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Are Citi & BofA purchasing the same junk that the new government program is designed to help them unload?

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March 25, 2009 – Comments (2) | RELATED TICKERS: C , BAC

Hmmmmmm, here's an interesting article: DOUBLE-DIPPERS.  According to the New York Post, Citigroup and Bank of America have been "aggressively" scooping up mortgage-backed securities (MBS) on the open market at the very same time that the Treasury is rolling out a special program, funded by our tax dollars, to help them unload these very assets. 

What in the heck is this?  Are Citi and BofA trying to artificially prop up the prices of these securities before they try to unload their massive pile of them?  If so, I don't see how this could fool anybody. 

Perhaps they feel as though the new government program is so unbelievably generous that investors will be beating down their doors to buy these MBS at higher prices than the thirty cents on the dollar that they have been paying for them. 

If so, it's a pretty scummy move.  The Treasury program was designed to help them clear their balance sheets so that they are in good shape and can operate normally again.  I doubt that Geithner had banks gambling by loading up on toxic assets before the plan is implemented in mind when he drew it up.  Both Citi and BofA each have received $45 billion in federal rescue cash meant to help prop up the economy and jumpstart the housing market.

Deej

2 Comments – Post Your Own

#1) On March 25, 2009 at 1:05 PM, angusthermopylae (39.54) wrote:

[sarcasm]

But isn't that the whole concept behind the plan??!?  Because these banks are spending money, then the economy is moving, and the poor little executive-types can afford to send their kids to boarding school...which means the lunch-ladies will keep getting paid ...and their landlords will get their rent.....er...uhm, something cash flow...

[/sarcasm]

Ouch..that hurt to even pretend to think like that.  

Seriously, I think you've hit it on the head.  If you take floridabuilder's post on how it works into consideration, it makes perfect sense (from a Snidely-Whiplash point of view) for these banks to try this:  They suck up these assets, then either get .50/dollar for what they paid .30/dollar...and maybe even hire a few guys to reorganize the assets to keep the good top 1/3 of assets.

And if that fails, they can always go back to Uncle Bernanke and say "Look at all the bad assets we have--give us more money!"

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#2) On March 25, 2009 at 5:35 PM, jgseattle (35.07) wrote:

moral hazard - they are both to big to fail so take the bet that 0.30 is the low, if it isn't then the government will buy the assets and take the loss. 

And if the government comes in to buy the assets I bet it will be a a greater value the 0.30.  A no loss for BAC and C.

 

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