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lquadland10 (< 20)

No relief for homeowners just the banks. Lied to again.

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October 27, 2008 – Comments (3) | RELATED TICKERS: AUY , GLD

Treasury 'hopes to drive consolidation' through banks plan
The Treasury Department is looking to use its $250 billion recapitalization package for the US banking sector to not only stabilize the industry, but fundamentally reshape it by "driving consolidation", it has been claimed.

Government officials told the New York Times that the department is looking to direct funds allocated to the country's ailing banks towards institutions willing to buy up rivals wounded by the credit crisis.

They added that the Treasury will gear selection criteria for the rescue program towards banks that need capital for new acquisitions, as it does not want to "prop up" weak institutions.

Since the financial crisis took hold, there has been a flurry of takeovers, with national players like the Bank of America, JP Morgan Chase and Wells Fargo snapping up troubled competitors.

Now the Treasury hopes its injection of capital will help the smaller "super regional" banks to drive another round of takeovers.

Meanwhile, Treasury secretary Henry Paulson said he expects "all participating banks" in the federal program to "continue to strengthen their efforts to help struggling homeowners".

So far, nine banks are involved in the government's recapitalization plan - Citigroup (Nasdaq: PLJC), Goldman Sachs, Merrill Lynch (Nasdaq: LNDU), Morgan Stanley (Nasdaq: MNDX), State Street, JP Morgan Chase, Bank of New York Mellon, Wells Fargo and the Bank of America.
 
ING secures government 'bailout' package
ING, one of the world's top 20 financial institutions, has become the latest firm to secure a 'bailout' capital boost with a national government after the Dutch state agreed to reinforce its position in a deal worth €10 billion ($13.5 billion).

Under the agreement, ING will issue one billion non-voting Tier-1 securities to the government for €10 apiece. It can buy back some or all of these securities at any time for 150 percent of the issue price.

After three years, the company can also convert any or all of the securities into ordinary shares. If it decides to do this, the government can ask for the securities to be paid back at €10 each.

As part of the agreement, the state will nominate two members to sit on ING's board. The group's remuneration policy will also be reviewed to ensure it is not encouraging short-term risk taking.

The banking group's chief executive officer, Michel Tilmant, said its capital position is in line with business plans and regulatory requirements, but that current market conditions make it "prudent to raise our core capital".

ING has 75 million customers worldwide, with offices in Europe, the United States, Canada, Latin America, Asia and Australia.

3 Comments – Post Your Own

#1) On October 27, 2008 at 6:38 AM, Gemini846 (68.02) wrote:

What's keeping them from buying the sub-prime loans themselves so that they can re-structure them? Would that not keep the CDS hammer at bay? That makes a whole lot more sense than buying convertables in the banks doesn't it?

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#2) On October 27, 2008 at 11:47 AM, lquadland10 (< 20) wrote:

Because the IMF (FED) and the central bank (Treasury) both of which are not part of our government or country got very greedy and they really want to tank this country. Look for key words like G-7 G-20 they are all central banks and all part of the World Bank. For more information go to infowars.com or prisonplanet.com or the Alex Jones show.

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#3) On October 27, 2008 at 1:25 PM, StockSpreadsheet (72.06) wrote:

Gemini,

I think part of the problem is that it would be difficult to buy the subprime loans without buying all outstanding CDS's and CDO's.  The loans were put into pools and sold as pools to the investment banks.  The investment banks then divided up the pools into tranches, (based on who gets paid first and not on the credit rating of the borrowers), and then sold the tranches, some of them to other banks or brokers.  Some of the other banks and brokers then took their tranches, repooled them, retranched them and then sold the new tranches.  Therefore, each original pool could be divided amongst many tranches in various CDS/CDO products.  Since technically you are supposed to be the majority owner of a loan before you can modify it, (since most of the CDS/CDO products, from what I have heard, say it takes a majority vote of the holders, and sometimes a supermajority vote, to approve any change in terms), you would need to buy up a lot of tranches to get control of any loan.  To get voting control over an initial pool of $10 million or $100 million in loans, you might have to spend 10 to 100 times that amount to buy up all the various parts that have been merged and split and sold around the world, and you would need to get the current owners to agree on a price, (and if the government was buying, most of the current owners would want full face value, figuring that the government could afford it and then they would not have to take a loss on their investments.  This is especially true for the foreign banks and sovereign funds that would try to bring political pressure on the U.S. government to pay off their losses so the foreign governments don't have to cover the losses incurred by their banks and sovereign funds.)

This is why I have said in the past that I think that the issuers of the CDS's/CDO's should be forced to buy the instruments back at like 90% of face value and unwind the products into straight mortgage pools of whole loans.  If the originating agency, (bank or mortgage broker), is still in existence, they could sell the loan pools back to the bank at 80% of face value and then the banks and mortgage companies, who have the personel to do so as part of their normal operations, could then go about modifying the loans as needed or foreclose on the properties if there is no way for the current borrowers to afford any type of reasonable loan, (due to loss of job, etc.). 

I think it would be much better for the banks and the mortgage companies to redo the loans than to have the government try to do it.  The government does not have the qualified personell, so they would need to hire a whole new beaurocracy to do it.  Hiring all the qualified personell would take time, (months).  Haggling with the current owners of the CDS's/CDO's would take more time, (months), and could potentially have the government massively overpaying for the securities, (since the current owners would be less likely to drop their prices close to current market value if they new the government was the buyer).  Finally, once a beaurocracy is set up by the government it almost never disappears, (with the RTC being I think the only recent example).  Heck, last I heard we still have a committee that meets once a year to report on the nation's helium stockpile that was originally set up in WWI as a strategic asset and to prevent it from falling into the hands of the Germans, (back when blimps were considered major strategic assets for spying and bombing).  The guys are paid tens of thousands of dollars, meet one day a year for about 30 minutes or so, say that the stockpiles are still sufficient and then adjourn the meeting and go play golf or something.  Not sure the committe still meets, (last article I read on it was about 10 years ago), but it lasted at least 60 years after the time when it could be considered anything like a strategic asset, so that gives you an idea of the tenacity of a worthless government beaurocracy once it is set up.

Just my guess on the topic.

Craig 

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