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The Washington Independent
The Washington Independent

Are Banks Gaming the Geithner Plan Already?

Tom Mohamed
News
Last updated: Jul 31, 2020 | Mar 26, 2009

In trying to figure out whether Treasury Secretary Timothy Geithner’s plan to subsidize investors buying toxic assets from banks makes any difference in the lives of people living in blighted communities, I’ve been talking to housing advocates and economists.

Dean Baker, co-director of the Center for Economic and Policy Research, cautioned that we should “have no illusions,” that the Geithner plan is anything more than “a bailout for banks.” The simple answer to whether the plan will make life better at the bottom, he said, is no.

Baker’s comments are especially interesting in light of this development, via Naked Capitalism. It cites story from The New York Post reporting that Citigroup and Bank of America are using TARP money not to lend, but to buy up mortgage-backed assets in the secondary market, with the goal of gaming the new Geithner plan.

From Naked Capitalism:

The public has spent enough money on both banks so that in an economic sense, they ought to have been nationalized. Yet for reasons that are largely ideological and cosmetic (the banks’ debt would need to be consolidated were they owned 100% by Uncle Sam), they remain private. So not only are they seeking to extract far more than was intended even with the already generous subsidies embodied in this program, but this activity is also speculating with taxpayer money.

This sort of thing was predicted here and elsewhere. Welcome to yet more looting.

Here’s more, from The Post:

As Treasury Secretary Tim Geithner orchestrated a plan to help the nation’s largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post…

But the banks’ purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.

One Wall Street trader told The Post that what’s been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.

Well. So we all pay to help out banks, and this is the thanks we get. In the meantime, we pay no attention to the abandonment of some of America’s cities. I know the Obama administration doesn’t want to nationalize the banking system, but if this sort of thing keeps up, it may have no choice.

*TWI is on Twitter. Please follow us here.

Tom Mohamed | I understand and respect the confidence my clients put in me as a Colorado native and seasoned real estate professional, and I strive to meet their standards every day. For over 11 years, I have been a top producer. Prior to joining the real estate industry, I served in the US Army Infantry, including several tours in Iraq and Kuwait. These experiences taught me the discipline needed to create Colorado's most powerful real estate team.

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