There has been a lot of talk the last couple of days that the nation's largest banks may be "hesitant" to participate in the PPIP (not to be confused with TARP or TALF or TAF or CPFF..etc...etc although PPIP may be seen partially as a derivative of TARP and a purveyor of TALF but not the MMMF....) what were we talking about again? Oh yeah, bank participation in the PPIP.
Right now we have clarity around the purchase of "Legacy Loans". PPIP (a combined effort of Treasury, the Fed and FDIC) will invest equity dollar for dollar with investors and provide up to 84% non-recourse term financing at very low rates. That's a pretty darn attractive package for investors to participate and pay something substantially above what they would pay without government financing and loss protection. The PPIP essentially says, "We agree with you (banks and other anti mark-to-market warriors) that selling these "legacy" (notice how in a few months, as taxpayers got closer to owning them, the assets have gone from "toxic" to "troubled" to "legacy") at fire-sale prices is not a true test of market value. It is draconian. Therefore, we the government will provide a package of once in a lifetime incentives to inflate the value of the assets to the other side of the value spectrum......overvalued! We know that this is DEFINITELY NOT what the anti mark-to- market folks call "fair value". We know this because potential investors are already asking if the generous government non-recourse term funding conveys with the asset, should the investor wants to sell the asset. Which do you think is closer to "fair value". A group of unsubsidized bids for an asset, or a bid based on all kinds of free gifts from Uncle Sam ("Call now and for $19.99, not only will you get this pay-option ARM package but also "The Slap-Chop"..FREE!)? I vote the for the former.
Anyway, imagine the scenario where the government goes to say.....Bank of America and says,
"We've set the table for you to unload Countrywide's ghastly pay-option ARM and Alt-A book. We've got the price up from 35-00 to 75-00, hit the bid" And BofA says,
"Ummm, no we really don't want to sell there."
As an investor and a taxpayer, BofA and the rest of the banks that act in kind, will be speaking volumes about their capital position. If you have to put a gun to their heads to participate in a program that potentially is doubling the true market price of their loan book or securities book and getting them off their books forever and they say, "no", That means they are toast. Keep selling Billy Ray, keep selling.
right! stock goes up because Ken Lewis said he was going to give his TARP money back soon...right after he figures out a way for us to take out his residential, commmercial and consumer loan books out at par. And the geniuses at CNBC jump for joy. Jesus...I'm heading back to the John Daniels!
Posted by: eric | March 25, 2009 at 09:03 PM
B of Ass gets downgraded yet their stock rises 7%. Playing in a rigged game sucks.
Posted by: RPB | March 25, 2009 at 07:59 PM
Free slap-chop with every comment?
Did you see Maximus Blackwater tear Timmy a new one yesterday? Hilarious.
Posted by: _ | March 25, 2009 at 12:17 PM