that are sold to investors, a process known as securitization.

But the securitization markets broke down last summer after investors suffered steep losses on these investments. So banks and other finance companies can no longer shift loans off their books easily....

The Obama administration hopes to jump-start this crucial machinery by effectively subsidizing the profits of big private investment firms in the bond markets. The Treasury Department and the Federal Reserve plan to spend as much as $1 trillion to provide low-cost loans and guarantees to hedge funds and private equity firms that buy securities backed by consumer and business loans.... Some worry it may benefit only select investors at taxpayer expense.

The program also does not try to change securitization practices that, many investors say, spread risks throughout the world and destroyed financial institutions. Policy makers acknowledge that for now, fixing credit ratings, reducing conflicts of interest and improving disclosure can wait.

Under the program, the Fed will lend to investors who acquire new securities backed by auto loans, credit card balances, student loans and small-business loans....

Depending on the type of security they are borrowing against, investors will be able to borrow 84 percent to 95 percent of the face value of the bonds. Investors would not be liable for any losses beyond the 5 percent to 16 percent equity that they retain in the investment.

Simon Johnson, an economics professor at the Massachusetts Institute of Technology and a former chief economist at the International Monetary Fund, said many people might take a dim view of the TALF program because it provided government subsidies to investors like hedge funds. Investors who borrow from the Fed could enjoy annual returns of 20 percent or more.

“The TALF,” he said, “raises a lot of questions.”

Ahhh, the press, as lord Dick was wont to cry, they're wrecking everything.

Comments (6)


Owen -- I can't quite believe I've understood this correctly.

Obie is going to lend a trillion dollars or so to people who run hedge funds and the like, so these people can buy securitized consumer loans. The securitized loans become Uncle's collateral. If they turn out to be worth something, the hedgies take the profit. If they turn out to be worth nothing, the taxpayers take the bath.

Have I really, truly got it right?


This is just a new way to get toxic assets off the books of the major banks. Geithner mentioned a public-private partnership the other day without spelling out the details. This is what he meant. Private money, the only source large enough to really solve the problem, will be "invited" in, by terms so generous they won't be able to resist.

The only saving grace is that whatever the US does, it must do in concert with all the major economies. This could have the effect of bringing in some minor social considerations into their thinking.



that's about the size and shape of it

leveraging the deleveragers unlikely to provide much beyond toxic aggregators funds
ultimately using the funds of the people
insured by the people
but err..not FOR the people

" it 's ahhh wrong ...that's for sure "

my guess
won't fly quite this golden trade route


"Private money, the only source large enough to really solve the problem, will be "invited" in "

that line is a bit off

uncle is "the only source large and folly proof enough to solve these private money problems so the private money folks are invinting uncle in to do just that..so long as the private money folks
get to keep
most of any up side

uncle has all the dollars he wants when and if he wants

this is all about keeping the profits
in private hands but the loses off uncle's books ...for now

the idea is to feather them in over time

a slow poison drip hardly noticeable in the grand scheme of things

compare to this:

uncle buys the whole heap at near book value
right now
and the press subtracts present estimated market value of same and headlines

'uncle loses kool trillion dollars on back room buy in deal

on the otherside of the same deal
banksters dance like buccaneers
in an after hours
tortuga tavern

Al Schumann:

It's impossible to overemphasize the impossibility of "private money" coming in on any plan, good or bad. First, because it's oxymoronic. The private money is actually private equity, which exists as leverage. Private equity borrows, and then leverages its borrowing and then sells that as assets. There is but one source for private equity to borrow from: Uncle Sugar. There is but one customer for the toxic debt generated by them: Uncle Sugar.

So when Geithner or anyone else talks about brining in private money, they're not talking about the paltry few billion held by the cautious rentier capitalists. They're talking about direct funding of another looting spree, with the funding handed over to the worst possible people, in the wrost possible way -- full stop. This is much much worse than anything the Bushists attempted.

Property is theft. That "private money" is foregone public wealth. That game has now proved its worth. Let's wipe it out and start over from below, with credit-card-holder bailout, progressive taxation, housing allowances for all, and a Second Reconstruction & New New Deal.

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