It’S Time For The Banks To Face The Hangman

WSJ: “The high stakes plan to RESCUE BANKS FROM LOSSES on mortgage securities amounts to a big bet that a consortium of financial giants — AT THE PRODDING OF THE US GOVERNMENT — can PERSUADE INVESTORS TO POUR MORE MONEY INTO THE TROUBLED CREDIT MARKET.” That’s right. The Treasury Dept is directly involved in a scam that saves the banks while trying to “persuade” investors to “pour more money” into toxic mortgage-backed sludge. Treasury Department officials clearly have a different idea of “moral hazard” than the rest of us. The banks are presently holding hundreds of billions of dollars in mortgage-backed securities (MBSs) that they cannot sell — because there are no buyers — and don’t want to take back on their balance sheets because they’ll be forced to increase their capital reserves. So they’ve decided to launch a public relations campaign to promote some goofy sounding fund, called the “Master-Liquidity Enhancement Conduit” or M-LEC, which will allow the banks to place their unwanted bonds in Limbo until some future date when the public appetite for garbage improves. The WSJ does a good job of disguising the real motive behind the new “Super-Conduit” (a.k.a. the Bailout fund) but in the last paragraph, buried in Section C-3, they reveal the truth: “The goal is to reassure investors and make them more willing to buy its short-term debt.” So, the fund is really just a way of rearranging the marketplace until the next crop of gullible investors sprouts up and buys more mortgage-backed garbage. Bloomberg’s Mark Gilbert puts it like this: “It seems the way to reassure investors that it’s safe to buy the repackaged junk that has torpedoed credit markets in recent months is to repackage the least-junky bits of the junk into more palatable securities. The pyramid just grew another layer. . . I can’t decide whether the Treasury’s willingness to patronize such a misguided effort is evidence that the situation is more desperate than anyone thought, or a positive sign that financial markets will continue to evolve and innovate and might eventually wrestle the subprime demon to the ground.” Indeed. http://www.dissidentvoice.org/2007/10/its-time-for-the-banks-to-face-the-hangman/

Note: http://www.dissidentvoi...