Oh, this is cool...seems the shysters have just figured a new scam....bid high, and offload 3/4 of the risk onto the taxpayers for their overbids on the junk. Result... collect double for your junk.
It also explains the recent uptick in the notoriously shakey banking stocks..
Dig deep fellow taxpayers, they found a new way...
The article's short but sweet...
How the Scam Worksby, Michael Hudson
Newspaper reports seem surprised at how high banks are bidding for the junk *SPAM* that Treasury Secretary Geithner is now bidding for, having mobilized the FDIC and Fed to transfer yet more public funds to the banks. Bank stocks are soaring – thereby bidding up the Dow Jones Industrial Average, as if the “financial industry” really were part of the industrial economy.
Why are the very worst offenders – Bank of America (now owner of the Countrywide crooks) and Citibank the largest buyers? As the worst abusers and packagers of CDOs, shouldn’t they be in the best position to see how worthless their junk *SPAM* are?
That turns out to be the key! Obviously, the government has failed to protect itself – deliberately, intentionally failed to do so – in order to let the banks pull off the following scam.
Suppose a bank is sitting on a $10 million package of collateralized debt obligations (CDOs) that was put together by, say, Countrywide out of junk *SPAM*. Given the high proportion of fraud (and a recent Fitch study found that every package it examined was rife with financial fraud), this package may be worth at most only $2 million as defaults loom on Alt-A “liars’ loan” *SPAM* and subprime *SPAM* where the *SPAM* brokers also have lied in filling out the forms for hapless borrowers or witting operators taking out *SPAM* at far more than properties were worth and pocketing the excess.
The bank now offers $3 million to buy back this *SPAM*. What the hell,
the more they bid, the more they get from the government. [re: "our kids" -baddy's note]
So why not bid $5 million. (In practice, friendly banks may bid for each other’s junk CDOs.) The government – that is, the hapless FDIC – puts up 85 per cent of $5 million to buy this – namely, $4,250,000. The bank only needs to put up 15 per cent – namely, $750,000.
Here’s the rip-off as I see it. For an outlay of $750,000, the bank rids its books of a *SPAM* worth $2 million, for which it receives $4,250,000.
It gets twice as much as the junk is worth. [baddy's note: thanks janie and johnny...and kids, thank the man].
The more the banks holding junk *SPAM* pay for this toxic waste, the more the government will pay as part of its 85 per cent. So the strategy is to overpay, overpay, and overpay.
Paying 15 per cent is a small price to pay for getting the government to put in 85 per cent to take the most toxic waste off your books. The free market at work, financial style.
_________
Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached at
mh@michael-hudson.com "
END ARTICLE_____________________________
[baddy's note: in the late 90's we had $4 trillon in real estate, by 2005 it was $11 trillion in real estate. Most of the difference is bubble, fake wealth. Now the banks who made the most fake money during the bubble gotta have the taxpayers and their kids promise to make good for it....and in the article above, the shysters have even found a way to pyramid that. Good fucken government we have, actually shoveling the money to the shysters. Lesser fucken evil strikes again. Thanks Ronny, I'm glad you're happy with Obama's economic progress so far, thank the man] .
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